ESOPs, Benefits & Compensation Q4 2024 Client Update
By ESOPs, Benefits & Compensation
We hope you enjoyed the holidays and are settling back in refreshed and recharged for 2025. With a new year comes new rules; please find our thoughts on some of them below.
Year-End ACA Reporting and Penalty Relief
While dropping most other year-end benefits legislation, Congress did hand out a few Christmas gifts to employers subject to the Affordable Care Act.
First, employers are no longer required to send every employee a Form 1095-C reporting on the employee’s offer of group health coverage. Previously, employers were required to send out a Form 1095-C to all full-time employees every year. Under the new legislation—which takes effect for the 2024 round of Forms about to be distributed—employers are no longer required to send one to every employee. Instead, employers now have the option to notify employees that they may request a copy if they would like one. Or, if they would like, employers may continue to send one to each employee every year.
If the employer chooses not to send Form 1095-Cs and an employee does request a copy, the employer must provide it to the employee by the later of January 31 of the following year or thirty days after the employee’s request. For example, if an employee requests a copy of his or her 2025 Form 1095-C in November of 2025, the employer may provide it by January 31, 2026. But if the employee requests a copy of his or her 2025 Form 1095-C on February 15, 2026, the employer must provide it by March 17, 2026.
Note that this change does not eliminate the employer’s filing obligations with the IRS; all Form 1095-Cs must still be filed with the IRS.
Second, Congress mandated that the IRS allow employers at least 90 days to respond to Letter 226J, which is used to notify employers that the IRS intends to penalize them under the ACA. Currently, the IRS requires a response within 30 days of the date of the letter, which often does not arrive for a week or more after being dated and sent, leaving employers a few weeks at best to collect information and respond. This should give employers more breathing room to coordinate a full response without having to rely on an informal extension request.
Finally, the legislation puts in place a six-year statute of limitations for the IRS to assess ACA penalties. Previously, there was not a clear statute of limitations, and the IRS’s position was that none existed, meaning employers could be penalized going back as many years as the IRS chose to pursue. This fix brings the ACA more in line with other tax penalties that allow the IRS a certain amount of time to act.
COVID-Era Teleheath Relief Expiring
Unlike the ACA, the extension of COVID-era telehealth relief was not so lucky. Although it was included in several draft bills, ultimately Congress did not extend the period in which high-deductible health plans could provide first-dollar telehealth coverage without the employee losing eligibility for a health savings account (HSA).
Generally speaking, only employees with high-deductible health insurance coverage are eligible to contribute to an HSA. And, with a few exceptions, those employees cannot have any other health insurance coverage that pays for medical expenses before the employee has reached his or her high deductible. This means HSA-eligible employees cannot be provided telehealth at no cost prior to reaching their deductible. However, an exception was allowed during COVID, which was extended a few times, that let high-deductible plans cover telehealth services before the employee’s deductible was met.
Because that provision was not extended, it expired December 31, 2024. As a result, high deductible health plans can no longer provide pre-deductible telehealth services without jeopardizing their participants’ ability to contribute to an HSA. Moving forward, participants will need to pay for telehealth (like other pre-deductible claims) or telehealth access will need to be limited until the participant’s deductible is met. (Note that one of the exceptions to having other coverage is preventive services, which are still fine even if delivered via telehealth before an employee’s deductible is met.)
There is a push to make this provision permanent but, at the moment, employers should ensure that they take the expiration into account as they implement their 2025 group health plans.
Details of New 2025 Increased Catch-Up Limit
As many will recall, the SECURE 2.0 Act increased catch-up contribution limits for plan participants within a certain age range. We’ve fielded a number of questions on how this rule applies, and thought an overview would be helpful as the new limits take effect:
- This new feature is optional for plans to allow. An employer can choose not to allow the higher catch-up limits in its plan, in which case employees would not be able to use this feature.
- The higher limits are first allowed in 2025.
- The higher limits are allowed only for participants who will reach age 60, 61, 62, or 63 (but not any other age) by the end of the year. For example, a participant who will turn 60 on December 1, 2025, may use the higher catch-up limit during 2025, even during the portion of the year before December 1 when they are still 59. However, a participant who will turn 64 on December 1, 2025, may not use the higher catch-up limit at all during 2025, even during the portion of the year before December 1 when they are still 63. In other words, eligibility for the entire year is based on the participant’s age at the end of the year.
- Related to the point above, the higher catch-up limits are not prorated during the year the participant turns age 60 or 63.
- The higher catch-up limit for a given year is the greater of (i) $10,000, or (ii) 150% of the regular age 50 catch-up limit. For 2025, the regular age 50 catch-up limit is $7,500, making 150% of the regular limit $11,250. Because that’s greater than $10,000, the increased catch-up limit for 2025 is $11,250.
- Employees outside this age range may still use the regular age 50 catch-up contribution limits.
Other Items to Watch in the New Year
The upcoming year promises to be an interesting one. Many ESOP stakeholders are still waiting for the DOL’s long-promised rules on determining “adequate consideration” of employer securities in ESOP transactions, which should be finalized and released in 2025. And President Trump will be inaugurated again just in time to see major provisions of his 2017 tax bill expire. Whether those provisions—which impact the qualified small business income deduction, income tax rates, and various other issues—expire or are extended, made permanent, or further amended, there is sure to be tax news in 2025. Other items on Federal agencies’ regulatory agendas will likely also expire without being finalized. The new administration probably will also take different approaches in—or drop altogether—litigation challenging recently issued federal regulations, including the Department of Labor’s retirement advice fiduciary rule that is under appeal after being struck down earlier this year.
Stay tuned!
The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2025.