ACA: W-2s, 45R and 4980H

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1 Chapter 3 ACA: W-2s, 45R and 4980H Oh my! 1 W-2 reporting of health coverage 3-21 Employer who filed 250 or more W-2s in prior year. Likely needs to be reminded that DD amount is not taxable. DD $18,454 2

2 More on W-2 reporting 6051(a)(14) Was to be effective for 2011 Delayed by Notice now Notice pages long! Effective until further guidance issued. Will apply prospectively and n/a to year beginning within 6 months of issuance. IRS seeking comments. Helpful chart at IRS website 3 Another ACA lawsuit 11/21/14 House Republicans filed lawsuit against Secretaries of HHS and Treasury Charges 2 abuses: directing, paying, and continuing to pay, public funds to certain insurance companies to implement a program authorized by the ACA, but for which no funds have been appropriated. Expected to cost $175 billion over 10 years. Amended ACA via reg to postpone employer mandate. Estimated cost of $12 billion. 4

3 Small employer health care credit 45R 2014 Employer must purchase insurance on exchange (SHOP) to be eligible for credit. Rate is 50% of premiums paid (up from 35%). For eligible tax-exempt employer, rate is 35% (up from 25%). May only be claimed for 2 consecutive tax years. Inflation adjusted threshold is $25,400 for 2014 and $25,800 for

4 4980H Employer Shared Responsibility Payment 4980H - Shared responsibility for employers regarding health coverage H Basics 2 formulas for the penalty (a) Not offering opportunity to enroll in MEC Reg H-4 (b) Not offering MEC that is affordable or minimum value Reg H-5 Only 1 will apply; not both (b) penalty can t exceed the (a) penalty Several transition rules for

5 4980H only applies if a full-time employee obtains a PTC or costsharing reduction for any month H(a) No Offer Penalty If did not offer MEC to FT employees and their dependents AND at least 1 FT employee received PTC or cost-sharing reduction. 10

6 4980H(a) No Offer Penalty - more Offer is not same as paying for coverage Must offer to at least 95% of FT employees 70% for 2015 Dependent = child per 152(f)(1) who has not yet reached age 26 Child is dependent for entire month he turns 26 Spouse is not a dependent for 4980H purposes Penalty = $2,000/FT EE less first 30 EEs 80 for 2015 Monthly determination H(b) No Affordable Coverage Penalty If coverage is not minimum value or affordable AND at least 1 FT employee rec d PTC or cost-sharing reduction Affordable = cost to EE < 9.5% of household income 3 possible safe harbors for ER to determine affordability To address reality that ER doesn t know EE s household income Minimum value covers at least 60% of total allowed cost of benefits expected to be incurred under plan HHS and IRS minimum value calculator + regs Penalty = $3,000 per EE who rec d PTC or CSR Max penalty is limited to the (a) penalty Monthly determination 12

7 Related employers / controlled groups 4980H(c)(2)(C)(i) All persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 of the Internal Revenue Code of 1986 shall be treated as 1 employer. More details in regs So, before counting FT employees and FTEs be sure to identify the employer(s). 13 Why knowing about your full-time employees is key! To know If you are applicable large employer Who you need to offer coverage to (and their dependents) to avoid the a penalty. Whether any IRS assessment is correct. 14

8 4980H Risks Did not properly ID all your FT employees, so did not offer them coverage for all months. Note may be able to excuse some months under various special rules. Do not have sufficient records to refute an IRS assessment. IRS will assess if EE appears to be FT EE and received PTC or cost-sharing payments. Others? 15 Transition rules for ESRP 4980H 7/9/13, Treasury extended effective date 1 year for 4980H, 6055 and 6056 Per Notice So, 2015 rather than 2014 for reporting and any possible penalty 16

9 More transition rules in regs Why? 2015 becoming familiar with the rules and applying for first time with respect to 2014 (to determine status for 2015) Preamble TD 9655, V.F Transition rules summarized at TD 9655 (2/12/14), Preamble XV 17 Transition rules include Section 125 non-calendar year plans [XV.C] Shorter period for determining ALE status for 2015 [XV.D.3] Can use any 6 month period of 2014 to determine if ALE (rather than all 12 months); with modification for seasonal workers. 18

