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What Exactly Are ‘Super Commuters’ and Do They Get Any Tax Breaks?

February 29, 2012 – 2:28 pm | By Dan Macy | No comments yet

[caption id="attachment_3224" align="alignright" width="300" caption="Photo: Dan Macy"][/caption] Employers and “super commuters” — employees who live outside of the boundaries of the metropolitan area where they work — may wonder whether there are any tax breaks for someone who practically breaks their neck to get to their employer’s place of business. A recent study by the Rudin Center for Transportation at New York University said a special class of commuters, called “super commuters,” has become more common over the last 10 years. It calls super commuting a “growing trend.” But first, what is a super commuter? Super commuters might travel over 100 miles — say, from Boston to New York City — to get to their jobs, although not daily, using various modes of transportation. The study’s authors define a super commuter as someone who lives beyond the “census-defined combined statistical area” of their workplace, claiming that these workers make the trip once or twice per week. “Many workers are not required to appear in one office five days a week,” the study notes.  And where are these road warriors? Philadelphia — with nearly a 50-percent increase in super commuters since 2002, is one of the five fastest growing metropolitan areas for super commuting as of 2009, the study says, and Philadelphia already is among the five biggest super-commuting hubs. New York City is not among the five largest hubs, but it saw a 60-percent increase since 2002. Harris County, Texas, home to Houston, saw the biggest increase during that period — 98.3 percent.  “The international growth of broadband internet access, the development of home-based computer systems that rival those of the workplace, and the rise of mobile communications systems,” the study said, “have contributed to the emergence of the super commuter in the United States.  Tax Treatment  The tax Code is not kind to those who would like to write off their commuting expenses — the general rule is that commuting expenses are not deductible — but it might pay to look at a couple of federal tax court cases to get a feel for the complexity of the issue. The cases are Wheir v. Commissioner (T.C. Summ. Op. 2004-117), and Bogue v. Commissioner (T.C. Memo. 2011-164). You may also want to take a look at IRS Revenue Ruling (Rev. Rul.) 99-7. Both of these tax court rulings discuss Rev. Rul. 99-7.  “Transportation expenses incurred in going between a taxpayer’s residence and a work location generally are nondeductible commuting expenses,” wrote Jerry E. Holmes, a former IRS branch chief, now senior counsel at Morgan Lewis & Bockius, and a contributing editor of Thompson Publishing Group’s Employer’s Guide to Fringe Benefits. “There are, however, exceptions to the rule,” he wrote in a column. “The exceptions depend on whether the taxpayer (1) travels to temporary work locations outside the metropolitan area where the taxpayer lives and normally works, and (2) has one or more regular work locations away from the taxpayer’s residence and travels to a temporary work location in the same trade or business.”    Holmes was writing about a 2004 Tax Court ruling, Wheir v. Commissioner. Cory L. Wheir, who lived in Wisconsin Rapids, Wis., practically in the geographic center of the state, might have been called a super commuter at times, although he did not travel to the same place week after week as many of the super commuters the study described seem to be. He was a boilermaker who traveled to different job sites around the state. Wheir itemized deductions for mileage and living expenses incurred at work locations that were more than 35 miles away from home, but the IRS disallowed all of the claimed deductions on the ground that the expenses were “commuting expenses.”  Contact me dmacy@thompson.com and I will send you a copy of Holmes’ column, free of charge. If you want me to send it to you via regular mail, include your mailing address. Otherwise, you will receive a copy via e-mail.  Suffice it to say, the Wheir case revolved around the concept of a “metropolitan area,” complicated by the IRS’ view that Wisconsin Rapids was not part of one.  In Bogue v. Commissioner, the tax court judge rejected the concept of “metropolitan area” altogether. The taxpayer in Bogue was an independent contractor who worked with another individual renovating residential properties in the Philadelphia area.  What Is ‘Temporary?’  While these Tax Court rulings seem to get hung up on the geographic aspect of “metropolitan area,” Rev. Rul. 99-7 focuses more on the time element; specifically what “temporary” means. The revenue ruling says: “If employment at a work location is realistically expected to last (and does in fact last) for one year or less, the employment is temporary in the absence of facts and circumstances indicating otherwise.”   As you can see, the complications a super commuter faces aren’t limited to the vagaries of road, rail and air travel. If they want the best tax treatment, super commuters may have to travel through the jungle of the tax code, too.

