Industry & Regulatory News

The IRS has posted Form 4972, Tax on Lump-Sum Distributions, for tax year 2022. The form is used to take advantage of special grandfathered taxation options for certain individuals who were born on or before January 1, 1936.

Effective September 21, 2022, the Federal prime interest rate increased from 5.50 percent to 6.25 percent. The prime interest rate is largely determined by the federal funds rate, as set by the Federal Reserve’s Federal Open Market Committee (FOMC).

The IRS has announced the postponement of certain tax-related deadlines for victims of hurricane Fiona in Puerto Rico. The tax relief postpones various tax filing deadlines that began September 17, 2022. Affected individuals and households who reside or have a business in in all 78 municipalities in Puerto Rico, as well as taxpayers with records located in the covered area that are needed to meet covered deadlines, qualify for relief.

Representative Kurt Schrader (D-OR) has introduced H.R. 8791, the Medicare Enrollment Protection Act of 2022 (the Act). The Act would amend the Social Security Act (SSA) to provide for a special enrollment period under Medicare, Part A (medical insurance) for individuals enrolled in COBRA continuation coverage. The Act would also prevent the increase of premiums in Medicare, Part A, and prevent a group health plan from considering an individual’s eligibility in Medicare, Part B to reduce or eliminate COBRA continuation coverage. In addition, if enacted, the Act would require the Departments of Labor and Health and Human Services to update COBRA continuation notices to include an explanation of Medicare secondary payer rules. 

The IRS has issued Notice 2022-40, 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 September 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 IRS has posted a draft 2023 Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions. New Form W-4R is to be used for nonperiodic and rollover distributions. Nonperiodic distributions are subject to a 10 percent withholding rate unless a different rate is elected. Eligible rollover distributions are subject to a mandatory 20 percent withholding rate on the taxable amount of the distribution unless a higher rate is elected. As previously announced, the IRS has postponed requirements to begin using these forms until January 1, 2023. Form W-4P can continue to be used until that time.

The Pension Benefit Guaranty Corporation (PBGC) has issued updated interest rate assumptions for benefit payments in terminating single-employer defined benefit (DB) pension plans. Specifically, these interest assumptions are for benefit payments with valuation dates in the fourth quarter of 2022 and apply to plans insured by PBGC.

The IRS has issued Revenue Ruling 2022-18, which contains the applicable federal rates (AFR) for October 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.”

On August 16, 2022, President Biden signed the Inflation Reduction Act. Employer-sponsored health plans are only indirectly impacted by the Act, but there are three main points to consider.

• Enhanced ACA premium tax credit
• Reduction on Prescription Drug Prices for Medicare
• Expanded Safe harbor for High Deductible Health Plans (HDHP)

There has been a focus on Health Savings Accounts (HSA) in recent years. This is a valuable vehicle that extends even beyond the "triple-tax-free" benefit that most employers are aware of. HSAs can reduce taxable income in retirement, which may affect Medicare premiums and the portion of Social Security benefits subject to federal income tax.