Category: Administrative & Regulatory

Government Shutdown Now Over – But What About Sequestration?

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The government may be back up and running and funded under a short-term continuing resolution (CR), but the battle is far from over as Congress heads toward new deadlines to address budgetary matters.  There has been some confusion about what the current budget agreement means in terms of sequestration’s annual cuts to discretionary and mandatory programs instituted in 2012.  The law signed by the President to address the short-term continuing resolution and temporarily raise the debt ceiling does not provide federal agencies flexibility to administer new sequestration cuts at this time.  With the government spending levels remaining at FY 2013 levels for the duration of the CR, a new round of sequester cuts are not set to kick in until January 2014.

The law established a short-term budget conference committee, with a set deadline of Dec. 13, 2013 to outline recommended spending levels and program cuts.  Of note is that the committee deadline is set in advance of when the second year of the sequester will begin.  The deadline provides a window of opportunity for the new budget conferees to address how the sequester cuts are applied in FY 2014.   The conferees may contemplate making other adjustments to entitlement programs (Medicare and Medicaid) to address health care spending issues that will be negotiated during their deliberations.  In addition, Medicare payments to physicians are set to be cut by approximately 25 percent if Congress does not address the cut by December 31, 2013 and offset the cut with a payfor that would likely include cuts to other health care entities. Any of these negotiations and decisions, if ultimately accepted by Congress, could impact the size of the Medicare sequester cuts in January FY 2014.

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A Tip For Dealing with Automatic Gratuities in 2014

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A new Internal Revenue Service (“IRS“) rule, set to take effect in January 1, 2014, may eliminate a common practice in the restaurant industry. Often, an automatic gratuity, normally 18%, is added to the bill of large parties. Automatic gratuities were adopted by restaurant employers as a means for ensuring that servers do not get stiffed on expensive bills. Servers heavily rely on tips to supplement a salary that is often times lower than the federal minimum wage.

Traditionally, automatically-added gratuities have been classified as employee tips. As such, it is up to the employees to report the money as income. Starting in January, automatic gratuities will be categorized as “service charges” – making them regular wages and subject to payroll tax withholdings. Employers will have to track and report any automatic tips and will be required to include the “service charge” payments in employees’ W-2 wages. Further, employers will no longer be able to count these tips as a credit to reduce their minimum wage obligation. It is a lose-lose situation because servers will not see their automatic gratuity money until payday; making it more difficult to survive on a small salary.

Many major chains, like Olive Garden and Red Lobster, have eliminated automatic gratuities in response to the approaching deadline. For restaurants that opt to keep the automatic gratuity system, payroll accounting will become much more complicated. Tips from automatic gratuities will have to be factored into hourly pay rates, which means hourly rates could vary based on how many large parties are served in any given hour.

It would be wise for smaller restaurants to follow the chain restaurants’ lead by eliminating automatic gratuities altogether. Doing so will not only to lessen compliance requirements and tax burdens, but will also keep employees happy by ensuring that the tips they earn can immediately be pocketed.

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Government Shutdown Aftermath: Centers for Medicare & Medicaid Services (CMS) Under Pressure to Finalize Medicare Payment Rules

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  • Because of the prolonged government shutdown, the Centers for Medicare & Medicaid Services (CMS) may encounter delays in promulgating final payment rules that would otherwise be effective January 1, 2014.
  • It is reasonable to expect that CMS will miss the November 1, 2013 statutory deadline to publish final rules due to the staff shortage from the shutdown as well as the complexity of many significant rule changes that were proposed earlier this year.
  • There is precedent for delaying the effective date of an entire payment rule to allow for the proper 60-day notice and comment period, and there are cases where only portions of a rule that represent significant changes have been delayed.
  • Providers should assess whether CMS has taken the requisite time to properly account for stakeholder input through the comment process, and, if not, they should identify possible remedies.

Despite the short-term resolution to the government budget and debt-ceiling “crisis,” health care providers serving approximately 50 million Medicare beneficiaries may be waiting longer than usual this year to see what rates they will be paid in 2014 as a result of the government shutdown. Any delay is likely to cause great angst amongst providers, including physicians, hospitals, laboratories, and post-acute care facilities such as home health agencies, whose livelihood depends to a significant degree on the terms of annual reimbursement rules. These include the Physician Fee Schedule (PFS), the Hospital Outpatient Prospective Payment System (HOPPS), the Clinical Laboratory Fee Schedule (CLFS) and the Home Health Prospective Payment System (HHPPS).

