Reform Q&A

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There is no requirement for small businesses to offer health insurance.  Businesses with 49 or fewer FTE employees are exempt from these penalties.

However, as stated below, the group would have to contribute 50% of the premium along with other criteria, if they wish to receive the small tax credit.

IRS Health Care Tax Tip 2015-38, July 1, 2015 http://www.irs.gov/Affordable-Care-Act/Employers/Get-to-Know-the-Small-Business-Health-Care-Tax-Credit

If you are a small employer, you might be eligible for the Small Business Health Care Tax Credit, which can make a difference for your business.

To be eligible for the credit, you must:

  • have purchased coverage through the Small Business Health Options Program - also known as the SHOP marketplace
  • have fewer than 25 full-time equivalent employees
  • pay an average wage of less than $50,000 a year
  • pay at least half of employee health insurance premiums

For tax years beginning in 2014:

  • The maximum credit increases to 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers.
  • To be eligible for the credit, you must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program Marketplace or qualify for an exception to this requirement.
  • The credit is available to eligible employers for two consecutive taxable years.

Even if you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments is more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That’s both a credit and a deduction for employee premium payments.

There is good news for small tax-exempt employers, too. The credit is refundable, so even if you have no taxable income, you may be eligible to receive the credit as a refund so long as it does not exceed your income tax withholding and Medicare tax liability. Refund payments issued to small tax-exempt employers claiming the refundable portion of credit are subject to sequestration.

Finally, you can benefit from the credit even if you forgot to claim it on your 2014 tax return; there’s still time to file an amended return. Generally, a claim for refund must be filed within three years from the time the return was filed or two years from the time the tax was paid, whichever of such periods expires later. For tax years 2010 through 2013, the maximum credit is 35 percent of premiums paid for small business employers and 25 percent of premiums paid for small tax-exempt employers such as charities.

 

The mandate was delayed for the 50 – 99 FTEs as long as the following criteria was met.  http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act  We are having the inaccurate information removed from the HealthcareExchange.com blog.  Thank you for bringing this to our attention.

34. Is additional transition relief available for employers with at least 50 but fewer than 100 full-time employees (including full-time equivalents)?

Yes. For employers with fewer than 100 full-time employees (including full-time equivalents) in 2014, that meet the conditions described below, no Employer Shared Responsibility payment under section 4980H(a) or (b) will apply for any calendar month during 2015. For employers with non-calendar-year health plans, this applies to any calendar month during the 2015 plan year, including months during the 2015 plan year that fall in 2016.

In order to be eligible for the relief, an employer must certify that it meets the following conditions:

(1)  Limited Workforce Size. The employer must employ on average at least 50 full-time employees (including full-time equivalents) but fewer than 100 full-time employees (including full-time equivalents) on business days during 2014. (Employers with fewer than 50 full-time employees (including full-time equivalents) on business days during the previous year are not subject to the Employer Shared Responsibility provisions.) The number of full-time employees (including full-time equivalents) is determined in accordance with the otherwise applicable rules in the final regulations for determining status as an applicable large employer.

(2)  Maintenance of Workforce and Aggregate Hours of Service. During the period beginning on Feb. 9, 2014 and ending on Dec. 31, 2014, the employer may not reduce the size of its workforce or the overall hours of service of its employees in order to qualify for the transition relief. However, an employer that reduces workforce size or overall hours of service for bona fide business reasons is still eligible for the relief.

(3)  Maintenance of Previously Offered Health Coverage. During the period beginning on Feb. 9, 2014 and ending on Dec. 31, 2015 (or, for employers with non-calendar-year plans, ending on the last day of the 2015 plan year) the employer does not eliminate or materially reduce the health coverage, if any, it offered as of Feb. 9, 2014. An employer will not be treated as eliminating or materially reducing health coverage if (i) it continues to offer each employee who is eligible for coverage an employer contribution toward the cost of employee-only coverage that either (A) is at least 95 percent of the dollar amount of the contribution toward such coverage that the employer was offering on Feb. 9, 2014, or (B) is at least the same percentage of the cost of coverage that the employer was offering to contribute toward coverage on Feb. 9, 2014; (ii) in the event of a change in benefits under the employee-only coverage offered, that coverage provides minimum value after the change; and (iii) it does not alter the terms of its group health plans to narrow or reduce the class or classes of employees (or the employees’ dependents) to whom coverage under those plans was offered on Feb. 9, 2014.