As Servicemembers Return to the Workforce, EEOC Reminds Employers of Accommodation Responsibilities

February 29, 2012 – 2:26 pm | By Kathryn McGovern | No comments yet

As large numbers of veterans return from Iraq and Afghanistan, employers must remember that their disability accommodation responsibilities have increased in recent months, the Equal Employment Opportunity Commission said in releasing new guidance Tuesday. The commission updated its Veterans and the Americans with Disabilities Act (ADA): A Guide for Employers which explains how protections for veterans with service-connected disabilities differ under the ADA and the Uniformed Services Employment and Reemployment Rights Act. It also rereleased Understanding Your Employment Rights Under the Americans with Disabilities Act (ADA): A Guide for Veterans, a document that informs veterans with service-related disabilities of the protections to which they are entitled when they return to their former jobs or look for civilian jobs. Revised guidance was necessary because veterans with disabilities face special challenges in obtaining employment and large numbers of vets are now rejoining the civilian workforce, the EEOC explained. “Over the past decade three million veterans have returned from military service and another one million are expected to return to civilian life over the course of the next five years with the anticipated drawdown of operations in the Middle East,” the commission said. “We want veterans with disabilities to know that the EEOC has resources to assist them as they transition to, or move within the civilian workforce,” EEOC Chair Jacqueline A. Berrien said in a statement. Increasing numbers of veterans with disabilities combined with recent expansions to the ADA could equal greater accommodation responsibilities for employers, according to the EEOC. The ADA Amendments Act made “it easier for veterans with a wide range of impairments — including those that are often not well understood — such as traumatic brain injuries (TBI) and post-traumatic stress disorder (PTSD), to get needed reasonable accommodations that will enable them to work successfully,” the commission said. The new guidance assists employers in determining what accommodations may be necessary for applicants and employees with service-connected disabilities. For example, the documents explain when employers may need to provide modified equipment, permission to work from home or leave for recuperation.

DOL Proposal Helping Home Companions Would Hurt Seniors, Business, Franchisees Claim

February 28, 2012 – 6:41 pm | By Khristine Scholtz | No comments yet

The Labor Department underestimated the cost of its proposal extending minimum wage and overtime protections to in-home caregivers underestimates, according to an industry group representing  in-home care franchise owners.  If the proposal is implemented as planned,  the study concludes, both the quality of care provided to seniors and the financial health of the in-home care industry  will suffer. The report, Economic Impact of Eliminating the FLSA Exemption for Companionship Services, was released by the International Franchise Association in mid-February and is based on the responses of more than 3,000 franchisees who own companion care businesses.  Among the study’s key findings:

• Amount of Overtime Work: According to the IFA, the DOL’s analysis of the proposed rule changes understated the extent of overtime work among companion care workers, at least among those working for franchise-operated companion care businesses. The IFA found that average amount of overtime worked by franchise employees is three times greater than that estimated by the DOL. As a result, the cost of paying overtime to employees will be far greater than DOL claims. DOL’s estimates are based on the number of employees  currently working overtime. But if the proposal goes through, that number will increase significantly and so will employer costs, the study concludes.

• Consequential Costs: DOL also underestimates the management costs of adding staff and  the cost of paying workers to  travel between work sites. The DOL study acknowledges "additional managerial costs to agencies might occur as a result of changes in staffing" and adds that "the Department has no basis for estimating these costs, but believes they are relatively small.” IFA claims, however, that   the increased costs of hiring, training, and managing additional employees is a major concern for many employers, and may be a greater cost than the DOL anticipates. IFA also found that the DOL’s estimate for paying workers who travel would cover only 2.5 percent of all companion caregivers.

• Employment Changes: Businesses that responded to the IFA survey indicated a strong intention to avoid paying higher overtime costs. As a result, many employers would hire additional workers at a low wage, which would in turn decrease take-home pay for many current hourly employees.