As we noted prior to the government shutdown, over three quarters of the staff at CMS, the federal agency that administers the Medicare and Medicaid programs, are subject to a furlough. Most of the remaining staff are funded through non-annual discretionary appropriations, such as those who are working to implement the health care marketplaces under the Affordable Care Act. Therefore, even though the government reopened on October 17, 2013, the likelihood that CMS and other executive branch offices will finalize a series of important 2014 Medicare payment rules by the November 1st statutory deadline is becoming increasingly doubtful.

Much depends on the progress executive branch officials had already made on specific payment rules before the shutdown, on how fast staff are able to ramp up now that it is over (for the time being), and on competing priorities and deadlines for the Administration. Adding to the complexity of finalizing the payment rules this year, CMS had proposed numerous significant changes that could greatly impact reimbursement for calendar year 2014. Some of the most significant changes that were proposed in earlier rulemaking include:

Home Health Prospective Payment System
  • Responding to this proposed rule, industry stakeholders have been vocal in their concerns over portions of the proposed rule, which imposes a 14% reduction in Medicare home health funding by means of the maximum allowable rebasing adjustment of 3.5% each year from 2014 to 2017. In comments submitted to the agency, numerous stakeholders from the home health sector specified methodological flaws in the rule including that it was drafted using outdated data and the wrong base year; its impact was only analyzed for 2014 even though it applies to 2014-2017; and that it failed to include an adequate small business impact analysis per the Regulatory Flexibility Act – in fact, the Small Business Administration has expressed concern with the proposed HHPPS rule.
Hospital Outpatient Prospective Payment System
  • Collapsing Outpatient Visits: Collapsing 20 hospital clinic visits, Type A emergency department (ED) and Type B ED visit codes into 3 new codes – one for each type of visit.
  • Packaging: Identifying seven new categories of items and services whose costs will be packaged into payment for other services to which they are integral, ancillary or supportive, including, among others, radiation oncology, clinical diagnostic laboratory tests, and drugs, biologicals, and radiopharmaceuticals that function as supplies when used in a diagnostic test or procedure.
  • New Cost Centers: Using distinct cost-to-charge ratios (CCRs) for cardiac catheterizations, CT scans and MRIs to calculate OPPS payment weights – a change which represents significant cuts to CT and MRI reimbursement (approx. 26% and 11%, respectively).
Clinical Laboratory Fee Schedule
  • New National Limitation Amounts (NLAs) that will govern reimbursement for over 100 tier 1 molecular pathology codes, covering genetic testing ranging from cancers to rare diseases such as cystic fibrosis.
Physician Fee Schedule
  • Cuts in reimbursement for independent laboratories (-26%), radiation therapy centers (-13%), diagnostic testing facilities (-7%), radiation oncology (-5%), pathology (-5%), and interventional radiology (-4%), among others.
  • Capping for certain services in the PFS at the Outpatient Prospective Payment System (OPPS) or Ambulatory Surgical Center (ASC) rates for 2013.
  • Revisions to the Medicare Economic Index (MEI) that could cut reimbursement for diagnostic testing facilities, portable x-ray suppliers, and radiation therapy centers.

Legal Background for Payment Rule Timing

Various laws and executive orders govern when a Medicare payment rule must be posted for public comment, the required length of time of the notice and comment process, and when the final rule is to become effective.

The Administrative Procedure Act (APA) normally requires a 30-day delay in the effective date of a rule. Furthermore, the Congressional Review Act (CRA) generally requires an agency to delay the effective date of a major rule by 60 days in order to allow for congressional review of the agency action. Finally, in order to receive the proper stakeholder input, the Paperwork Reduction Act (PRA) requires CMS to provide a 60-day notice and comment period before promulgating a rule. Thus, CMS has a statutory deadline of November 1, 2013 if it wants to have an effective date of January 1, 2014 for a Medicare payment rule.

A comment period of at least 60 days is the default under Executive Order 12866, § 6(a)(1) (Sept. 30, 1993), Regulatory Planning and Review, as amended by Exec. Orders 13258 (Feb. 26, 2002) and 13422 (Jan. 18, 2007) (providing that “each agency should afford the public a meaningful opportunity to comment on any proposed regulation, which in most cases should include a comment period of not less than 60 days”).

