IRS

The IRS has issued Revenue Ruling 2022-22, which contains the applicable federal rates (AFR) for December 2022. These rates are used for such purposes as calculating distributions from retirement savings arrangements that meet the requirements for substantially equal periodic payments (a 10 percent early distribution penalty tax exception), also referred to as "72(t) payments."

The IRS has issued Notice 2022-59, providing the adjusted applicable dollar amount to be multiplied by the average number of covered lives for purposes of calculating the fee imposed by Internal Revenue Code Sections 4375 and 4376, for health insurance policy years and plan years that end on or after October 1, 2022, and before October 1, 2023.
 
The Affordable Care Act imposes a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans, to help fund the Patient-Centered Outcomes Research Institute (PCORI). This fee, also known as the PCORI fee, is calculated using the average number of lives covered under the policy or plan and the applicable dollar amount for that policy year or plan year. Notice 2022-04 provided that the adjusted applicable dollar amount for policy years and plan years that ended on or after October 1, 2021, and before October 1, 2022, is $2.79. Notice 2022-59 provides that the adjusted applicable dollar amount for policy years and plan years that end on or after October 1, 2022, and before October 1, 2023, is $3.00.
 
The PCORI fee is filed using Form 720. Although Form 720 is a quarterly return, PCORI Form 720 is filed annually only, by July 31. Plan sponsors should apply the applicable PCORI fees and file Form 720 corresponding to policy or plan years ending from January 1, 2022, to December 31, 2022, by July 31, 2023.

The White House announced President Joe Biden’s intent to nominate Danny Werfel as the next Commissioner of the Internal Revenue Service (IRS). The Commissioner is appointed by the President, by and with the advice and consent of the Senate, for a five-year term. If confirmed by the Senate, Mr. Werfel will replace Commissioner Charles Rettig, whose term expires November 12, 2022.

The IRS has issued Revenue Procedure 2022-40, which permits the submission of determination letter applications for 403(b) individually designed plans. Beginning June 1, 2023, plan sponsors that maintain 403(b) individually designed plans can submit a determination letter application for an initial plan determination, for a determination upon plan termination, for certain merged plans, or for other circumstances that will be announced later in the Internal Revenue Bulletin.

The date on which an application may be submitted for an initial plan determination is staggered over three dates (June 1, 2023, June 1, 2024, and June 1, 2025), depending on the last digit of the plan sponsor’s employer identification number.

Under the revised rules, the IRS generally will consider the qualification requirements and the 403(b) requirements that are in effect, or that have been included, on a required amendments list, on or before the last day of the second calendar year preceding the year in which the determination letter application is submitted. Additionally, a prior letter issued to a pre-approved plan adopter is not treated as an initial plan determination. For example, a determination letter issued to an adopter of a pre-approved retirement plan as a result of filing Form 5307, Application for Determination for Adopters of Modified Volume Submitter Plans, is no longer considered in determining whether a plan sponsor is eligible to submit that plan for a determination letter for an initial plan determination on Form 5300, Application for Determination for Employee Benefit Plan.

The IRS indicates that it will release additional procedural requirements and forms updates in the near future.

The IRS has issued its 2022-2023 Priority Guidance Plan, in which it describes guidance projects in the current fiscal year. Many items in the plan have appeared in prior years’ Priority Guidance Plans. A number of the guidance items deal with retirement savings arrangements, including the following, which have been included in previous plans.

• Regulations and guidance relating to the 10 percent early distribution tax
• Comprehensive IRA regulations
• Final regulations on the application of the normal retirement age regulations under Internal Revenue Code Section (IRC Sec.) 401(a) for governmental plans
• Regulations and guidance updating electronic delivery rules for providing applicable notices and making participant elections
• Final regulations regarding RMD requirements under the SECURE Act (proposed regulations were published in February 2022)
• Regulations relating to SECURE Act modifications to certain rules governing 401(k) plans
• Guidance on student loan payments and their interplay with qualified retirement plans and 403(b) plans
• Guidance on closed defined benefit plans and related matters
• Regulations on the exception to the unified plan rule for IRC Sec. 413(e) multiple employer plans (proposed regulations were issued in July 2019)
• Regulations on the definition of "governmental plan"
• Final regulations updating minimum-present-value requirements for defined benefit pension plans (proposed regulations were issued in November 2016)
• Regulations on mortality tables to determine present value for single-employer defined benefit pension plans
• Final regulations for withholding on distributions when payments are made to a non-U.S. address (proposed regulations were issued in May 2019)
• Regulations relating to the IRC Sec. 6057 reporting requirements (proposed regulations were issued in June 2012)
• Guidance updating electronic filing requirements for employee plans to reflect changes made by the Taxpayer First Act

 Two new noteworthy items include

• Regulations relating to the timing of the use or allocation of forfeitures in qualified retirement plans
• Regulations on the definition of church plan under IRC Sec. 414(e)

The IRS has issued Notice 2022-55, which contains the 2023 cost-of-living increases for qualified retirement plan dollar limitations on benefits and contributions under the Internal Revenue Code (IRC).

