Tag Archives: ACA

IRS Gives Employers a Welcome Christmas Gift

Contributed by Kelly Haab-Tallitsch, December 28, 2017

On December 22, 2017, the Internal Revenue Service (IRS) announced a 30-day extension of the deadlines for certain information reporting requirements under the Affordable Care Act (ACA).

In IRS Notice 2018-06, the agency announced a 30-day automatic extension — until March 2, 2018 — for employers and insurers to provide 2017 IRS Forms 1095-C (Employer-Provided Health Insurance Offer and Coverage) and 1095-B (Health Coverage) to employees. The original due date was January 31. This extension is virtually identical to the extension provided last year for 2016 Forms.

Despite the extension, the IRS encourages employers and other coverage providers to furnish the forms to individuals as soon as possible and states that due to the automatic extension, further extension beyond March 2, 2018 is not available.

Employers and insurers should be aware that although the due date to furnish forms to individuals has been extended, the due date to file the forms with the IRS was not extended and remains February 28, 2018 for paper filers, or April 2, 2018, if filing electronically.

Notice 2018-06 also extends the prior good-faith transition relief from certain penalties related to the 2017 information-reporting requirements. Relief from penalties for incomplete or inaccurate information reported on a 1095-C or 1095-B is available to employers or insurers that can show they made a good faith effort to comply with the requirements. No relief is available for entities that fail to furnish the forms to employees by the due date or fail to file the forms with the IRS.

Employers should be ready for questions from employees who do not receive their Forms 1095-B or 1095-C by the time they are ready to file their 2017 individual income tax return. Although the forms contain information that can be helpful when preparing a tax return, they are not required to file an individual income tax return. Notice 2018-06 explains that individual taxpayers can prepare and file their returns using other information about their health coverage. Individuals do not have to wait for Forms 1095-B or 1095-C.

To address employee questions head on employers should consider a proactive communication to employees. Such a communication should:

  • Provide the expected timeframe for distribution of the Forms 1095-B or 1095-C;
  • Remind employees the forms are not required to file an individual tax return; and
  • Provide information on employer-sponsored health coverage to assist employees in preparing their returns, such as whether the coverage provided was minimum essential coverage under the ACA.

ACA Employer Mandate Penalty Letters Coming Before Year-End!

Contributed by Kelly Haab-Tallitsch, December 7, 2017

With only 30-days to respond, employers should be watching their mail for Affordable Care Act (ACA) employer mandate penalty letters (IRS Letter 226J), coming before the end of 2017.

Recent updates to the “Questions and Answers on Employer Shared Responsibility Provisions (ESRPs) Under the Affordable Care Act” on the Internal Revenue Service (IRS) website indicate the agency is gearing up to begin enforcement of the ESRP provisions of the ACA, commonly known as the employer mandate. According to Q&As 55-58, “Making an Employer Shared Responsibility Payment,” the IRS will start sending penalty notices in “late 2017” to employers whom the IRS believes may owe penalties for not complying with the ACA employer mandate in 2015. Penalties will be proposed and assessed via Letter 226J.

The determination of whether an employer is liable for a penalty and any proposed amount is based on the information reported to the IRS on Forms 1094-C and 1095-C and information on which full-time employees received a premium tax credit. The 2015 information reporting process was not without problems and it is possible employers who complied with the employer mandate may receive IRS 226J letters due to reporting errors or other issues.

Employers have the opportunity to respond to a Letter 226J within 30 days, prior to official assessment of liability and demand for payment.

I received a Letter 226J…Now What?