 

There are no federal laws requiring plans to provide the same benefit coverage to all employees.  The Patient Protection and Affordable Care Act (PPACA) requires employers with 50 or more employees to either offer employees health care coverage or pay a fee, but the law does not apply to part-time workers.  In addition, under the PPACA, fully insured plans providing more generous premium subsidy levels to highly compensated employees will be in violation of PPACA nondiscrimination rules once final regulations are issued and enforced on this provision.  Until such time, employers are advised to consult with legal counsel and/or their health insurance carrier for clarification regarding the practice of providing different premium subsidies for different groups of employees. 

Therefore, employers have discretion when structuring their benefits plans and are able to make distinctions among employee populations regarding access to and the level of benefits offered.  Plans may differ among employees only on “bona fide employment-based classifications” consistent with the employer’s usual business practice.  For example, part-time and full-time employees, employees working in different geographic locations, and employees with different dates of hire or lengths of service can be treated as different groups of similarly situated individuals.  

A plan may draw a distinction between employees and their dependents.  A plan also can make distinctions between beneficiaries themselves if the distinction is not based on a health factor.  A plan can distinguish between spouses and dependent children, or between dependent children based on their age.  However, under the PPACA, adult dependents must be covered to age 26, and employers must offer them the same level of coverage at the same price as currently offered to other similarly situated dependents in order to avoid fees.

The key is to make sure that benefits plan decisions are nondiscriminatory, keeping in mind the adverse impact on protected groups and any unintentional discrimination that may result from those decisions.  The EEOC Compliance Manual of Employee Benefits, Section 3 provides this helpful guidance:

This Section addresses discrimination in life and health insurance benefits; long-term and short-term disability benefits; severance benefits; pension or other retirement benefits; and early retirement incentives.  Under the ADEA, the ADA, and Title VII, charges involving these types of benefits may raise unique issues that require special analysis.  This Section discusses that analysis in detail.  At bottom, however, the fundamental principle of the anti-discrimination laws applies in this context as in all others: if an employer provides a lower level of benefits to an individual based on a prohibited factor, it must make out a defense.  If it cannot do so, its conduct will be unlawful, and cause should be found.

In addition, the Health Insurance Portability and Accountability Act (HIPAA) makes it illegal to assess health insurance premiums based on health factors.  It is not permissible to charge some employees more than any other similarly situated individuals based on medical conditions, claims experience, receipt of health care services, genetic information or disability.  HIPAA does allow an employer to make distinctions in benefits that are offered and in the cost of benefits when those distinctions are not discriminatory. 

Human resource professionals should also be concerned with giving highly compensated employees special perks.  Certain welfare plans (including self-insured medical and group term life insurance plans) will create taxable income for those employees if they receive a disproportionate amount of tax-advantaged benefits and could cause a company plan to fail its nondiscrimination testing.

In summary, it is not necessary under federal laws to give equal benefits to all employees, but an employer should base benefit eligibility on tenure, full- or part-time status, exempt/nonexempt status, job group or even department.  An employer must exercise due diligence to ensure its benefits are not discriminatory.

 

This reporting is required of most all employers (50 or more full-time or full-time equivalents, or any size self-insured) offering group health, which falls under IRS sections 6055 and 6056.

As far as penalties for these new reporting requirements, here is a Q&A from the IRS site - http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Reporting-of-Offers-of-Health-Insurance-Coverage-by-Employers-Section-6056

3. Is relief available from penalties for incomplete or incorrect returns filed or statements furnished to employees in 2016 for coverage offered (or not offered) in calendar year 2015?

Yes. In implementing new information reporting requirements, short-term relief from reporting penalties frequently is provided. This relief generally allows additional time to develop appropriate procedures for collection of data and compliance with the new reporting requirements. Accordingly, the IRS will not impose penalties under sections 6721 and 6722 on ALE members that can show that they have made good faith efforts to comply with the information reporting requirements. Specifically, relief is provided from penalties under sections 6721 and 6722 for returns and statements filed and furnished in 2016 to report offers of coverage in 2015 for incorrect or incomplete information reported on the return or statement. No relief is provided in the case of ALE members that cannot show a good faith effort to comply with the information reporting requirements or that fail to timely file an information return or furnish a statement. However, consistent with existing information reporting rules, ALE members that fail to timely meet the requirements still may be eligible for penalty relief if the IRS determines that the standards for reasonable cause under section 6724 are satisfied. See question 31 for more information about penalties under sections 6721 and 6722.

