Tax Consequences of Premium Conversion Refunds State employees enjoy the tax savings of the premium conversion (pre-tax premium) program authorized by section 125 of the Internal Revenue Code. Under IRS rules, the premium actually constitutes a salary reduction, with the state providing the healthcare benefit. Consequently, when employees participating in premium conversion receive refunds in a calendar year subsequent to the year the premium was originally deducted, a corrected W-2 (Form W2-C) may be required. Premium Refund Guidelines When healthcare deductions (premiums) are withheld in error, the CIPPS deduction refund process should be used to refund the employee deduction, premium reward and the agency expenditures associated with the premium. The refund must be processed along with the employee’s regular payment. Process the refund on HTODA, “Employee Deduction Refund/Adjustment.” Reference CAPP – Cardinal Topic 50605, Tax and Deduction Adjustments, for instructions. Special Considerations Special care should be taken when processing premium conversion deduction refunds. You may need to collect any appropriate taxes due directly from the employee when premium conversion deduction refunds are processed for employees who are no longer receiving regular pay. Upon receipt of the delinquent taxes, the employee’s masterfile will have to be updated and taxes deposited. Refer to CAPP – Cardinal Topics 50605, Tax and Deduction Overrides, and 20319, Electronic Federal Tax Payments System (EFTPS), for procedures. Continued on next page BES/CIPPS Processing Features Benefits Eligibility System BES is the official healthcare enrollment system of the Commonwealth and the “driver” of health insurance transactions created in CIPPS. To emphasize the importance of this point, the employee benefits screen in CIPPS (HMCU1) displays the message, “Enter Health Transactions in BES.” This informational message remains on the screen as a reminder and does not clear after the Enter key is depressed.
Provider Name Active Provider Code Involuntary Separation Provider Code Project Code Kaiser Permanente HMO 006 056 93003 COVA Care Basic 042 092 93002 COVA Care Out-of-Network 043 093 93002 COVA Care Expanded Dental 044 094 93002 COVA Care Out-of-Network and Expanded Dental 045 095 93002 COVA Care Vision, Hearing and Expanded Dental 046 096 93002 COVA Care Full 047 097 93002 COVA Care High Deductible 050 090 93005 TRICARE Voluntary Supplement 110 160 93038 COVA HealthAware Basic 101 151 93033 COVA HealthAware Expanded Dental and Vision 102 152 93033 COVA HealthAware Expanded Dental 103 153 93033 COVA Care High Deductible Expanded Dental 105 155 93005 Enter the membership type code. Status Membership Type Active/ LWOP S – Single O – Single – Part time F – Family M – Family – Part time D – Employee plus one dependent T – Employee plus one dependent – Part time W – Employee waived coverage Ineligible/Terminated E – Employee not eligible for coverage Leave Without Pay (LWOP) LWOP Premium Payment DHRM Policy requires employees on LWOP due to medical leave, agency convenience, or layoffs to continue to pay the employee share. The agency must pay the agency share of the healthcare premium. For other reasons (e.g., personal, education) the employee must pay the entire healthcare premium.
A difference is detected, An error code identifies the type of exception: 1 – Same plan code, collections bill amount. 2 – Different plan code, collections = bill amount. 3 – Different plan code, collections bill amount. 4 – On BES, not on CIPPS. 5 – On CIPPS, not on BES. A payroll record is identified for which there is not a matching BES record within the same provider code, The exception will print on the U107 with a group number of ‘blank’. U108, Monthly Healthcare Reconciliation Summary Summarizes the total healthcare costs in BES, the premiums collected in CIPPS, the Credit Due Agency, and the Charge to Agency (Automated Healthcare ATA). A separate report is generated for each number combination. Premiums Due are itemized by plan code. U110, BES Premium Listing Lists the eligibility information in BES by provider and group number. This report is a BES bill that supports the BES premiums due amount on the U108 Summary. It may be used to determine an employee’s coverage in BES. Do not submit the U110 to DOA with the Healthcare Reconciliation unless it is required to document an exception. U111, Invalid Healthcare Plan/Provider Codes Lists all employees with invalid plan or provider codes in BES or CIPPS. Transactions on this report have not been included in the automated reconciliation. Therefore, agencies must review each exception listed and take corrective action. Reconciliation Procedures Healthcare Adjustments Worksheet Use this worksheet to document any adjustments required to change the amounts identified in the automated reconciliation. Examples include retroactive adjustments (which require an additional premium due or a reduction in premiums due) and coverage termination (which require a reduction in premiums due). Obtain copies and/or Excel spreadsheets of the Adjustments Worksheet from the DOA website (www.doa.virginia.gov).
References CAPP – Cardinal Topic No. 20319, Electronic Federal Tax Payments System CAPP – Cardinal Topic No. 20310, Expenditures CAPP – Cardinal Topic No. 50305, New Hires, Rehires, Transfers CAPP – Cardinal Topic No. 50605, Tax and Deduction Adjustments CAPP – Cardinal Topic No. 20410, Intra-Agency Transactions CAPP – Cardinal Topic No. 20405, Inter-Agency Transactions Refer to suggested job aids and training information for data entry and processing on the Cardinal website: Suggested Forms and Job Aids The following forms can be found on the Cardinal Website, under Statewide Toolbox – Forms: Journal Entry GL Journal Spreadsheet Upload Excel Template GL Journal Spreadsheet Upload XLA Macro File The following training aids can be found on the Cardinal Website, under Statewide Toolbox – Job Aids: Uploading Spreadsheet Journals Agency to Agency (ATA) Transactions Information Sheet ______________________________________________________________ Please note: The Cardinal job aids, training materials and forms on the Cardinal website are not policy of the Department of Accounts and are not part of the Commonwealth Accounting Policies and Procedures Manual (CAPP).