  1. Review the letter and enclosed information carefully. Letter 226J will include information showing your proposed penalty by month and a listing of employees that received a premium tax credit.
  2. Compare with your records. Review the Forms 1094-C and 1095-C you filed for 2015, and other relevant records.
  3. Complete and return the Form 14764 included with your Letter 226J within 30 days. Include any supporting documentation.
    • If you agree with the IRS’s penalty determination:
      • Complete Form 14764 indicating your agreement.
      • Include payment for the penalty (or pay electronically). If you do not pay the entire penalty amount, the IRS will issue a Notice and Demand for payment.
    • If you disagree with the IRS’s penalty determination:
      • Complete Form 14764 indicating your disagreement.
      • Include a signed statement explaining why you disagree with part or all of the proposed penalty.
      • Include any documentation supporting your statement (i.e. date of employment termination records, proof of offer coverage or premium amounts).
      • Make changes, if any, to the Employee PTC Listing enclosed with your Letter 226J and submit with Form 14764.
  4. The IRS will acknowledge your response with a Letter 227 describing any further actions you may need to take.
  5. If, after receipt of Letter 227, you still disagree with the proposed or revised penalty, you may request a pre-assessment conference with the IRS Office of Appeals within 30 days. Instructions on requesting a pre-assessment conference will be included in the Letter 227. Upon receipt of your request, the IRS will contact you to arrange the time and place of the conference. According to IRS Publication 5 “Your Appeal Rights and How To Prepare a Protest If You Don’t Agree,” conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone or in-person.

Bottom Line

Failure to timely respond to a Letter 226J can result in steep penalties for employers – even those who complied with their responsibilities under the ACA. Be sure to closely watch your mail this holiday season.

“Cadillac Tax” on Health Plans Delayed Until 2020

Contributed by Kelly Haab-Tallitsch

Employers are receiving a temporary reprieve from the controversial “Cadillac Tax” on health plans as part of a large spending and tax bill signed into law by President Obama on Friday, December 18, 2015. The Consolidated Appropriations Act (the “Act”) delays the effective date of the Affordable Care Act’s (ACA’s) excise tax on so-called high cost health plans, known as the “Cadillac Tax,” until January 1, 2020.

The Cadillac Tax, previously scheduled to take effect on January 1, 2018, is a 40% excise tax on employers and insurers who offer health insurance plans that exceed specified high-cost limits ($10,200 for individuals and $27,000 for families for 2018). The 40% tax applies to the cost of the plan above these thresholds.

In addition to the delay, the Act makes the Cadillac Tax a tax-deductible expense for employers, somewhat cushioning its impact. The Act also calls for an examination of suitable benchmarks to be used for the adjustment of the excise tax thresholds in future years.

The delay comes after mounting criticism of the Cadillac Tax from employers, insurers, labor unions and lawmakers. Critics argue that the tax, which was expected to affect an estimated 25% to 30% of employers in 2018, and as many as 50% within the next 10 years, unfairly penalizes employers and unionized workers and will ultimately lead to employees paying more out of pocket for medical expenses.

What Does this Mean for Employers?

While opponents of the Cadillac Tax are citing the delay as the first step towards a repeal of the tax, employers must remain cautious and plan for the tax to be implemented in 2020. Employers should continue evaluating the costs of the health coverage offered to their employees and begin to consider alternatives to reduce exposure to the tax in 2020. Additionally, employers should review the accounting consequences of the now deductible Cadillac Tax.

IRS Begins Implementation of the ACA “Cadillac Tax” for High-Cost Health Plans

Contributed by Kelly Haab-Tallitsch

The IRS and Treasury Department recently issued Notice 2015-16 discussing initial approaches to implementing the 40% excise tax imposed on high-cost health plans under the Affordable Care Act (ACA).  This notice is the first step in the process leading to final regulations.

Beginning in 2018, the excise tax, also called the “Cadillac Tax,” will impose a 40% tax on the cost of employer-sponsored health plans that exceeds certain thresholds. The tax may affect few plans initially, but is expected to affect many more over time as the cost of health care grows faster than inflation.

Notice 2015 -16 addresses three key areas, including:

  • The definition of “applicable coverage”;
  • The determination of the cost of applicable coverage; and
  • The application of the annual statutory limits.

Benefits considered “applicable coverage” will be subject to the excise tax. The notice addresses several areas that were previously unclear.  Most notably, the agencies anticipate that pretax salary reduction contributions made by employees to health savings accounts (HSAs) will be subject to the tax. The ACA statute provides that employer contributions to an HSA are subject to the excise tax, but did not address employee pretax contributions.  Retiree coverage, multiemployer plan coverage, executive physicals and health reimbursement arrangements are also expected to be included as applicable coverage.

