ACA penalties are coming: Are you at risk? RSM US LLP. All Rights Reserved.

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1 ACA penalties are coming: Are you at risk?

2 Presenters Jill Harris Senior Director Washington National Tax Rochester, MN Bill O Malley Senior Director Washington National Tax Peoria, IL

3 IRS assessments Employers are receiving letters from the IRS assessing significant employer shared responsibility payments Employers need to understand What is an employer shared responsibility payment How to respond to IRS correspondence 3

4 Understanding employer shared responsibility payments

5 Affordable Care Act (ACA) Individual shared responsibility payment Pay penalty on Form 1040 if no health insurance Health Insurance Marketplace (Exchange) Individuals buy health insurance through internet Premium tax credits (PTC) reduce cost Individuals disclose premium tax credits on Form 1040 Employer shared responsibility payment (ESRP) Pay penalty if fail to offer ACA-compliant coverage, and At least one employee buys health insurance on the Exchange with premium tax credits 5

6 Health Insurance Exchange Employee Provides income, family size, employer health plan information Exchange Reviews data, notifies employer of employee application Employer Can respond regarding employee & employer health plan information 6

7 Health Insurance Exchange (cont.) Employer Exchange Employee ACA coverage (no ESRP) **** No ACA coverage (ESRP) Employee not eligible for PTC **** Employee eligible for PTC Pays full cost of insurance **** PTC reduces insurance cost 7

8 Employer shared responsibility payment overview Effective starting in 2015 IRS enforcement for 2015 started in November of 2017 Also known as employer mandate or pay or play penalties Apply to applicable large employers Average 50 full-time employees/equivalents in prior calendar year Average < 50 full-time employees/equivalents in prior calendar year but in aggregated group with other companies so total employees 50 full-time employees/equivalents Aggregated groups are based on ownership or services For-profit entities, tax-exempt organizations, churches, government entities 8

9 Employer shared responsibility payment overview (cont.) ESRP is triggered if Employer fails to offer ACA-compliant health coverage to full-time employees, and Any full-time employee purchases Exchange coverage with premium tax credits Employer reports health plan information on Forms 1094-C and 1095-C Enables IRS to enforce the employer shared responsibility provisions ESRP is payable in response to IRS correspondence (not on a tax return) Determined on a monthly basis Amount depends on type of employer failure Nondeductible penalty 9

10 Employer shared responsibility payment exposure Coverage Description ESRP for noncompliance Minimum essential Minimum value Plan offered to 95% of fulltime employees and children Plan covers 60% of total allowed medical costs Sec. 4980H(a): Annual penalty of $2,000* per full-time employee (less the first 30) if any full-time employee buys insurance with PTC Sec. 4980H(b): Annual penalty of $3,000* for each fulltime employee buying insurance with PTC Affordable Self-only cost is 9.5%* of: Employee s rate of pay, or Form W-2, box 1 wages, or Federal poverty level Sec. 4980H(b): Annual penalty of $3,000* for each fulltime employee buying insurance with PTC *before adjustment for inflation 10

11 2015 transition relief Standard rule Applicable large employer Average 50 full-time employees and equivalents or in aggregated group with 50 full-time employees and equivalents in prior calendar year Minimum essential coverage Plan offered to 95% of full-time employees and children Sec. 4980H(a) penalty for minimum essential coverage failure Annual penalty of $2,000* per full-time employee (less the first 30) if any full-time employee buys insurance with PTC 2015 transition rule Applicable large employer Average 100 full-time employees and equivalents or in aggregated group with 100 full-time employees and equivalents in prior calendar year Minimum essential coverage Plan offered to 70% of full-time employees and children Sec. 4980H(a) penalty for minimum essential coverage failure Annual penalty of $2,000* per full-time employee (less the first 80) if any full-time employee buys insurance with PTC 11

12 IRS assessment of employer shared responsibility payments

13 Step 1: IRS determines proposed ESRP Health Insurance Exchange Employee Form 1040 Employer Forms 1094-C and 1095-C IRS Determines employer liability Computes ESRP dollar amount 13

14 Step 2: IRS mails Letter 226J package to employer Letter 226J Seven pages Proposed ESRP dollar amount by month and for the year Instructions on how to respond Form ESRP Response Form Employee Premium Tax Credit (PTC) Listing 14