• Quality of Care: About 75 percent of those surveyed said they expected to pass along increased costs to their customers, thereby raising the cost of caregiver services for seniors. These costs often are direct to seniors, since Medicare and Medicaid only cover health services—and not all caregiver services are health-related.

Indeed, those who use companion care services are motivated by a desire not to move from their homes into a nursing home or assisted living setting. However, with increased costs being passed on to caregiver clients, there are two possible results. First, for those who need care for a substantial portion of the time, an increase in the cost of companion care could push them in the direction of moving to an institution, which in many cases would mean personal financial resources are soon exhausted and the cost of care would shift to Medicaid. Second, for those who do not have a medical condition in need of close oversight, higher costs for companion care could lead to seeking a cheaper alternative (grey market) source of companion care. Others may respond to the increased cost by reducing or attempting to forego home care altogether. Another possible outcome is that some adult children of elderly parents might leave the workforce to care for a parent. Recently DOL extended the deadline for stakeholders to respond to its proposal by two weeks, to March 12. Comments may be submitted online at www.regulations.gov, or in the mail to Mary Ziegler, Director, Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington D.C. 20210. All submissions must include the agency name and Regulatory Information Number (RIN) 1235-AA05.

What to Expect When Health Plans Have to Cover the ‘Essentials’

February 28, 2012 – 5:33 pm | By Todd Leeuwenburgh | 1 comment

Health reform has been strongly urging plans to cover the essential health benefits (EHB) package, and that means there will have to be coverage in 10 categories of health benefits. The Centers for Medicare and Medicaid Services (CMS) gave examples of what to expect under the state-based approach to defining EHB by giving examples and interpretations in this document. CMS published a list of the three largest small-group coverage options in the state, which while not binding, not an endorsement and only for illustrative purposes … the list surely contains many of the companies that will be drawing up their states’ future EHB package. (The Essential Health Benefits Bulletin last Dec. 16 gave states flexibility in choosing which benefits models would be dubbed essential.” One option open to states is to determine it by choosing one from among the three largest small group products based on enrollment.) This set of Q & As from Feb. 18 says there can be only one essential benefit package, and states that vote to require coverage above the federal essential benefit must defray the additional cost. There are 10 mandatory categories, and the agencies predict many plans will have to create new coverage for: (1) pediatric oral services, (2) pediatric vision services and (3) habilitative services. To make the adjustment to covering 10 bases, an expansion of coverage can be compensated with an actuarially equivalent reduction in another benefit, the Feb. 18 Q & A describes. Plans can shift coverage of services among the several benefit categories required, so long as substitutions are actuarially equivalent, and do not violate Federal, or any other, statutory provisions:

For example, a plan could offer coverage consistent with a benchmark plan offering up to 20 covered physical therapy visits and 10 covered occupational therapy visits by replacing them with up to 10 covered physical therapy visits and up to 20 covered occupational therapy visits, assuming actuarial equivalence and the other criteria are met.

The 10 categories are: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision.

Individual Mandate Repeal May Result in Millions Fewer Insured but No Major Premium Hike, RAND finds

February 28, 2012 – 2:16 pm | By Todd Leeuwenburgh | No comments yet

Repealing the individual mandate would result in 12 million fewer adults with health insurance in 2014, but would bump up premiums for coverage only by 2.4 percent, researchers at the RAND Corporation say. No Death Spiral … Health insurance premiums would only be 2.4 percent higher than they would be with an individual mandate and its expanded risk pool. In other words, adding 12 million people to the pool of covered lives would not substantially lower insurance premiums, they say. "Our analysis suggests eliminating the individual mandate would sharply decrease coverage, but it would not send premiums into a 'death spiral' that would make health insurance unaffordable to those who do not qualify for government subsidies," the study's lead author said on the RAND web page. The 12 million estimate is in line with other studies on the impact of no individual mandate, particularly the Congressional Budget Office and the Urban Institute. … But Greater Government Spending Even without the mandate, RAND researchers expect enrollment to increase by 15 million as a result of health reform: the expansion of employer coverage and the availability of government-subsidized insurance. Government spending on subsidies would increase without an individual mandate, they add.