Notice 2015-16 anticipates excluding from applicable coverage onsite medical clinics that offer only de minimis care to employees, provided the care consists primarily of first aid during work hours for treatment of an illness or injury that occurs during work hours. Still undetermined is the treatment of onsite clinics that provide additional services such as immunizations, allergy injections, nonprescription pain relievers, and treatment of work injuries beyond first aid.

Self-insured dental and vision plans (consistent with the exclusion of fully insured dental and vision plans in the statute), employee after tax contributions to HSAs, accident or disability insurance, workers’ compensation, long-term care insurance and possibly employee assistance programs are also expected to be excluded.

What This Means for Employers

The cost of applicable coverage that exceeds the thresholds (currently $10,200 for self-only and $27,500 for family coverage) will be subject to a 40% non-deductible excise tax imposed on the employer. To avoid the tax, employers must continue to analyze health plan costs and explore strategies now to manage future costs.

The anticipated treatment of employee pretax contributions to HSAs will likely have a significant impact on HSA programs. As described, many employer plans that provide for HSA contributions will be subject to the tax as early as 2018, unless an employer limits the amount an employee can contribute on a pretax basis.

Another Supreme Court Challenge to Health Care Reform? Why It May Matter to an Employer…

By Rebecca Dobbs Bush

I know, I know.  You may have seen the headlines indicating that the Supreme Court is going to be reviewing another case challenging the Affordable Care Act and not even bothered to read the articles this time.  After all, who hasn’t become a little tired of hearing about challenges and changes to the Affordable Care Act with constant updates occurring over the now almost five years since the act was signed into law by President Obama? Or perhaps it isn’t that you are tired of hearing about the ACA; you were just distracted when Kim Kardashian broke the internet.  In any event, the Supreme Court has recently decided to hear King v. Burwell, and their somewhat surprising decision to do so could affect employer ACA compliance strategies in as many as 36 states.

What is the case about?  Well, at the surface it appears to be a case that wouldn’t interest employers at all.  Specifically, King v. Burwell is about the ability of the federal government to provide tax subsidies for health insurance coverage purchased through federally-facilitated health insurance marketplaces.  The crux of the issue is that the ACA states that subsidies are to be provided to qualifying taxpayers and their dependents when they purchase coverage “through an Exchange established by the State.”  The question is whether Congress intended for a federally-facilitated marketplace to be included in the phrase “an Exchange established by the State.”

Why does this matter to employers in as many as 36 states?  Currently, there are 27 states that declined the opportunity to establish their own marketplace and elected to only make the federally-facilitated marketplace available to their residents.  In addition to those 27 states, other states currently partake in what is referred to as a “partnership” with the federally-facilitated marketplace.  Those states have also not technically established their own Exchange.  King v. Burwell could implicate employers in as many as 36 states as the shared responsibility penalties under the ACA are only triggered when a qualified individual purchases coverage and receives a subsidy.  If none of the individuals in a state are able to access the subsidies, employers would not have the potential risk for penalty exposure from employees residing in those states.

While no employer should use the Supreme Court’s pending review as a reason to procrastinate their ACA compliance planning, King v. Burwell will be a Supreme Court opinion that all employers should be watching and waiting for.

ACA Employer Reporting Obligations are Effective January 1, 2015 – Are You Ready?

Contributed by Kelly Haab-Tallitsch

Beginning January 2015, employers will be subject to extensive ACA reporting requirements. Although submission of the data for 2015 will not take place until early 2016, employers and insurers need to start capturing the required data in January and should ensure that all the proper data can be captured and tracked prior to the beginning of the year.

The rules require extensive data reporting and are intended to help the IRS enforce various tax provisions of the ACA, including the employer and individual mandates.  Proposed instructions for reporting and draft forms were issued by the IRS at the end of August.