10 More transition Offer of coverage for Jan 2015 [X.V.D.4] only for Jan 2015, ok if offer coverage no later than 1 st day of 1 st payroll period that begins in January 2015 ok to treat as coverage for January WHY offer of coverage for 4980H means If not offered for all days of month, is NOT a month of coverage H-4(c). 19 More 3 month free ride [X.V.D.3 & Reg] For EE not offered coverage in prior year If employer is ALE for first time and offers EE coverage at or before April 1, Then no penalty for ER for not offering coverage for Jan, Feb and March Provided coverage offered on April 1 provides MV Coverage for dependents might be excused [X.V.D.5] 20

11 And Some ALEs excused for 2015 if < 100 full-time and/or FTEs Conditions must be met including: From Feb 9, 2014 to 12/31/14, ER does not reduce size of workforce or overall hours of service of EEs to meet this size requirement, unless for bona fide reasons. Maintains previously offered coverage. Certification of eligibility for this relief (likely on 1094-C) Otherwise, 4980H applies for [X.V.D.6] 21 Transition in calculation of penalty X.V.D.7 Offers of coverage to at least 70% of fulltime employees (rather than 95%) ALE with 100 or more full-time and FTE, the a penalty determined by first subtracting 80 employees (rather than 30). [4980H(c)(2)(D)] 22

12 4980H Transition Relief Reminders To know if ALE for 2015 If > 49 but < 100 full-time and FTE If any special counting rule applies For relaxed penalty calculation MORE See reg, preamble, notices, IRS FAQs 23 Summary - Getting ready for 2015 Figure out who is an applicable large employer Base is year before effective date (+ some transition rules for first year) Identify who is the employer Be sure workers properly classified Section 530 worker is EE for 4980A purposes. Special rules for how to count: Seasonal workers Variable hour workers Special situations such as adjunct faculty Staffing firms (need to know who is common law employer) 24

13 Some terminology 25 Full-time employee For any month, EE employed on average at least 30 hours per week 130 hours per month is monthly equivalent of full-time 26

14 Full-time equivalent employee (FTE) -2(c)(2) Total hours for month of EEs who are not FT EEs And Divide by Special rules depending on why you are identifying FT EE For rules on the determination of whether an employee is a full-time employee, including a description of the lookback measurement method and the monthly measurement method, see H 3. The look-back measurement method for identifying full-time employees is available only for purposes of determining and computing liability under section 4980H and not for the purpose of determining status as an applicable large employer under H Determining FT employees LONGEST part of regs! 28

15 Minimum Essential Coverage (MEC) HHS: type of coverage an individual needs to have to meet the individual responsibility requirement under the Affordable Care Act. This includes individual market policies, job-based coverage, Medicare, Medicaid, CHIP, TRICARE and certain other coverage IRS website has helpful chart! 30

16 Offer of coverage -4(b) 31 Offer of coverage and PEO H-4(b)(2) EE performs services for ER that is client of staffing firm and the firm is not the common law employer, and Staffing firm makes offer of coverage to EE on behalf of client employer under plan of staffing firm, then Offer of coverage is treated as made by client ER under 4980H only if the fee the client employer would pay to the staffing firm for an employee enrolled in health coverage under the plan is higher than the fee the client employer would pay the staffing firm for the same employee if that employee did not enroll in health coverage under the plan. PEO = Professional Employer Organization

17 90-day waiting period + orientation period Final rules 6/25/14 Issued by Treasury, HHS and DOL Orientation period before ER s 90-day waiting period starts Need to be sure it not a subterfuge for lengthening 90- day max waiting period Ok if does not exceed 1 month Regs explain how to count: Start date + 1 month 1 day Example: employee starts May 3, Orientation period ends June 2 33 Minimum value HHS info HHS Glossary A health plan meets this standard if it s designed to pay at least 60% of the total cost of medical services for a standard population. Starting in 2014, individuals offered employer-sponsored coverage that provides minimum value and that s affordable won t be eligible for a premium tax credit Minimum Value Calculator Methodology Minimum Value Calculator (excel spreadsheet) Notice minimum value 34

18 35 Minimum Value (MV) -1(a)(28) Same meaning as at 36B(c)(2)(C)(ii) Notice and any others Gov t concern that promoting plans to employers that do not provide in-patient hospitalization coverage, but saying meets MV. Regs to be finalized in 2015 Transition in meantime -- 36