If CMS finds good cause to waive the delay in the effective date of a final rule because the delay is unnecessary, impractical, or contrary to the public’s interest, or the statute permits waiving the delay, the final rule may become effective upon publication.

A History of Delays

CMS regularly misses the November 1 deadline, and in some cases the final rule is published in late November. In certain instances, CMS has delayed the effective date of a payment rule to account for the 60-day notice and comment period as well as the 30-day minimum effective date requirement. For example, for the CY 2003 PFS, CMS delayed the effective date from January 1 to March 3 after publishing the final rule on December 31, 2002. During the last government shutdown in 1995, CMS published the CY 1996 PFS on December 8th and retained an effective date of January 1, 1996 for the overall rule, but extended comments for new or revised payment codes until Feb 6th. The agency has used similar processes for other payment rules, such as the CY 2008 HOPPS rule that extended the comment period until the end of January for certain codes that were significantly changed.

Recent history seems to indicate that if the rules are delayed into December, there is a small, albeit infrequently used, possibility that rules/codes that are significantly changed may have a delayed comment and effective date. However, CMS has also ignored such deadlines in the past and, through a variety of methods, has been able to justify shorter notice and comment periods and effective dates less than 60 days from original publication.

Conclusion

It is reasonable to believe that due to the government shutdown and ensuing staff shortage, CMS could incur significant delays in publishing Medicare final payment rules, in some cases until well after the “standard” statutory November 1st deadline. While CMS has extended notice/comment periods and effective dates, it has done so rarely and only when delays relate to significant substantive changes made in the rules. Because a series of complex and economically significant changes to reimbursement rates and rules has been proposed for 2014, stakeholders should work to ensure that CMS provides adequate time for consideration of industry input via notice and comment in compliance with the spirit and letter of the law.

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California Enacts New Data Privacy Laws

Sheppard Mullin 2012

As part of a flurry of new privacy legislation, California Governor Jerry Brown signed two new data privacy bills into law on September 27, 2013: S.B. 46 amending California’s data security breach notification law and A.B. 370 regarding disclosure of “do not track” and other tracking practices in online privacy policies. Both laws will come into effect on January 1, 2014.

New Triggers for Data Security Breach Notification

California law already imposes a requirement to provide notice to affected customers of unauthorized access to, or disclosure of, personal information in certain circumstances. S.B. 46 adds to the current data security breach notification requirements a new category of data triggering these notification requirements: A user name or email address, in combination with a password or security question and answer that would permit access to an online account.

Where the information subject to a breach only falls under this new category of information, companies may provide a security breach notification in electronic or other form that directs affected customers to promptly change their passwords and security questions or answers, as applicable, or to take other steps appropriate to protect the affected online account and all other online accounts for which the customer uses the same user name or email address and password or security question or answer. In the case of login credentials for an email account provided by the company, the company must not send the security breach notification to the implicated email address, but needs to provide notice by one of the other methods currently provided for by California law, or by clear and conspicuous notice delivered to the affected user online when the user is connected to the online account from an IP address or online location from which the company knows the user ordinarily accesses the account.

Previously, breach notification in California was triggered only by the unauthorized acquisition of an individual’s first name or initial and last name in combination with one or more of the following data elements, when either the name or the data elements are unencrypted: social security number; driver’s license or state identification number; account, credit card or debit card number in combination with any required security or access codes; medical information; or health information. S.B. 46 not only expands the categories of information the disclosure of which may trigger the requirement for notification, it also—perhaps unintentionally—requires notification of unauthorized access to user credential information even if that information is encrypted. Thus, S.B. 46 significantly expands the circumstances in which notification may be required.

New Requirements for Disclosure of Tracking Practices

A.B. 370 amends the California Online Privacy Protection Act (CalOPPA) to require companies that collect personally identifiable information online to include information about how they respond to “do not track” signals, as well as other information about their collection and use of personally identifiable information. The newly required information includes:

  • How the company responds to “do not track” signals or other mechanisms that provide consumers the ability to exercise choice over the collection of personally identifiable information about their online activities over time and across third-party websites or online services, if the company collects such information; and
  • Whether third parties may collect personally identifiable information about a consumer’s online activities over time and across different websites when a consumer uses the company’s website.

These disclosures have to be included in a company’s privacy policy. In order to comply with the first requirement, companies may provide a clear and conspicuous hyperlink in their privacy policy to an online description of any program or protocol the company follows that offers the user that choice, including its effects.

