Troubleshooting Affordable Care Act Issues. Bradley Burnett, J.D., LL.M. (Taxation)

Transcription

1 Troubleshooting Affordable Care Act Issues Bradley Burnett, J.D., LL.M. (Taxation)

2 Affordable Care Act The Affordable Care Act (ACA) - Signed into law in Generally effective in 2013 Implementation of much of the ACA has been delayed, most often by administrative action - Result: A patchwork mass of rules with effective dates all over the place ACA has two sides: individual side and business side - To understand one side, you must understand the other (c) 2016 Bradley Burnett Tax Seminars, Ltd. 2

3 Polling Question 1 Which of the following is correct re: the ACA? A. The ACA has only one side: the individual side B. The ACA has only one side: the business side C. The ACA has each an individual side and a business side (c) 2016 Bradley Burnett Tax Seminars, Ltd. 3

4 ACA Individual Provisions ACA forces individuals who can afford it to buy health insurance or else face a penalty for not having done so ACA commits the government (American taxpayers) to subsidize the cost of health insurance premiums of individuals who cannot afford it - Subsidy is delivered by means of a credit (Premium Tax Credit (PTC)) on individual s Form 1040 (via Form 8962) - Subsidy is advanced to individual via a discount on health insurance premium paid by individual each month (c) 2016 Bradley Burnett Tax Seminars, Ltd. 4

5 ACA Individual Provisions If individual (employee) is offered affordable health insurance coverage at work, individual is not eligible to claim premium tax credit (PTC) (by buying health insurance through marketplace and, as a result, getting a discount ) - This holds true even if individual (employee) can get a better deal economically (lower overall cost) at the marketplace (c) 2016 Bradley Burnett Tax Seminars, Ltd. 5

6 Individual Mandate Penalty Rules of Thumb Single Individuals With No Dependents in Income > filing threshold ($10,150) but at or < $26,400 will pay $325 flat penalty - Income > $26,400 will pay 1% of applicable income (the amount of income exceeding $10,150), but in no event will penalty exceed $2,448 (i.e., $204 bronze monthly premium x 12 months) (c) 2016 Bradley Burnett Tax Seminars, Ltd. 6

7 Individual Mandate Penalty Rules of Thumb Married Filing Jointly in Income > filing threshold ($20,300 in 2015), but at or below $69,050, will pay the $975 flat penalty - Income > $69,050 will pay 1% of applicable income (the amount of income exceeding $23,300), but in no event will penalty > $12,240 ($204 (for 2015) bronze monthly premium per person (not to exceed 5 persons) (max of $1,020) x 12 months) (c) 2016 Bradley Burnett Tax Seminars, Ltd. 7

8 Individual Mandate Penalty Rules of Thumb Single Individuals With No Dependents in Income above the filing threshold ($10,150) but at or below $37,950 will pay $695 flat penalty - Income above $37,950 will pay 1% of applicable income (the amount of income exceeding $10,150), but in no event will penalty exceed $2,484 (i.e., $207 bronze monthly premium x 12 months) (c) 2016 Bradley Burnett Tax Seminars, Ltd. 8

9 Individual Mandate Penalty Rules of Thumb Married Filing Jointly Individuals in Income > filing threshold ($20,300) but at or below $103,700 will pay the $2,085 flat penalty - Income > $103,700 will pay 1% of applicable income (the amount of income exceeding $20,300), but in no event will penalty > $12,420 (the $207 bronze monthly premium per person (not to exceed 5 persons) (max of $1,035) x 12 months) (c) 2016 Bradley Burnett Tax Seminars, Ltd. 9

10 ACA Individual Provisions ACA forces individuals who can afford it to buy health insurance or else face a penalty (individual mandate penalty) for not having done so - Exemptions get you off the hook for paying penalty (c) 2016 Bradley Burnett Tax Seminars, Ltd. 10