IRS to Hold Public Hearings on Governmental Plan Updates

February 28, 2012 – 9:51 am | By James Proescholdt | No comments yet

The IRS and the Department of Treasury is still seeking public input on future standards to determine whether a retirement plan is a governmental plan under Code Section 414(d). According to the IRS, more guidance is needed for Section 414(d), as the statutory rules for governmental plans differ from those for nongovernmental plans. Further, changes implemented by the Pension Protection Act of 2006 further altered some its statutory provisions for plans maintained by Indian tribal governments. According to the IRS, “given the diversity of the governmental community, the unique challenges presented (such as the existence of state law constraints), and the significant potential impact of the issue on retirement benefit design, we believe that the advance notice process will best ensure comprehensive guidance that is also practical and administrable.” The federal agency has posted two advanced notices for proposed rulemaking (ANPRM) on this matter. Both seek to further define “governmental plan,” one applicable to sponsors, participants and beneficiaries of federal government employee benefit plans (ANPRM REG-157714-06); and the other applicable to sponsors, participants and beneficiaries of employee benefit plans of Indian tribal governments (ANPRM REG-133223-08). The IRS previously issued a call for comments, but has now added public hearings for the two ANPRMs. The public hearing on governmental plans will be July 9, 2012, at 10 a.m. The public hearing on Indian tribal governmental plans will be July 10, 2012, at 10 a.m. Both hearings will be in the auditorium of the IRS building at 1111 Constitution Ave. NW, Washington, DC. As part of the public hearing process, the IRS has extended its deadline for comment on these matters. Interested parties may submit comments, requests to speak and outlines of topics to be discussed in a public hearing until June 18, 2012.

Federal Defense of Marriage Act Found Unconstitutional … Again

February 27, 2012 – 9:19 am | By John Iekel | 1 comment

Employers with employees who seek coverage under their benefit plans for their same-sex spouses would be justified in wondering exactly what they should do under federal law. The federal Defense of Marriage Act (DOMA) is still in force, but the Obama administration will not enforce or defend it. And now another court has found it unconstitutional. Judge Jeffrey White of the U.S.District Court for the Northern District of California on Feb. 22, 2012 held in Golinski v. Office of Personnel Management (No. C 10-00257 JSW) that the federal DOMA is unconstitutional. The case arose from the federal Office of Personnel Management’s denial of health benefits to Karen Golinski’s spouse, Amy Cunninghis. Golinksi is an employee of the 9th U.S. Circuit Court of Appeals; she sought health benefits coverage for Cunninghis, whom she married in California in 2008 when same-sex marriage was legal there, and was denied by the Administrative Office of the United States Courts (AO). She lodged a complaint under the 9th Circuit’s Employment Dispute Resolution Plan, and Chief Judge Alex Kozinski ordered that Golinski’s spouse receive benefits. The AO complied, but the federal Office of Personnel Management (OPM) instructed Golinski’s insurance carrier not to comply, under the federal DOMA’s definition of “spouse.” Kozinski issued another order on Nov. 19, 2009, asserting that he had the power to do so and ordering Golinski back pay and prospective relief. OPM refused to comply, and Golinski turned to the district court in January 2010. She amended her complaint in April 2011. The court heard arguments in December. The court found that the federal DOMA unconstitutionally discriminates against same-sex married couples. It also found  that DOMA, as applied to Ms. Golinski, violates her right to equal protection of the law under the Fifth Amendment. The court issued a permanent injunction enjoining OPM and those acting at their direction or on their behalf, from interfering with the enrollment of Cunninghis in Golinski’s health benefits plan. This is only the latest jurisprudence concerning the federal DOMA. The law has been at issue since 2010, when the U.S. District Court for the District of Massachusetts ruled in favor of the plaintiffs — and against the DOMA — in Gill v. Office of Personnel Management 699 F.Supp.2d 374 (D.Mass., 2010) and Massachusetts v. U.S. Department of Health and Human Services. 698 F.Supp.2d 234 (D.Mass. 2010). What This Means If the ruling in Golinski and the U.S. District Court for the District of Massachusetts stand and the federal DOMA is repealed, then federal laws governing employee benefit plans would likely require employers to treat employees’ same-sex and opposite-sex spouses equally for purposes of the benefits that the employer extends to spouses. But for now, the federal DOMA is in force until final rulings are issued. Employers would be wise to continue to abide by its terms. However, they should be aware that they could face litigation and that the federal government is not likely to be active in defending and applying the law.