It’s important to note that the application of CalOPPA is broad. It applies to any “operator of a commercial Web site or online service that collects personally identifiable information through the Internet about individual consumers residing in California who use or visit its commercial Web site or online service.” As it is difficult to do business online without attracting users in technologically sophisticated and demographically diverse California, these provisions will apply to most successful online businesses.

What to Do

In response to the passage of these new laws, companies should take the opportunity to examine their data privacy and security policies and practices to determine whether any updates are needed. Companies should review and, if necessary, revise their data security breach plans to account for the newly added triggering information as well as the new notification that may be used if that information is accessed. Companies who collect personally identifiable information online or through mobile applications should review their online tracking activities and their privacy policies to determine whether and what revisions are necessary. The California Attorney General interprets CalOPPA to apply to mobile applications that collect personally identifiable information, so companies that provide such mobile apps should remember to include those apps in their review and any update.

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SEC Scores in Accounting Fraud Suit Against BankAtlantic Corp. and Former CEO

Katten Muchin

On October 10, a Florida federal judge granted the Securities and Exchange Commission’s motions for partial summary judgment against BankAtlantic (now BBX Capital Corp.) and its former CEO and chairman Alan Levan, finding that the defendants’ public disclosures about their commercial real estate portfolio and their accounting treatment of certain portfolio loans violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The accounting fraud claim stems from BankAtlantic’s October 2007 attempt to sell many of the troubled loans. The company improperly recorded the loans on its books as “held-for-investment” instead of held-for-sale,” and failed to write them down. Management’s concern about the credit quality of the company’s commercial real estate land acquisition and development portfolio had been memorialized in a March 2007 email sent by the CEO in response to a cascade of borrowers requesting extensions, in which he stated, “[i]t’s pretty obvious that the music has stopped…I believe we are in for a long sustained problem in this sector.” The court found that the CEO made false statements in July 2007 during a second quarter earnings call, in which he acknowledged concerns about a subset of the portfolio but stated that, “there are no asset classes that we are concerned about in the portfolio as an asset class” and “the portfolio has always performed extremely well, continues to perform extremely well.” The company’s Forms 10-Q for the first and second quarters of 2007 did not acknowledge the trend of extensions granted and loans downgraded to non-passing status. The court also struck defendant’s affirmative defense that it relied on the professional advice of accountants, agreeing with the SEC’s assertion that the company did not completely disclose the problem to its accountants.

Securities and Exchange Commission v. BankAtlantic Bancorp Inc. et al., No. 0:12-cv-60082 (S.D.Fla. October 10, 2013).

 

Apocalypse Averted Again: Preliminary Thoughts on Welcoming Workers Back From the Government Shutdown

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As discussed a few weeks ago, the government shutdown had a broad impact on a number of workers in the public and private sectors. Now that the federal government has reopened, employers welcoming back furloughed employees should stand ready to answer worker questions and assuage employee concerns. Below we offer some preliminary thoughts for private employers managing this delicate process.

  • Back Pay and Unemployment. Employers should be prepared to answer employee questions about their eligibility for back pay and unemployment benefits for their time out of work. If employers provide back pay and employees have already received unemployment benefits, employers should notify employees that they may be required to pay back any unemployment benefits received.  Generally, employees can either collect unemployment from the respective state unemployment agencies for the time missed or they can accept the backpay if offered by the employer, but they cannot double collect.  At least three state unemployment agencies (PA, VA, MD) have explicitly stated that they will expect reimbursement if employers provide back pay.
  • Guard Against Liability. Efforts by employers to return workplaces to pre-shut down normalcy, including by providing back pay and other benefits to workers for the furloughed time, should be implemented in an even-handed, non-discriminatory manner to guard against liability. For example, if employers decide to bring employees back from a furlough on a rolling basis, they must be sure to have neutral business-justified criteria for who is brought back to the workplace and when they are brought back to the workplace.
  • Manage the Message. Hundreds of thousands of workers have been temporarily out of work for up to three weeks because of the government shutdown. Employers should emphasize that these temporary furloughs were the outgrowth of the Congressional stalemate. Accordingly the message to employees should be clear: extraordinary circumstances and not poor job performance, forced employers’ hands and required them to temporarily furlough employees.
  • Ease Their Pain. Employers need to be sensitive to the plight of their returning workers, many of whom have been suffering severe economic hardship during this time period. Economic esprit-de corps measures like jeans days or pizza lunches represent cost-effective ways to remind returning employees that they are highly-valued and welcomed back into the corporate fold.

