Washington Watch - June 18, 2015


Washington Watch - June 18, 2015

NASE Supports 529 College Savings Plans

NASE has announced its support of S.335 and H.R. 529, “To amend the Internal Revenue Code of 1986 to improve 529 plans,” both measures have been approved by the committees of jurisdiction in both the Senate (Finance) and House (Ways and Means).

The legislation would allow money from 529 college savings plans to be used to purchase a computer for the use by the student. Previously, the student could only use 529 money to purchase a computer if it was required by the college the student attends. Additionally, the legislation would allow a student to redeposit funds into the 529 account if they withdraw from college within 60 days and avoid a penalty and simplifies tax rules for distribution from multiple accounts.

The proposed changes to the 529 plans followed the President announcing that he was considering included in his FY 16 budget proposal the elimination of the tax-free treatment of 529 plans and taxing the plans earnings. Many argue that 529 plans are a key tool for middle-class families to save for college.

With strong bi-partisan, bi-cameral support, there is significant confidence that this bill will reach the President’s desk for signature.

Rep. Paulsen (R-MN) Re-Introduces Independent Contractor Legislation

H.R. 2483, Independent Contractor Tax Fairness and Simplification Act of 2015, creates a two-part test that establishes a formal definition of who is an independent contractor. The two criteria to determine status would be: “the individual either has investment in equipment or is subject to income fluctuation” and “the individual has control of time worked and performance of services.” The legislation would also clarify a safe harbor provision of the tax code which will also help define an independent contractor.

Additionally, the bill provides a new section to the Internal Revenue Code (Section 3511) which will assist businesses in making the proper classification. By adding this section, the goal of H.R.2483 is to assist business with compliance and proper classification of individuals as independent contractors. In 1978, Congress enacted Section 530 of the Revenue Act of 1978 to provide a safe-harbor for businesses with respect to the employment classification of individuals. This came as a result of inconsistent employment tax audits where the definition of "employee" was unclear. Congress affirmatively acted to make the Section 530 Safe Harbor permanent in 1982. However, this issue wasn't included in tax reform in 1986 and therefore was not codified as part of the Internal Revenue Code.

HRA Legislation Coming Soon...

The NASE has been working with Rep. Boustany (R-LA) and Rep. Thompson (D-CA) to re-introduce their legislation that would allow for health reimbursement arrangements (HRAs) in the marketplace.

Health Reimbursement Accounts have historically been a very powerful and effective tool for the small business community. HRA’s allows small business owners to do the right thing by helping provide financial assistance to their employees for qualified health care expenses. Established in 2002, Health Reimbursement Arrangements (HRAs) or Health Reimbursement Accounts are employer-funded, tax-advantaged employer health benefit plans that reimburse employees for out-of-pocket medical expenses and individual health insurance premiums. Health Reimbursement Accounts are funded solely by the employer, and cannot be funded through employee salary deductions.

In September 2013, through Technical Release No. 2013-03 the Departments of Treasury, Health and Human Services, and Labor, significantly restricted the use of HRAs by small employers, stipulating that an employer that offers an HRA to two or more employees, but does not offer a group health care plan, is not compliant with annual limit regulations and other health insurance market requirements and therefore, the business would be subject to significant penalty.

The NASE has been working with a broad and diverse coalition to encourage re-introduction and allow for this valuable tool to be accessible, once again, to America’s smallest businesses.

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Courtesy of NASE.org