31. For information returns filed and furnished in 2017 for coverage offered (or not offered) in 2016 and later years, what penalties may apply if an ALE member fails to comply with the section 6056 information reporting requirements?

The penalty under section 6721 may apply to an ALE member that fails to file timely information returns, fails to include all the required information, or includes incorrect information on the return.  The penalty under section 6722 may apply to an ALE member that fails to furnish timely the statement, fails to include all the required information, or includes incorrect information on the statement.  The waiver of penalty and special rules under section 6724 and the applicable regulations, including abatement of information return penalties for reasonable cause, may apply to certain failures under section 6721 or 6722.  See question 2, above, for more details on when the information reporting is first required (in 2016 for coverage offered in 2015) and on voluntarily complying with those requirements in 2015 for coverage offered in 2014.  See question 3, above, for information on relief that applies with respect to these penalties for reporting and furnishing in 2016 for coverage offered in 2015.

 

 

 

No, they are not required to report premiums on the W-2s as long as they do not file 250 or more W-2s as you indicated.  Yes, they will be required to report under either section 6055 and/or 6056 and file forms.

If the employer employs an average of at least 50 full time employees (including full-time equivalents), the employer is considered a large employer and must file a §6056 annual return with the IRS for every full-time employee. The return must show:

  • The employer’s name, the date, and the employer’s EIN and the calendar year for which the information is reported;
  • The name and telephone number of the employer’s contact person;
  • A certification as to whether the employer offered their full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under their plan by calendar month;
  • The number of full-time employees for each calendar month during the calendar year, by calendar month;
  • For each full-time employee, the months during the calendar year for which minimum essential coverage under the plan was available;
  • For each full-time employee, the employee’s share of the lowest cost monthly premium for self-only coverage providing minimum value offered to that full-time employee under the employer’s plan, by calendar month; and
  • The name, address, and taxpayer identification number (SSN) of each full-time employee during the calendar year and the months, if any, during which the employee was covered under the employer’s plan.

The return will also include codes for the employer to report the following information:

  • Whether the coverage offered to the employer’s full-time employees and their dependents provides minimum value and whether the employee had the opportunity to enroll his or her spouse in the coverage;
  • The total number of employees, by calendar month;
  • Whether an employee’s effective date of coverage was affected by a permissible waiting period;
  • Whether the employer had no employees during a particular month;
  • Whether the employer is part of a controlled group, and, if applicable, the name and EIN of each employer member of the controlled group;
  • If an appropriately designated person is reporting on the employer’s behalf that is a governmental unit for purposes of §6056, the name, address, and identification number of the appropriately designated person;
  • If the employer is a contributing employer to a multiemployer plan, whether the employer is subject to an employer mandate penalty due to their contributions to the multiemployer plan; and
  • If a third party is reporting on behalf of the employer’s aggregated employer group, the name, address, and identification number of the third party. 

 

Yes, see the rules below noted on the IRS site - http://www.irs.gov/pub/irs-drop/n-12-58.pdf

 

D. New Employees: Safe Harbor for Variable Hour and Seasonal Employees

If an employer maintains a group health plan that would offer coverage to the employee only if the employee were determined to be a full-time employee, the employer may use both a measurement period of between three and 12 months (the same as allowed for ongoing employees) and an administrative period of up to 90 days for variable hour and seasonal employees. However, the measurement period and the administrative period combined may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date (totaling, at most, 13 months and a fraction of a month). These periods are described in greater detail below.

 

1. Initial Measurement Period and Associated Stability Period

For variable hour and seasonal employees, employers are permitted to determine whether the new employee is a full-time employee using an “initial measurement period” of between three and 12 months (as selected by the employer).

The employer measures the hours of service completed by the new employee during the initial measurement period and determines whether the employee completed an average of 30 hours of service per week or more during this period. The stability period for such employees must be the same length as the stability period for ongoing employees. As in the case of a standard measurement period, if an employee is determined to be a full-time employee during the initial measurement period, the stability period must be a period of at least six consecutive calendar months that is no shorter in duration than the initial measurement period and that begins after the initial measurement period (and any associated administrative period).