When in doubt about prospective measures in the wake of the government shutdown, employers should contact employment counsel.

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Another Software Patent Horror Story Unmasked and Debunked: This One You Won’t Believe

Schwegman Lundberg Woessner

I have noticed lately that the anti-software patent PR machine is trying pretty hard to find examples of start-ups “crushed” by software patents.

Ok, so here is the latest laugher example they came up with:  FindTheBest.com, a company that is nearing its fifth birthday and handling 20 million visitors a month, is supposedly a “start-up” being unfairly targeted by a patent troll  (see http://www.latimes.com/business/la-fi-hiltzik-20131011,0,704586.column).

Jack-o'-lantern and pumpkins

As far as I can tell from their web site, FindTheBest is doing a land-office business, and probably has a valuation better than 95% of all software companies.  For starters, in my opinion, pretty much every software entrepreneur on the planet would gladly endure a challenge from a troll if they could get 20 million visitors a month in web traffic.  But that is just the beginning of the irony of this anti-patent sob story.   The leader of this particular start-up at present, Kevin O’Connor, sold a previous start-up he co-founded, Doubleclick, to Google for $3.1 billion in 2008.  Doubleclick, and indeed O’Connor himself, named as an inventor on at least four software patents acquired by Google (http://www.patentbuddy.com/Inventor/O%27Connor-Kevin-Joseph/5640460#More), had aggressively filed patents to protect its innovations (http://www.seobythesea.com/2007/04/doubleclick-google-looking-at-some-of…).   Those patents weighed heavily in the valuation of Doubleclick when it was sold to Google.  So, is it not a little ironic that FindTheBest.com would be outraged about software patents impeding their progress, after one of their founders profited mightily from the patent filings of his own prior company?  Well, I sure think many would think so.  This is not to say I don’t have nothing but the utmost admiration for Mr. O’Connor’s entrepreneurial talents.  And, its not to say that he may very well be legitimately frustrated to have to deal with a patent infringement issue.  But, these are the problems that go with the kind of success few entrepreneurs are ever lucky enough to achieve, not the problems of the vast majority of true start-ups still trying to find enough customers to survive another round of financing.

Here is another injustice of this story: Eileen C. Shapiro, the inventor of the so-called troll patent in question, is no slacker. She has an undergraduate degree from Brown University and an MBA from Harvard University.  According to her LinkedIn profile, she holds 14 patents and has been actively involved in many start-ups.  Is this really an example of some undeserving “troll” inventor with no right to exclusive rights in her inventions?  Is it so improbable that someone that likely has a genius level IQ would be awarded a valuable patent for her ideas, which mind you appear to have come to her a good while ago before the site FindTheBest.com was even a notion in its founder’s imagination.

So, is this really an example of a “start-up” getting drummed out of business by underserving troll?  The Electronic Frontier Foundation would like you to believe that — “Trolls do a really good job of targeting start-ups at their most vulnerable moments,” says Julie Samuels, a staff attorney at the Electronic Frontier Foundation and holder of its Mark Cuban Chair to Eliminate Stupid Patents.”  (LA Times, October 13, 2013).   Or, is this an example of a large, successful, well established and fast growing company nearing its fifth birthday, that some time ago left “start-up” mode behind?  Wouldn’t most five year old companies be embarrassed to say they were still “starting up”?  This is a label only those desperately in need of contriving the facts to suit their hypothesis would dare to come up.

Moreover, is this not a great example of how Mr. O’Conner’s patents helped him get a fair return for the sale of Doubleclick to Google, so he could reinvest some of his gains in FindTheBest.com, rather than an example of how Ms. Shapiro’s innovations are a poster child for patents underserving of a reward.

If this is the best software patent horror story the anti-patent forces can come up with this Halloween, they should give it a rest for a while.

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IRS Guidance on Employment and Income Tax Refunds on Same-Sex Spouse Benefits

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Employers extending benefit coverage to employees’ same-sex spouses and partners should review their payroll procedures to ensure that such coverages are properly taxed for federal income and FICA tax purposes.  Employers also should review the options in Notice 2013-61 and consider filing claims for refunds or adjustments of FICA overpayments.