11 Exemptions from Individual Mandate Penalty 1. Short lapse in coverage (2 months or less) 2. Insurance not affordable 3. Household income below tax filing threshold 4. Citizens living abroad 5. Certain noncitizens 6. Members of certain Indian tribes 7. Members of certain religious sects 8. Members of health care sharing ministry 9. Prisoners 10. Hardship (Granted by Marketplace) (c) 2016 Bradley Burnett Tax Seminars, Ltd. 11

12 IRS Enforcement Shared Responsibility Penalty 1. No civil or criminal penalties for non-payment 2. No levies or liens available to collect penalty 3. No interest accrues on penalty 4. IRS may offset refunds or other payments due from government Questions: What are Circular 230 implication of a tax practitioner of: A. Advising the client not to pay the penalty? B. Advising the client to structure his tax posture to not have a refund and, thus, keeping IRS at bay from collecting the penalty? C. Not paying his (or her) personal shared responsibility payment? (c) 2016 Bradley Burnett Tax Seminars, Ltd. 12

13 IRS Enforcement Shared Responsibility Penalty Does U.S. Supreme Court s ruling upholding shared responsibility payment as constitutional and dubbing it a tax broadens IRS collection power beyond the limitations imposed on IRS in the statute? How courts react to this notion in the future remains to be seen. (c) 2016 Bradley Burnett Tax Seminars, Ltd. 13

14 Presidential Candidate s Positions on ACA Hillary Clinton - Tax credit up to $5,000 (per family) for buying health coverage at exchange - Enhance and expand premium tax credit so that handout deepens - Fix "family glitch" (under which affordability of employer-provided care is determined at individual level despite that family plans often cost more - Increase and expand Social Security wage base Bernie Sanders - Increase 3.8% surtax on net investment income to 10% - Enact new payroll tax to fund paid family and medical leave - Create new 6.2% income-based health care payroll tax paid by employers, and a 2.2% incomebased tax paid by households (both referred to as "premiums ) - Eliminate the Social Security wage base cap (for 2016, $118,500 Donald Trump - Repeal the so-called Affordable Care Act (Obamacare) (c) 2016 Bradley Burnett Tax Seminars, Ltd. 14

15 Health Insurance Reporting Forms Three new forms: 1095-A, 1095-B, 1095-C - Form 1095-A Issued by marketplace to report info about health insurance plan issued to individual through marketplace - Form 1095-B Issued by insurance company to report info about individual covered by minimum essential coverage (and, thus, not liable for individual shared responsibility penalty) - Form 1095-C Issued by employer with 50 or more full-time employees (including full-time equivalent employees), in previous year, to report offers of health coverage to and enrollment in health coverage by employees (c) 2016 Bradley Burnett Tax Seminars, Ltd. 15

16 Health Insurance Reporting Forms Extended Deadline (June 30 if Filing Electronically) for Filing Forms 1094-B, 1095-B, 1094-C and 1095-C - Extended due date May 31, 2016 for employers and other providers of minimum essential coverage to file 2015 Forms 1094-B, 1095-B, 1094-C, and the 1095-C - Extended due date June 30, 2016, if filing electronically (c) 2016 Bradley Burnett Tax Seminars, Ltd. 16

17 Form 1095-A Form 1095-A Health Insurance Marketplace Statement - Issued by marketplace to report info about qualified health insurance plan issued to individual through marketplace - Info from 1095-A input on Form Form 8962 computes Premium Tax Credit (PTC) and reconciles any advanced premium tax credit received - If PTC exceeds advanced PTC, individual gets refund. If advanced PTC exceeds PTC, individual is liable to IRS for part or all of difference (c) 2016 Bradley Burnett Tax Seminars, Ltd. 17

18 Form 1095-A Aggressive IRS Matching of Forms 1095-A against Forms 1040 widely reported (c) 2016 Bradley Burnett Tax Seminars, Ltd. 18