EEOC: Asking Employees to Explain Medical Absences Violated ADA

February 24, 2012 – 1:30 pm | By Kathryn McGovern | No comments yet

Asking an employee to explain the nature of an illness that has kept them out of work violates the Americans with Disabilities Act, the Equal Employment Opportunity Commission is arguing in an ongoing California case. The commission sued retailer Dillard’s, which maintained a written policy requiring employees returning from sick leave to submit a doctor’s note stating “the nature of the absence.” This question amounted to an unlawful medical inquiry under the ADA, the commission alleged in its suit — and a federal district court agreed. The ADA prohibits employers from asking whether an employee is an individual with a disability or about the nature or severity of a disability, unless the questions are job-related and consistent with business necessity. “Dillard’s Attendance Policy, on its face, permitted supervisors to conduct impermissible disability-related inquiries under [the ADA],” the court found. “The Policy specifically required employees to disclose their underlying medical condition, and gave as examples migraines and high blood pressure. Yet these are conditions which may evidence a disability,” it said. Dillard’s could have required its employees to submit a doctor’s note specifying the date on which the employee was seen, stating that the absence from work was medically necessary, and stating the date on which such employee would be able to return to work, the court suggested. Instead, it “required the employee to submit a doctor’s note disclosing the underlying condition for which she was treated. Such Policy invites intrusive questioning into the employee’s medical condition, and tends to elicit information regarding an actual or perceived disability. Absent a showing that the Policy was job-related and consistent with business necessity, it violates [the ADA].” Dillard’s tried to show that the questions were job-related and consistent with business necessity, but the court was again unconvinced. There was no reason Dillard’s needed to know the nature of the employee’s medical condition, the court concluded. In denying Dillard’s request for summary judgment, the court has allowed the case to continue. (EEOC v. Dillard’s Inc., No. 08cv1780-IEG(PCL), 2012 WL 440887 (S.D. Cal. Feb. 9, 2012)) Circuit courts are split on the question of unlawful medical inquiries under the ADA. In 2003, the 2nd U.S. Circuit Court of Appeals determined that requesting a “general diagnosis” from employees on sick leave violated the ADA’s prohibition on asking questions that may tend to reveal a disability. (Conroy v. New York Department of Correctional Services, 333 F.3d 88 (2d Cir. 2003)) The 6th Circuit, however, recently determined that a policy requiring employees returning from sick leave to state the nature of their illness was not necessarily a question about whether the employee is disabled. (Lee v. City of Columbus, 636 F.3d 245 (6th Cir. 2011)) The Dillard’s case falls under the 9th Circuit’s jurisdiction, but the court has not yet addressed the issue.

So You Provide Meals for Your Employees. Is the Chef’s Salary Part of the ‘Direct Cost’?

February 24, 2012 – 9:05 am | By Dan Macy | No comments yet

[caption id="attachment_3167" align="alignleft" width="150" caption="Photo: Dan Macy"][/caption] One of the keys to this determination is comparing the cost of providing the meals to the revenue the operation brings in. There are “direct” and “indirect” costs, the latter of which do not go toward the calculation of the cost-to-revenue ratio that determines whether you are providing a de minimis benefit (and therefore one that does not have to be included in employees’ taxable wages). Treas. Reg. §1.132-7(b) provides that the “cost of labor for personnel whose services relating to the facility are performed primarily on the premises of the eating facility,” constitute a direct operating cost of the eating facility. Therefore, the salary for an on-site cook must be considered a direct cost and therefore must be accounted for in determining the revenue/direct operating cost ratio to determine whether the meal qualifies for the exclusion. The regulation provides:

Direct operating costs do not include the labor cost attributable to personnel whose services relating to the facility are not performed primarily on the premises of the eating facility. Thus, for example, the labor costs attributable to cooks, waiters and waitresses are included in direct operating costs, but the labor cost attributable to a manager of an eating facility whose services relating to the facility are not primarily performed on the premises of the eating facility is not included in the direct operating costs. If an employee performs services relating to the facility both on and off the premises of the eating facility, only the portion of the total labor cost of the employee relating to the facility that bears the same proportion to such total labor cost as time spent on the premises bears to total time spent performing services relating to the facility is included in direct operating costs. For example, assume that 60 percent of the services of a cook in the above example are not related to the eating facility. Only 40 percent of the total labor cost of the cook is includible in direct operating costs. For purposes of this section, labor costs include all compensation required to be reported on a Form W-2 for income tax purposes and related employment taxes paid by the employer.  In determining the direct operating costs of an eating facility, the employer may include as part of the facility, vending machines that are provided by the employer and located on the same premises as the other eating facilities operated by the employer.

Treas. Reg. §1.61-21(j) provides a valuation rule for valuing meals provided at an employer-operated eating facility for employees. CAUTION! Employers should be mindful that the IRS will apply a second prong of the test of whether a meal is being served at an “employer-operated eating facility” under Code Section 132. In a recent IRS Chief Counsel Memorandum, the IRS found that meals provided to airline crewmembers while on duty aboard an aircraft were not excluded from the employees’ gross income as a de minimis fringe benefit because they were not provided at “employer-provided eating facilities.” The meals were prepared by an independent third-party vendor at a facility on the ground. (Chief Counsel Memorandum 201151020, released Dec. 23, 2011) In the memorandum, the IRS noted,

the regulations contemplate that an eating facility is a location at which individuals are employed to prepare and/or serve food, stating to this end that components of the direct operating costs of an eating facility include “personnel whose services relating to the facility are performed on the premises of the eating facility (Treas. Reg. §1.132-7(b)(ii)) and ‘labor costs attributable to cooks, waiters and waitresses.” No guidance raises the inference that the exclusion of Section 132(e) extends to all meals provided on the employer’s business premises, irrespective of whether or not they are provided at an “eating facility.”

De Minimis Standard of Code Section 132 Code Section 132(e) provides that “the term ‘de minimis fringe’ includes the operation by an employer of any eating facility for employees if (1) such a facility is located on or near the employer’s business premises, and (2) revenue derived from such a facility normally equals or exceeds its direct operating costs.”

Same-sex Marriage Legislation Fails in New Jersey, but Survives in Maryland

February 23, 2012 – 5:10 pm | By John Iekel | No comments yet

Employers in New Jersey won’t have to adjust their plans, documents and policies to accommodate same-sex spouses any time soon. But Maryland may be a different story. The New Jersey Senate on Feb. 13, and the Assembly on Feb. 16, passed a bill that would have made same-sex marriage legal in the Garden State. But as he had promised, Gov. Chris Christie (R) vetoed it on Feb. 17. He also expressed support for a statewide voter referendum on the issue. The New Jersey legislature has until the end of the session in January 2014 to try to override Christie’s veto. Not far to the southwest, Maryland’s House of Delegates passed a bill to allow same-sex marriage in that state on the same day New Jersey’s measure died. Maryland’s State Senate Judicial Proceedings Committee approved it in a 7-4 vote on Feb. 21; the full Senate, which approved a similar measure on Feb. 24, 2011, will next take up this year’s bill. Gov. Martin O’Malley (D) supports same-sex marriage and has promised to sign the bill if it reaches his desk. But even if the Maryland bill is enacted, that may not settle the issue. Members of the House of Delegates promise to pursue a statewide voter referendum on the matter, as well as an amendment to the state constitution to define marriage as occurring between a man and a woman. What This Means for Employers Employers and plan administrators in New Jersey may have dodged the bullet — unless the legislature overrides Christie’s veto — but their Maryland counterparts may not. Employers and plan administrators in Maryland would be wise to watch developments in their state. If same-sex marriage becomes legal there, they will have to adjust their policies and plan documents accordingly. But they also will have to contend with the added complexity of federal law and regulation not recognizing same-sex marriages while their state law does. That will spell administrative challenges for them, to say the least.