• Annual additions under IRC Section (Sec.) 415(c)(1)(A) for defined contribution plans: $66,000 ($61,000 for 2022)
• Annual additions under IRC Sec. 415(b)(1)(A) for defined benefit plans: $265,000 ($245,000 for 2022)
• Annual deferral limit (402(g) limit) for 401(k), 403(b), and 457(b) plans: $22,500 ($20,500 for 2022)
• Catch-up contributions to 401(k), 403(b), and 457(b) plans: $7,500 ($6,500 for 2022)
• Annual deferral limit for SIMPLE IRA and SIMPLE 401(k) plans: $15,500 ($14,000 for 2022)
• Catch-up contributions for SIMPLE IRA and SIMPLE 401(k) plans: $3,500 ($3,000 for 2022)
• IRC Sec. 401(a)(17) compensation cap: $330,000 ($305,000 for 2022)
• Highly compensated employee (HCE) definition income threshold: $150,000 ($135,000 for 2022)
• Top-heavy determination key employee definition income threshold: $215,000 ($200,000 for 2022)
• SEP plan employee income threshold for benefit eligibility: $750 ($650 in 2022)
• Taxable wage base (TWB), as noted in a prior announcement, increases to $160,200 for 2023 from $147,000; used in some integrated allocation formulas
• Qualifying longevity annuity contract (QLAC) amount excludible from required minimum distribution determinations: $155,000 ($145,000 for 2022)

IRA Contribution and Taxpayer Contribution Credit Amounts

Annual limitations for IRA contributions, deductibility for those who are active participants in employer plans, and those seeking an income tax credit for retirement saving contributions, have slightly different indices that are used for determining cost-of-living adjustments (COLAs) in employer plans. The limitations for 2023 are as follows.

• Traditional and Roth IRA contributions: $6,500 ($6,000 for 2022)
• Traditional and Roth IRA catch-up contributions: $1,000 (not subject to COLA increases)
• IRA deductibility phase-out for single taxpayers participating in employer plans rises to $73,000 - $83,000 (was $68,000 - $78,000)
• IRA deductibility phase-out for married joint filing taxpayers participating in employer plans rises to $116,000 - $136,000 (was $109,000 - $129,000)
• IRA deductibility phase-out for married with spouse an active participant in an employer plan rises to $218,000 - $228,000 (was $204,000 - $214,000)
• Roth IRA income limitations for determining maximum contribution for married joint filers: phase-out range rises to $218,000 - $228,000 (was $204,000 - $214,000)
• Roth IRA income limitation for determining maximum contribution for single filers and heads-of-households: phase-out range rises to $138,000 - $153,000 (was $129,000 - $144,000)

Taxpayers who make contributions to IRAs or deferral-type employer-sponsored retirement plans of up to $2,000 may be eligible for a special income tax credit (the “saver’s credit”) of 10, 20, or 50 percent of the amount contributed, depending on their income.

For joint filers, the maximum adjusted gross income level for

• the 50 percent tax credit is $43,000;
• the 20 percent tax credit is $47,500; and
• the 10 percent tax credit is $73,000.

For head of household filing status, the maximum adjusted gross income level for

• the 50 percent tax credit is $32,625;
• the 20 percent tax credit is $35,625; and
• the 10 percent tax credit is $54,750.

For all other filing statuses, the maximum adjusted gross income level for

• the 50 percent tax credit is $21,750;
• the 20 percent tax credit is $23,750; and
• the 10 percent tax credit is $36,500.

The IRS has issued Revenue Procedure 2022-38, which contains cost-of-living adjustments for taxable years beginning in 2023 for over 60 tax provisions, including the following health and welfare benefits.

Cafeteria Plans

The dollar limitation under Internal Revenue Code Section (IRC Sec.) 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $3,050, up from $2,850 for 2022. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, up from $570 for 2022.

Qualified Transportation Fringe Benefit

The monthly limitation under IRC Sec. 132(f)(2)(A) for the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $300, up from $280 for 2022. The monthly limitation under IRC Sec. 132(f)(2)(B) for the fringe benefit exclusion amount for qualified parting is $300, up from $280 for 2022.

Qualified Small Employer Health Reimbursement Arrangement

To qualify as a qualified small employer health reimbursement arrangement under IRC Sec. 9831(d), the arrangement must provide that the total amount of payments and reimbursements for any year cannot exceed $5,850 or $11,800 for family coverage, up from $5,450 or $11,050 for family coverage for 2022.

For additional information on the 2023 inflation-adjusted limits for other tax provisions, see Rev. Proc. 2022-38.

The IRS has issued Revenue Ruling 2022-20, which contains the applicable federal rates (AFR) for November 2022. These rates are used for such purposes as calculating distributions from retirement savings arrangements that meet the requirements for substantially equal periodic payments (a 10 percent early distribution penalty tax exception), also referred to as “72(t) payments.”

The IRS has issued Notice 2022-54, which contains updated guidance on factors used in certain defined benefit (DB) pension plan minimum funding and present value calculations. Updates include the corporate bond monthly yield curve, the corresponding spot segment rates for October used under Internal Revenue Code Section (IRC Sec.) 417(e)(3), and the 24-month average segment rates under IRC Sec. 430(h)(2). IRC Sec. 417 contains definitions and special rules for minimum survivor annuity requirements in DB plans. IRC Sec. 430 addresses minimum funding standards for single-employer DB plans.

The Federal Emergency Management Agency (FEMA) has issued a disaster declaration for severe storm and flooding in Illinois, beginning October 14, 2022.

Employers with qualified retirement plans may allow participants to take hardship distributions if

• they have incurred expenses and losses because of a FEMA-declared disaster, and
• their principal residence or place of employment at the time of the disaster is located in an area designated by FEMA as eligible for individual disaster assistance.

If the employer permits hardship distributions for expenses and losses related to a federally declared disaster, participants can check fema.gov/locations to determine if they are located in a disaster area designated for individual assistance.

The IRS may also issue relief related to this disaster for certain tax-related deadlines. Additional information can be found at irs.gov/newsroom/tax-relief-in-disaster-situations and will be announced here if such relief is granted.