19 Form 1095-B Form 1095-B Health Coverage - Issued by insurance company to report info about each individual s health insurance coverage - If individual covered by minimum essential coverage (MEC), then individual not liable for individual shared responsibility penalty LOOK OUT: Employer offering medical reimbursement plan to employees is deemed an insurance company and, thus, must send Form 1095-B to participants. Penalty for failure to file form is monstrous (could be as high as $1,000/participant). (c) 2016 Bradley Burnett Tax Seminars, Ltd. 19

20 Polling Question 2 Is an employer that sponsors a medical reimbursement plans deemed an insurance company which must file Form 1095-B? A. Yes B. No (c) 2016 Bradley Burnett Tax Seminars, Ltd. 20

21 Form 1095-C Form 1095-C Employer-Provided Health Insurance Offer and Coverage - Issued by employer with 50 or more full-time employees (including full-time equivalent employees), in the previous year, to report offers of health coverage to and enrollment in health coverage by its employees - Reports info as to whether employee worked full time for employer and if coverage was offered (c) 2016 Bradley Burnett Tax Seminars, Ltd. 21

22 2015 Trade Package Legislation Delinquent information reporting penalties dramatically increase Applies to Forms 1099, W-2, 1095 (Health Care Reporting), etc. Example of penalty: $500 (twice) for intentional disregard of requirement to file each Form 1099 ($500 x 2 = $1,000 for each delinquent 1099) If in doubt, fill it out. If in doubt, send it out. ON TIME!!

23 Increased Delinquent Information Return Penalty 6721 Penalty Before 2016 After 2015 Fixed w/in 30 days $30 $50 Fixed > 30 days, but < Aug 1 $60 $100 Fixed Aug 1 or later $100 $260 Intentional disregard $250 $530 Penalty may be applied twice (doubled) if return not supplied both to payee and government

24 Increased Delinquent Information Return Penalty Late, Incomplete or Incorrect Penalty Form 8971 or Schedule A Late, Incomplete or Incorrect Fixed w/in 30 Days Penalty per Failure Maximum Penalty < 30 Days Late $50 $186,000 or $532,000 > 30 Days Late, Never Filed, Never Complete or Never Correct $260 $1,064,000 or $3,193,000 Intentional Disregard $530 None 7/18/2016 Bradley Burnett Tax Seminars, Ltd. 24

25 Health Insurance Premium Reimbursement Reimbursing employees outside health insurance premiums prohibited (Notice ) - $100/day/participant penalty = $36,500/participant/year - Penalty self-reported on Form 8928 No penalty prior to 06/30/15 (or 12/31/15 if > 2% S shareholder) No penalty if remedy problem within 30 days of learning of violation (Apparently must go back and pay late payroll taxes, etc.) (c) 2016 Bradley Burnett Tax Seminars, Ltd. 25

26 Exceptions to $100/Day Penalty 1. Health Reimbursement Accounts (HRAs) w/ fewer than 2 participants 2. HRAs for retirees only 3. HRAs limited to narrow benefits (e.g., dental only, vision only, etc.) 4. HRAs w/ no dollar limits 5. HRAs integrated w/ ACA compliant group health plans - Tricare and Medicare (if certain conditions met) may be integrated (c) 2016 Bradley Burnett Tax Seminars, Ltd. 26

27 Polling Question 3 May an employer ever without penalty reimburse an employee for outside medical insurance? A. Yes B. No (c) 2016 Bradley Burnett Tax Seminars, Ltd. 27

28 HRA Reporting Rules Small businesses offering HRAs required to file Form 1095-B Why? Because HRA is a self insured plan Insurance company will also file Form 1095-B to same employee (c) 2016 Bradley Burnett Tax Seminars, Ltd. 28