15 Step 3: Employer responds to Letter 226J Employer reviews Letter 226J Can agree or disagree with proposed ESRP dollar amount Generally must respond within 30 days If employer fails to timely respond, proposed ESRP will be assessed 15

16 Letter 226J Page 1 Identification Tax year 2015 IRS contact information Name, telephone, e-fax Letter date Response date Generally 30 days Extension can be requested Proposed ESRP dollar amount 16

17 Letter 226J Page 4 ESRP summary table Minimum essential coverage offered to 70 percent of full-time employees (Y/N) Form 1094-C, Part III, Column (a) Number of full-time employees Form 1094-C, Part III, Column (b) Number of full-time employees with premium tax credits triggering ESRP Sec. 4980H(a) or (b) Proposed ESRP dollar amount by month and total for the year 17

18 Form Employee Premium Tax Credit (PTC) Listing Employee identification Name and SSN of each employee receiving a premium tax credit Monthly premium tax credit status PTC and ESRP triggered PTC but no ESRP triggered No PTC for month Monthly employee count ties to ESRP summary table Indicator codes from Form 1095-C lines 14 and 16 Employer can make corrections 18

19 Form ESRP Response Page 1 Employer contact information Agree or disagree with proposed ESRP Payment options Electronic (EFTPS) Check or money order No payment 19

20 Form ESRP Response Page 2 Authorized person information Name, address, telephone Employer contact Name, title, signature, date If disagree with ESRP, include statement explaining why Can include other supporting documentation 20

21 Information needed for responding to Letter 226J Forms 1094-C and 1095-C filed for the year Health plan information Minimum essential coverage and minimum value compliance Summary of Benefits and Coverage (SBC) Affordability compliance Premium cost charged to employees Employee payroll data Employment data for employees receiving premium tax credits Hire date/termination date Full-time/non-full-time status Offer of health coverage dates and status (enrolled/declined) 21

22 Step 4: IRS mails Letter 227 to employer IRS reviews employer s response to Letter 226J Determines whether proposed ESRP amount should be adjusted Mails to employer one of five different versions of Letter 227 Acknowledges employer s response Describes further actions employer needs to take May contain a proposed or revised ESRP 22

23 Step 5: Employer responds to Letter 227 Employer reviews Letter 227 Can agree or disagree with any ESRP dollar amount If disagree, request in writing a pre-assessment conference with the IRS Office of Appeals Generally must respond within 30 days If employer fails to timely respond, ESRP will be assessed 23

24 Step 6: Conference with IRS Office of Appeals Employer has opportunity to appeal assessment at conference with IRS Can engage an attorney, CPA or enrolled agent for representation before IRS After conference, IRS will determine if employer is liable for ESRP If liable, ESRP will be assessed 24

25 Step 7: IRS mails Notice CP 220J to employer Notice and demand for payment (Notice CP 220J) Includes a summary of the ESRP Reflects payments made, credits applied and any balance due Provides instructions on how to make payments and payment options Will be issued if IRS determines employer is liable for ESRP after pre-assessment conference Will be issued if employer fails to timely respond to Letter 226J or Letter

26 Employer action plan Review IRS correspondence Request an extension of time to respond Engage knowledgeable professionals to assist in responding to IRS letters Gather health plan and workforce information Obtain Forms 1094-C and 1095-C filed for the year Timely respond to IRS correspondence Consider impact on other years 2016: Do any corrected Forms 1094-C and 1095-C need to be filed? 2017: Are changes needed to file correct Forms 1094-C and 1095-C? 26

27 Affordable Care Act resource center on the RSM website 27

28 Contact information Jill Harris Senior Director Washington National Tax Rochester, MN Bill O Malley Senior Director Washington National Tax Peoria, IL bill.omalley@rsmus.com

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30 RSM US LLP One South Wacker Drive, Suite 800 Chicago, IL (1) This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. RSM US LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. RSM US LLP is a limited liability partnership and the U.S. member firm of RSM International, a global network of independent audit, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. RSM and the RSM logo are registered trademarks of RSM International Association. The power of being understood is a registered trademark of RSM US LLP RSM US LLP. All Rights Reserved.