If a new variable hour or seasonal employee is determined not to be a full-time employee during the initial measurement period, the employer is permitted to treat the employee as not a full-time employee during the stability period that follows the initial measurement period. This stability period for such employees must not be more than one month longer than the initial measurement period and, as explained below, must

not exceed the remainder of the standard measurement period (plus any associated administrative period) in which the initial measurement period ends.8

 

8 In these circumstances, allowing a stability period to exceed the initial measurement period by one month is intended to give additional flexibility to employers that wish to use a 12-month stability period for new variable hour and seasonal employees and an administrative period that exceeds one month. To that end, such an employer could use an 11-month initial measurement period (in lieu of the 12-month initial measurement period that would otherwise be required) and still comply with the general rule that the initial measurement period and administrative period combined may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date.

 

An employee or related individual is not considered eligible for minimum essential coverage under the plan (and therefore may be eligible for a premium tax credit or cost-sharing reduction through an Exchange) during any period when coverage is not offered, including any measurement period or administrative period prior to when coverage takes effect.

 

If an employer reimburses an employee, the amount they would have contributed affects the affordability rules.  See the quoted item below from our attorneys Smith & Downey.

“On Friday, November 21, 2014, the regulators issued new regulations that have been interpreted to provide that amounts paid by employers to employees who opt-out of the employer’s health plan must be treated as additional employee contributions for purposes of the affordability component of the ACA’s employer mandate rules.

This position is a radical departure from conventional notions of “employee cost,” and therefore it is unlikely that employers with these arrangements have considered the cash-out amount available to employees who waive coverage as part of the cost calculation for employees who do not waive coverage. Nevertheless, this apparently is the position the regulators plan to take starting on January 1, 2015 when the affordability rules generally become effective. (These rules are also applicable to many arrangements where the employer makes available consideration (e.g., “benefits credits”) other than cash to employees who waive health plan coverage.)

Although the text of the regulations is truly a singular model of non-clarity, the current consensus is that the meaning of the convoluted text is best illustrated by the following example:

An employee's required contribution for individual coverage under the employer's health plan is $90 per month. 

The employer offers a cash opt-out payment of $50 per month to the employee if health plan coverage is declined.

The “cost” to the employee for purposes of determining ACA affordability is $140 (not $90).

Employers that offer payments (or credits) for opting-out of health coverage should determine – sufficiently in advance of the effective date for their plan of the ACA affordability rules – the steps they should take to respond to these regulations and avoid ACA employer mandate penalties.

Employers that maintain a “no benefits” employment category also need to pay immediate attention to this development.  (A “no benefits” practice is one where the primary distinction between an employee in one class of employee (a “benefits” category) and another (the employer’s standard employment category) is that the latter gets more salary and no benefits and the former gets less salary but also receives benefits, all other aspects of employment being equal.)  These arrangements – and arrangements where government contractor employees are paid their “fringe rate” in cash -- are particularly impacted by the new regulations.”

 

 

According to http://www.tdi.texas.gov/pubs/consumer/cb040.html, Texas small groups buy their coverages through Healthcare.gov, which is available now.  Excerpt below from the Texas Department of Insurance below.

Buying Coverage Through the Insurance Marketplace

The federal government will operate the insurance marketplace in Texas.

Businesses with 50 or fewer full-time plus full-time equivalent employees may buy coverage through the SHOP.  In 2016, employers with up to 100 full-time and full-time equivalent employees will be able to buy SHOP coverage. An employer that has SHOP coverage and hires more employees than the threshold will be able to continue coverage through SHOP.

For more information about the insurance marketplace, visit HealthCare.gov or call 1-800-706-7893.

 

There is nothing new to report on the nondiscrimination provisions.  In order to provide insured group health plan sponsors time to implement any changes required because of any regulations or other guidance, the Departments anticipate that the future guidance will not apply until plan years beginning a specified period after issuance of the regulations.

 

 

To the best of our knowledge, there is no defined penalty at this time.  Therefore, the employer should send the 720 in immediately for 2014.  Per the IRS Form 720 instructions, “Penalties and Interest  If you receive a notice about a penalty after you file this return, reply to the notice with an explanation and we will determine if you meet reasonable-cause criteria. Do not include an explanation when you file your return.”