Employer Mandate Reporting – IRC Section 6056

Employers with more than 50 full-time equivalent employees are required to report if they made a “qualifying offer” of coverage to individual full-time employees and their dependents on a per month, per employee basis. The required amount of data is extensive and includes:

  • Name, address, and SSN of each full-time employee and the months, if any, during the calendar year which the employee was covered under the health plan;
  • The months for which minimum essential coverage was available;
  • Each full-time employee’s share of the lowest cost monthly premium (self-only) for coverage providing minimum value offered to that full-time employee under an eligible employer-sponsored plan, by calendar month; and
  • The number of full-time employees for each month during the calendar year.

Certain additional information will be required through indicator codes.

Individual Mandate Reporting – IRC Section 6055

Employers with self-funded plans (including those with under 50 employees) and insurers are required to report overall information on the plan and the plan sponsor, as well as data for each individual covered under the plan. The required individual information includes:

  • Name, address, and SSN (or date of birth if SSN not available) of each individual covered; and
  • Months during the calendar year when the individual was covered.

Employers who are self-funded are subject to both the required individual mandate reporting and the employer mandate reporting and will report for both at the same time on the same forms.

Timing and Implications

Under both IRC Sections 6055 and 6056, the reporting entity (employer or insurer) is required to report data on the prior calendar year to employees by January 31 and to the IRS by March 31.

Even though reports will first be submitted in early 2016 for calendar year 2015, the reporting period begins January 1, 2015, requiring employers to start capturing the needed data as of that date. Employers must take necessary steps now to ensure that all required data can be tracked prior to the first of the year.


Hobby Lobby May Have Caught our Attention, but Halbig and King are the ACA Cases to Watch

Contributed by Kelly Haab-Tallitsch

In contrast to the Supreme Court’s ruling in the recent Hobby Lobby case, which directly affected only a handful of employers, two cases with the potential to derail the Affordable Care Act (“ACA”) were decided last Tuesday – with conflicting results. Less than two hours after a panel of the D.C. Circuit Court of Appeals ruled in Halbig v. Burwell that the insurance subsidies that help millions of Americans pay for health insurance are illegal in 36 states, the 4th Circuit Court of Appeals issued a contradictory ruling in King v. Burwell, affirming the exact opposite.

The contradictory rulings stem from different interpretations of the language establishing tax credits and subsidies for low- and middle-income individuals. The ACA states that tax credits would be available for insurance purchased through an “exchange established by the state.”  But currently, only 14 states run their own exchanges. In 36 states, including Illinois, Indiana, Wisconsin and Missouri, the exchange is run by the federal government. Plaintiffs in Halbig and King argued that an “exchange established by the state” does not include the federal exchange – an interpretation that makes the subsidies in those 36 states illegal.

ACA supporters argue that such a narrow interpretation is at odds with the law’s goal of providing all Americans with health insurance they can afford. Almost 5 million Americans bought subsidized policies through the federal exchange this year, often reducing their costs by hundreds of dollars a month. The Internal Revenue Service (IRS) is charged with administering ACA tax credits and has interpreted the law to mean that tax credits are available for insurance purchased through any government-run exchange, state or federal.

The Effect on ACA Employer Penalties

Aside from denying tax credits to millions of Americans, why are the Halbig and King cases such a big deal?  If individual tax credits disappear in 36 states, so do the employer penalties. The penalties imposed on large employers for failing to offer health coverage are the backbone of the legislation and the only enforcement mechanism available to encourage employers to comply. But an employer that doesn’t offer the mandated coverage is only subject to a penalty if one or more of its employees receive a tax credit to purchase individual coverage on the exchange.  If none of its employees receive a tax credit, an employer cannot be subject to a penalty.  This result would effectively nullify the ACA in over two-thirds of the country.

What Does This Mean for Employers?

The Halbig and King appellate court rulings have no immediate impact on individuals or employers. Both sides are likely to request review or appeal of last week’s decisions and the Obama administration will almost certainly request a stay of the D.C. court’s decision in the meantime.  But keep watching – the fight is far from over!