29 Obamacare Provisions Affecting Employers 1-10 employees (FTEs) employees (FTEs) 25 to 99 employees (FTEs) Business credit available to subsidize 50% of cost of health insurance premium paid by employer if employee wages average > $25,000 - Employer must pay 50% or more of insurance to qualify for credit - Only available if health insurance bought at SHOP Phased out credit available to subsidize portion of cost of health insurance premium paid by employer if employee wages < $50,000 - Credit is available for only two consecutive years starting in Only available if health insurance bought at SHOP Employer not required to offer health insurance to employees - 99 employee threshold reduces to 49 in Employer must qualify for 99 employee threshold If not, 49 applies 100 or more employees (FTEs) Employer must offer affordable health insurance or else be subject to shared responsibility penalty in 2015 and later employee threshold reduces to 50 in 2016 (c) 2016 Bradley Burnett Tax Seminars, Ltd. 29

30 Small Employers ACA doesn t affect employers with fewer than 50 FT/FTE employees - No ACA penalty - No ACA reporting (Forms 1095) - Exception: Self-insured plans (e.g., HRAs) must send Form 1095-B (c) 2016 Bradley Burnett Tax Seminars, Ltd. 30

31 When Is Employee Eligible for PTC? If employer offers employee - Unaffordable health coverage, or - A plan that pays < 60% of cost of benefits -AND- If employee - Declines employer options and - Purchases health coverage from exchange -THEN- Employee is eligible for - Premium tax credit or - Cost sharing reductions (c) 2016 Bradley Burnett Tax Seminars, Ltd. 31

32 Large Employers Not Offering Health Insurance Penalized Penalty applies if large employer does not offer: - Health coverage to full-time employees; - Minimum essential coverage; and - Affordable coverage (c) 2016 Bradley Burnett Tax Seminars, Ltd. 32

33 How Much Is the Employer Mandate Penalty? 4980H(a) Penalty = $2,000/employee/year* - But, no penalty unless one (or more) employee(s) got PTC at marketplace - No penalty on first 30 FT employees (80 in 2015) 4980H(b) Penalty = $3,000 for each employee getting PTC at marketplace* * 4980H(b) ($3,000) penalty will never exceed 4980H(a) ($2,000) penalty amount (c) 2016 Bradley Burnett Tax Seminars, Ltd. 33

34 Strategies to Reduce Employer Mandate Penalty Strategies - Offer good enough coverage and pay for enough, so no employee can get PTC at exchange - Only have 30 FT employees (80 in 2015) (c) 2016 Bradley Burnett Tax Seminars, Ltd. 34

35 Polling Question 4 True or False: An employer can prevent an employee from going to the marketplace and obtaining a premium tax credit A. True B. False (c) 2016 Bradley Burnett Tax Seminars, Ltd. 35

36 Large Employer Large Employer = 50 or more FTEs or FTEEs - In the prior year (e.g., look at 2014 to determine if large in 2015) - Full time employees (FTEs) (30 hours/week), plus - Full time equivalent employees (FTEEs) (part timers combined into full time equivalents) (c) 2016 Bradley Burnett Tax Seminars, Ltd. 36

37 Large Employer Computing Full Time Employees FTEs + FTEEs = Total full time employees (to see if employer large ) - In counting number of employees to determine whether employer is large, a full-time employee (FTE) is counted as one employee, and all other (e.g., part time) employees are counted and equated to full time equivalency (FTEE) on a pro-rated basis - Number of FTEs are added together with FTEEs to arrive at the full time employee total utilized in determining whether an employer is large employer or not (c) 2016 Bradley Burnett Tax Seminars, Ltd. 37

38 Large Employer Computing Full Time Employees FTEs + FTEEs = Total full time employees (to see if employer large ) - Full-time employee = at least 30 hours/week or 130 hours/month - Full time employees count as one employee. Part time employees count as a part, or fraction, of one employee. - Example. Monthly FTE + Monthly FTEEs = Large Employer. Miles Inc. has, in addition to 47 full-time employees, five part-time employees for the month. Total hours worked for month by part-time workers 480. Miles Inc. is large employer because must add four full-time equivalent employees (480 aggregate hours /120) for that month. Calculation: 47 FT + 4 FTEE = 51 (c) 2016 Bradley Burnett Tax Seminars, Ltd. 38