Employers that provided health and other welfare plan benefits to employees’ same-sex spouses prior to the Supreme Court of the United States’ June 2013 ruling in U.S. v. Windsor may be interested in filing claims for refunds or adjustments of overpayments in federal employment taxes on such benefits.  To reduce some of the administrative complexity of filing such claims, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) recently issued Notice 2013-61, which outlines several optional procedures that employers can use for overpayments in 2013 and prior years.

String of pearls and champagne glass with wedding rings

In Windsor, the Supreme Court ruled Section 3 of the Defense of Marriage Act (DOMA) unconstitutional.  Section 3 of DOMA had provided that, for purposes of all federal laws, the word “marriage” means “only a legal union between one man and one woman as husband and wife,” and the word “spouse” refers “only to a person of the opposite-sex who is a husband or wife.”

Federal Taxation of Same-Sex Spouse Benefits

The Windsor ruling thus extends favorable federal tax treatment of spousal benefit coverage to same-sex spouses.  The IRS issued guidance in July clarifying that this tax treatment would extend to all same-sex couples legally married in any jurisdiction with laws authorizing same-sex marriage, regardless of whether the couple resides in a state where same-sex marriage is recognized.  This IRS approach recognizing same-sex marriages based on the “state of celebration” took effect September 16, 2013.

Prior to the ruling, an employer that provided coverage such as medical, dental or vision to an employee’s same-sex spouse was required to impute the fair market value of the coverage as income to the employee that was subject to federal income tax (unless the same-sex spouse qualified as the employee’s “dependent” as defined by the Internal Revenue Code).  The employer was required to withhold federal payroll taxes from the imputed amount, including federal income and the employee’s Social Security and Medicare (collectively FICA) taxes.  In addition, employers paid their own share of FICA taxes on the imputed amount, as well as unemployment (FUTA).

As a result of the ruling, an employee enrolling a same-sex spouse for benefit coverage under an employer-sponsored health plan no longer has imputed income for federal income tax purposes; may pay for the spouse’s coverage using pre-tax contributions under cafeteria plans; and may take tax-free reimbursements from flexible spending accounts (FSAs), health reimbursement accounts (HRAs) and health savings accounts (HSAs) to pay for the same-sex spouse’s qualifying medical expenses.  This same favorable federal tax treatment does not extend to employer-provided benefits for an unmarried same-sex partner, unless the same-sex partner qualifies as the employee’s dependent.

Overpayments of Employment Taxes in 2013

Employers that overpaid both federal income and FICA tax in 2013 as a result of income imputed to employees for benefit coverage for a same-sex spouse may use the following optional administrative procedures for the year:

  • Employers may use the fourth quarter 2013 Form 941 (Employer’s Quarterly Federal Tax Return) to correct overpayments of employment taxes for the first three quarters of 2013.  This option is available only if employees have been repaid or reimbursed for over-collection of FICA and federal income taxes by December 31, 2013.

Alternatively, employers may follow regular IRS procedures to correct an overpayment in FICA taxes by filing a separate Form 941-X for each quarter in 2013.  Notice 2013-61 provides detailed instructions for each of the alternative options, including how to complete the Form 941, as well as Form 941-X, which requires “WINDSOR” in dark, bold letters across the top margin of page one.

Overpayments of FICA Taxes in Prior Years

Employers that overpaid FICA taxes in prior years as a result of imputed income for same-sex spousal benefit coverage may make a claim or adjustment for all four calendar quarters of a calendar year on one Form 941-X filed for the fourth quarter of such year if the period of limitations on such refunds has not expired and, in the case of adjustments, the period of limitations will not expire within 90 days of filing the adjusted return.  Alternatively, employers may use regular procedures to make such claims or adjustments.  The regular procedures require filing a Form 941-X for each calendar quarter for which a refund claim or adjustment is made.  Note that under the alternative procedure provided by Notice 2013-61 or under the regular procedure, filing of a Form 941-X requires either employee consents, or repayment or reimbursements, as well as amended Form W-2s to reflect the correct amount of taxable wages.

Employee Overpayments of Federal Income Taxes

Employers who provided benefits to employees’ same-sex spouses in 2013 may adjust the amount of reported federally taxable income on each employee’s Form W-2 (Wage and Tax Statement) to exclude any income imputed on the fair market value of the coverage and to permit the employee to pay for the coverage on a pre-tax basis.

