Special needs account bill includes PEO provision

A PEO is a company that acts as the official employer of workers who work for another company. The workers may think of themselves as working for XYZ Operating Company Inc., but PEO Ltd. pays workers’ salaries, provides their health benefits, and pays their employment taxes. Today, the company that hires the PEO is responsible for ensuring that the PEO pays the employment taxes. A client company must pay the employment tax bills if a PEO runs off with the client company’s money.

If the H.R. 647 PEO certification section is implemented as written, a PEO could go through IRS certification screening, pay a $1,000 annual fee to the IRS, and take full responsibility for paying the employment taxes. Backers of the law say the certification program could generate $8 million in fee revenue over a 10-year period.

The main section of the ABLE Act bill — the special needs account section — grew out of the work of the federal Commission on Long-Term Care. Some special needs planners have been talking about the need for a special needs equivalent to the 529 plan for years, but the proposals gained momentum when Democratic and Republican appointees on the LTC commission found that the special needs account idea was one of that appointees from both parties could support.

An ABLE account would be available to people who were severely disabled before turning age 26.

• Any one individual could have only one ABLE account.
• Contributors could not deduct the ABLE account contributions from taxable income.
• The individual benefiting from an ABLE account could use the money in the account to pay for health care, education, housing, transportation, training, assistive technology and personal support services without paying taxes on the distributions.
• The annual cap on total contributions to an individual’s ABLE account would be equal to the gift tax exclusion, or $14,000 in 2014.
• Total contributions to an account would be subject to a state’s limit for contributions to educational-related Section 529 accounts.
• Social Security would include ABLE account distributions for housing in an individual’s income when deciding whether people were eligible for programs, but the agency would exempt the first $100,000 in ABLE account balances from an individual’s individual resource total when making eligibility decisions.
• Any ABLE account contributions made by a parent or grandparent more than 365 days before the contributor filed for bankruptcy would be kept out of the debtor’s bankruptcy estate.