By Trüpp’s Compliance Team

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, has a direct impact on how businesses handle both payroll and benefits administration. Here’s what you need to know.

Payroll

Federal student loan garnishments

The CARES Act suspended all involuntary collections related to federal student loans including wage garnishments through September 30, 2020. If an employer is processing wage garnishments on employee payrolls, these garnishments should be suspended immediately through the end of September.

NOTE: This is only applicable to student loans that are held by the federal government. Wage garnishments related to private (non-federal) student loans owned by banks, credit unions, schools, or other private entities, are not suspended.

Deferral of employer’s share of social security payroll taxes

Employers can defer payment of their share of the social security tax they are otherwise responsible for paying for the 2020 tax year. This is generally a 6.2% tax on employee wages or earned income. The deferred employment tax can be paid over the two following tax years, with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.

NOTE: An employer may not defer their share of social security taxes if they receive a loan under the Paycheck Protection Program.

Benefits Administration

Updates to what is considered qualified medical expenses

  • Over-the-counter (OTC) medications no longer need a prescription to be considered a reimbursable expense for pre-tax Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Arrangements (HRAs). This provision in the CARES Act reverses an Affordable Care Act (ACA) requirement that individuals had to obtain a prescription for OTC medicines in order to receive reimbursement under an HSA, FSA, or HRA.
  • The CARES Act considers feminine care products as qualified medical expenses eligible for reimbursement through HSA, FSA, and HRA programs. This is retroactive to January 1, 2020.

High Deductible Health Plan (HDHP) safe harbor

The CARES Act creates a temporary safe harbor for HDHPs to cover telehealth services free of charge to plan participants even before the participant’s deductible is met. This means that HDHPs can offer free telehealth services to plan participants, in an effort to prevent the healthcare system from being overwhelmed during this time, without jeopardizing their HDHP status.

This follows Internal Revenue Services (IRS) guidance in March 2020 that HDHPs can pay for COVID-19 related testing and treatment before plan deductibles have been met without losing their status.

These changes also mean that individuals with an HDHP that covers telehealth and COVID-19 related testing and treatment may continue to contribute to an HSA.

Special rules for qualified retirement plans

  • Individuals may be able to take a coronavirus-related distribution of up to $100,000 from their qualified retirement plan during the 2020 calendar year. The 10-percent tax penalty that generally applies to early withdrawals from a retirement account for individuals younger than 59.5 does not apply to coronavirus-related distributions under the CARES Act.
  • The CARES Act provides retirement plan sponsors with the flexibility to increase loan limits from $50,000 to $100,000 for the six-month period following the enactment of the law. The loans can also be capped at 100 percent of the vested account balance rather than 50 percent.
  • Qualified individuals who have outstanding loans with repayment due between March 27, 2020, to December 31, 2020, may delay the repayment for up to one year.
  • All required minimum distributions for qualified plans are waived for 2020.
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