Following the King v. Burwell decision, where the Supreme Court ruled taxpayers who purchase health insurance on a federal healthcare marketplace exchange (federal exchange) are entitled to subsidized premium credits, we want to remind you of a few key Affordable Care Act (ACA) items. These reminders are even more important as Congress recently raised the penalty amounts for failure to properly report the required information.
Remember, the ACA goes well beyond the requirement to provide “affordable” health insurance. It is interpreted and enforced by three different federal agencies, Health and Human Services, the Department of Labor, and the Internal Revenue Service, which is designated as the principal enforcement agency for the tax provisions of the ACA.
Many of the ACA requirements hinge upon the number of full-time employees in a business. As a result, each year it is important to determine the number of full-time and full-time equivalent (FTE) employees, especially if you have a large contingency of part-time employees. This is crucial in determining whether your business is an applicable large employer (ALE) for that respective year and therefore subject to the shared responsibility rules (i.e., the employer mandate). You should also review whether your business entity is affiliated with other commonly owned entities. If so, those other entities may impact how your ALE status is determined. An ALE is an employer with more than 50 full-time or FTE employees in 2015.
Employer reimbursement of health insurance premiums
Small employers who reimbursed employees for premiums paid on individual health coverage and not considered ALEs in 2014 were provided transitional relief under Notice 2015-17 that the $100 per day per employee excise tax will not be assessed for that year. In addition, from Jan. 1, 2015, to June 30, 2015, the excise tax will not be assessed for those employers who are not ALEs.
Since the case sustained the ACA subsidies to the federal exchange, the law is still intact which means, effective July 1, the provisions of that Notice require the ACA penalty be assessed to an employer who continues to reimburse in this manner.
Employer reporting requirements
Reporting of healthcare coverage is due for all employers in early 2016 (to report 2015 data); however, companies and business entities should be putting systems in place and collecting the necessary information now since the data file structures will need to be ready for reporting based on 2015 data. Depending on whether you sponsor self-coverage or fully insured health plans, or if your business contributes to a multiemployer union plan, the reporting requirements, both to the IRS and to your employees, may differ.
Historically, the information now required by the IRS to assist in the enforcement of the ACA may not have been collected. If minimum essential coverage (MEC) is offered, significant information needs to be accumulated and reported to the IRS; including the type of coverage, the individuals covered, and their periods of coverage. Employees are required to be notified by Feb. 1, 2016, and reports are due to the IRS by Feb. 28, 2016 (or March 31, if filed electronically).
Drafts of Forms 1095-B (Health Coverage), 1095-C (Employer-Provided Health Insurance Offer and Coverage), 1094-B (Transmittal of Health Coverage Information Returns), and 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns), with instructions, have been released by the IRS. The reporting is needed to determine compliance with the employer mandate and identify individuals ineligible for premium credits.
These forms require MEC reporting on a monthly basis; as a result you should be collecting the necessary data as soon as possible. In addition to names, addresses, and identifying numbers for both employer and employee (and employee family members covered in the plan), information required in the reporting includes: the months each individual was enrolled in MEC, the employee’s share of the monthly premium for the lowest-cost minimum value health plan coverage offered, whether the employee was a full-time employee each month, and the affordability safe harbor applicable to each employee. You will also need to disclose whether the employee was enrolled in the health plan, whether the plan is a qualified plan in the Small Business Health Options Program (SHOP) and the SHOP identifier.
If your business employs union member workers, you will need to coordinate reporting responsibilities with the sponsor of the union plan. This should include development of an initial plan for communicating information and verifying data collection capabilities. If you sponsor fully insured health coverage, you will need to coordinate reporting responsibilities with your insurance company.
Given the increase in identity theft and data breaches, safeguards should be put into place to reduce the potential for stolen identification.
The recently enacted trade bill included a provision that increases the taxpayer penalty cap for failure to file correct information returns (which includes the above listed forms under the ACA) and failure to furnish correct payee statements to $3 million from $1.5 million for both penalties. The amount for each individual failure has increased to $250 from $100. Lower penalty caps for when the penalty is corrected within 30 days or before Aug. 1 have also doubled and trebled to $500,000 and $1.5 million, respectively. Lower limitations for persons with gross receipts of $5 million or less have also been raised. The penalty amounts are indexed for inflation.
Transitional reinsurance fee covered life counts
The deadline for contributing entities to submit the 2015 enrollment counts for the transitional reinsurance program contributions is Nov. 15. Reporting and payment of the fee must be completed online. Employers need to submit company and contact information, the annual enrollment count for the applicable year, and upload supporting information. The form will automatically calculate the fee and you, the employer, will choose whether to make payment in one or two installments and schedule payment dates.
Between 2014 and 2016, the ACA requires all health insurance issuers (including self-insured employers) and third-party administrators to contribute toward a transitional reinsurance program to help stabilize premiums for individual health coverage. The fee, estimated for 2015 to be approximately $44 per covered life, will be tax deductible. It is assessed on a calendar-year basis, regardless of the plan year.
For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.