Employees who overpaid federal income taxes in prior years as a result of same-sex spouse benefit coverage may claim a refund by filing an amended federal tax return for any open tax year.  Refunds are available for overpayments resulting from income imputed on the fair market value of the coverage and from premiums paid on an after-tax basis for the coverage.  An amended tax return generally may be filed from the later of three years from the date the return was filed or two years from the date the tax was paid.

Employers that file Form 941-X are required to file Form W-2c (Corrected Wage and Tax Statement) to show the correct—in this case reduced—wages.  Employers that do not file Form 941-X may want to begin preparing for employee requests for a Form W-2c for each open tax year in which benefit coverage was offered to employees’ same-sex spouses.

Next Steps

Employers extending benefit coverage to employees’ same-sex spouses and partners should carefully review their payroll processes and procedures to ensure that such coverages are now properly taxed for federal income and FICA tax purposes.  In addition, employers should review the options in Notice 2013-61, and consider filing claims for refunds or adjustments of overpayments of FICA taxes for any prior open tax years and issuing Form W-2c to allow employees to claim refunds of federal income tax.  Most importantly, by acting promptly, employers can correct the 2013 over-withholdings for both FICA and federal income tax and overpayment of the employer portion of FICA tax, without the necessity and burden of filing a Form 941-X.

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Dewonkify – Hastert Rule

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Term: Hastert Rule

Definition: An informal governing principle used by Republican Speakers of the House of Representatives since the 1990s to only allow bills to come up for a vote on the House floor that have support from the “the majority of the majority” of Members of Congress. In practice, if Speaker Boehner follows the Hastert Rule it would mean that he would not bring legislation for a vote unless it would have the support of the majority of the current House majority party, the Republicans.

Used In a Sentence:  “That’s what the Hastert rule is really about, Feehery, now a lobbyist and consultant, told me recently — political survival. It’s just common sense: The speaker is elected by a majority vote of his caucus; if he does things a majority of his caucus doesn’t like, they can vote him out.” From “Even the Aide Who Coined the Hastert Rule Says the Hastert Rule Isn’t Working,” by Molly Ball, The Atlantic, July 21, 2013

History: According to John Feehery, the staffer who coined the phrase, former Speaker Dennis Hastert is often credited with inventing the rule but Newt Gingrich, who preceded him as Speaker, followed it as well.

Why It’s Relevant: Following the Hastert Rule makes it is very difficult to have legislative successes if the majority caucus is divided. Speaker Boehner has invoked the Hastert Rule during the recent fiscal debates leading up to the current government shutdown.  Some suggest that the House of Representatives could pass clean (no added legislative language or provisions) legislation to reopen the government or raise the debt ceiling because most of the Democrats and 20 or so of the Republicans would vote for it, giving it enough votes to pass.  However, bringing that legislation up would violate the Hastert Rule since at this point it would not have the support of the majority of the Republicans (the majority party).

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Federal Energy Regulatory Commission (FERC) Delays Electric Quarterly Reports (EQRs) Filing Deadline

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On October 10, after many weeks of speculation, the Commission issued an order extending the filing deadline of the 2013 Q3 Electric Quarterly Reports (EQRs) filings from October 31 to “a date to be determined.”  This extension follows a series of similar delays and significant technical issues associated with the revised EQR filing requirements put in place by Order Nos. 768, 768-A, and 770.

As part of the preparation for the new filing requirements, FERC had made available to the public an EQR Sandbox Electronic Test Site (Sandbox) that was meant to be a testing platform to help users acclimate to and prepare for the new filing requirements and system.  The Sandbox was made available on July 12 and was meant to be available until September 1.  Following the testing period, the Sandbox would be taken offline to prepare it to go live well in advance of the original October 31 filing deadline.  Commission Staff encouraged filers to utilize the Sandbox “as often as possible” and to contact Staff with questions and concerns during the planned six week testing period.  From the beginning of the testing period, there were significant and wide-ranging problems encountered with the Sandbox.  After vocal feedback from industry, the Commission extended the Sandbox availability from September 1 to September 15.  It was hoped that this extension would allow ample time to address and resolve the problems and allow filers additional time to test a functioning Sandbox.  Unfortunately, the issues were not resolved, and on September 13 the Commission extended the availability of the Sandbox “until further notice.”

Since the indefinite extension of the Sandbox availability, filers have continued to experience difficulties.  As a result of these ongoing issues, the Commission has implemented a similar indefinite extension of the filing deadline.

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