39 Large Employer Related Entities Aggregated Controlled group, group under common control and affiliated service group must be aggregated into single activity aggregation rules apply - Applicable large employer may consist of multiple related entities under aggregation rules - All employees of a controlled group under 414(b) or (c), or an affiliated service group under 414(m) and (o), (including employees of partnerships, proprietorships, etc., under common control of one owner or group of owners) taken into account (c) 2016 Bradley Burnett Tax Seminars, Ltd. 39

40 Transition Relief for 2015 For 2015 only, large employer = 100 FTEs if conditions met: - Between FTEs in No games played in 2014 w/ workforce, hours or health coverage to beat penalty - Employer certifies (on Form 1094-C) for transition relief (c) 2016 Bradley Burnett Tax Seminars, Ltd. 40

41 2015 Highway Funding Bill HSA (Health Savings Account) eligibility not affected by receipt of armed service (or VA) benefits If an individual purchases so-called high deductible insurance, such individual (or his (her) employer) may contribute to a tax deductible and tax deferred HSA account Health insurance employer mandate penalty exemption for recipients of Tricare (or VA) health care benefits - Recipients of Tricare (or VA) health care benefits NOT counted in testing for 50 (full time) employee threshold

42 Determining Large Employer Status Seasonal workers may count against you to push you > 49 Contract labor may be counted as your employees to push you > 49 (look out for increase in DOL and IRS audits) (Reclassification hat trick: 1. Wage an hour penalties; 2. Back taxes; 3. ACA Employer mandate penalties) Leased employees (e.g., from PEOs) may be counted as your employees to push you > 49 Employees of related companies (via attribution rules) may be counted as your own employees to push you > 49 Your employee count last year sets your status this year Your employee count this year sets your status next year (c) 2016 Bradley Burnett Tax Seminars, Ltd. 42

43 The Cadillac Tax and Other Freight Train Stories Cadillac tax = 40% excise tax on medical premiums exceeding thresholds thresholds $10,200 (employee-only coverage), $27,500 (family) - Adjusted upward in future years - Most plans expected to exceed thresholds, bear significant tax burden - All health plans, whether self-insured or fully insured, affected December 2015, Consolidated Appropriations Act modified Cadillac Tax: - Delayed from 2018 to Changed to tax-deductible from non-tax-deductible (c) 2016 Bradley Burnett Tax Seminars, Ltd. 43

44 The Cadillac Tax and Other Freight Train Stories Actions to Take. To mitigate exposure, take these three steps: - Develop strategic plan - Identify challenges - Communicate with employees Make a plan. Determine how to reduce premiums and exposure to Cadillac tax - Reduce/cut medical benefits -- Increase employee cost-sharing (deductibles, co-insurance and copays) and/or cut benefits (exclude coverage for vision, infertility, gastric bypass, and so on) - Create healthy plan participants -- Encourage plan participants to live healthy lifestyles, which may lower long-term costs through wellness programs, screenings and so on - Hire people who hold (and practice) exercise and good diets as a virtue (c) 2016 Bradley Burnett Tax Seminars, Ltd. 44

45 Strategies 1. Make sure to file proper reports and otherwise comply 2. Make sure medical reimbursement policy(ies), if any, are properly structured and operated 3. It may be cheaper to buy skinny insurance than pay individual or employer mandate penalty 4. No employer mandate penalty applies to part time employees - Converting workers from full to part time status may reduce penalty (c) 2016 Bradley Burnett Tax Seminars, Ltd. 45

46 Strategies 5. To avoid employer mandate penalty, review contract labor for possible re-classification to employee status 6. To avoid employer mandate penalty, review related businesses to test for aggregation 7. To avoid employer mandate penalty, review leased employee practices for possible re-classification to employee status 8. Proper structuring in advance can save you a bundle of money (c) 2016 Bradley Burnett Tax Seminars, Ltd. 46