19 Minimum value - Notice The Departments believe that plans that fail to provide substantial coverage for in-patient hospitalization services or for physician services (or for both) (referred to in this notice as Non-Hospital/Non- Physician Services Plans) do not provide minimum value intended by the minimum value requirement and will shortly propose regs to this effect with a view to being in a position to finalize such regs during 2015 and make them applicable upon finalization. Accordingly, employers should consider consequences of the inability to rely solely on MV Calculator (or any actuarial certification or valuation) to demonstrate that a Non-Hospital/Non-Physician Services Plan provides minimum value for any portion of any tax year ending on or after January 1, 2015, that follows finalization of such regs Query how often might this problem arise? 38

20 Affordability -5(e) Affordable means 9.5% of household income. How does employer know employee s household income? 39 Remedy --- Safe harbors! -4(e) Optional May use more than 1 Conditions for use include must offer MEC to FT employees and dependents that provides MV for self-only coverage Apply in uniform and consistent manner 40

21 The 3 safe harbors 1. Form W-2 EE cost for ER s lowest cost self-only coverage that provides MV does not exceed 9.5% of their W-2 wages 2. Rate of pay For hourly workers. EE cost does not exceed 9.5% of amount equal to 130 hours x rate of hourly pay 3. Federal poverty line EE cost for month for lowers cost self-only coverage providing MV does not exceed 9.5% of monthly amount of FPL for single individual for year divided by From employer s perspective, which safe harbor sounds best? 42

22 W-2 safe harbor example Jane works for ABC Corporation for all of 2015 W-2 wages = $24,000 ABC offers Jane Coverage for her and dependents with MV Jane s cost for self only coverage is $100/month Affordable? YES $24,000 x 9.5% = $2,280 Jane s cost of $1,200 is less than that H How assessed? IRS to contact employer To notify that one or more employees rec d PTC or cost-sharing reduction Get opportunity to respond to notice Likely to receive after April 15 and after 1095-C filed by employer So IRS knows who claimed a PTC and if they are a FT employee (rec d 1095-C) 4980H(d) Reg H-6 reserved 44

23 Example ABC is ALE 60 full-time employees in 2015 for all 12 months of the year 6/16 IRS notifies ABC that 10 FT employees rec d PTC 45 Possibilities 1) IRS is wrong, no penalty owed Must be able to prove this 2) IRS is correct 1) If ABC did not offer MEC to all FT EEs and their dependents $2,000 x (60 30) = $60,000 2) If ABC did offer MEC to all FT EEs and their dependents that was affordable and MV $3,000 x 10 = $30,000 46

24 Open issues What will the IRS notice look like? Will it include an amount due? Perhaps $2,000 x # 1095-Cs filed less 30? (highest possible penalty amount) Would be too high if 1095-C recipients were not employed for entire year, or affordable/mv MEC was offered to all FT employees and their dependents. How much time to respond? Will IRS audit your reply? What if ER thinks employee improperly obtained a PTC or cost-sharing reduction amount? 47 Relevant forms 48

25 1095-B, Health Coverage Issued by health insurer or ER with selfinsured plan (unless ALE); starting 2015 FAQs - Also see 6055 and regulations (TD 9660 (3/10/14)) 50

26 1095-C, Employer Provided Health Insurance Offer and Coverage Needed for 2015 (file early 2016), but can start for 2014 if want to Applicable large employer provides to IRS and EE FAQs - Will let IRS know that individual is a FT employee of employer. Relevant if the EE received PTC. 52

27 53 Line 14 sample codes 54

28 Line 16 sample codes 55 56

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30 More on Forms 1095-B and -C Regulations TD 9660 and TD 9661 (3/10/14) Transmittal forms 1094-B, Transmittal of Health Coverage Information Returns 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Return FAQs Get ready now Do you clients know if they are ALE? Remind them of common employer rule Is anyone helping your clients? If ALE, need to offer MEC to FT employees and dependents (up to age 26) - to avoid a penalty Must also be affordable and MV to avoid b penalty (if affordable and MV, employee not eligible for PTC or CSR) What documentation do they have? Can they get the 1095-C and 1094-C prepared timely and accurately? 60

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