Compliance Recap: August 2016

August remained relatively quiet in the employee benefits world, with only new draft versions of the instructions for Forms 1095-C, 1095-C, 1094-B and 1095-B. The new draft versions of the specific forms were released in July. The IRS also released the annual contribution limits for health savings accounts (HSAs) and the deductible minimums and out-of-pocket limits for high deductible health plans (HDHPs). Finally, the IRS issued proposed regulations on reporting minimum essential coverage (MEC).

UBA Updates

UBA released seven new advisors in August:

UBA updated existing guidance:

Reporting Minimum Essential Coverage

Minimum essential coverage (MEC) is the type of coverage that an individual must have under the Patient Protection and Affordable Care Act (ACA). Employers that are subject to the ACA's shared responsibility provisions (often called "play or pay") must offer MEC coverage that is affordable and provides minimum value. In fall 2015, the IRS issued Notice 2015-68 stating it was planning to propose regulations on reporting MEC coverage that would, among other things, require health insurance issuers to report coverage in catastrophic health insurance plans, as described in section 1302(e) of the ACA, provided through an Affordable Insurance Exchange (Exchange, also known as a Health Insurance Marketplace).

In August 2016, the IRS released the anticipated proposed regulations, incorporating the guidance given in Notice 2015-68. These regulations are generally proposed to apply for taxable years ending after December 31, 2015, and may be relied on for calendar years ending after December 31, 2013.

Read more about the proposed regulations.

2017 HSA and HDHP Limits Released

For calendar year 2017, the annual limitation on HSA deductions for an individual with self-only coverage under a high deductible health plan is $3,400. For calendar year 2017, the annual limitation on HSA deductions an individual with family coverage under a high deductible health plan is $6,750.

For calendar year 2017, a "high deductible health plan" is a health plan with an annual deductible that is not less than $1,300 for self-only coverage or $2,600 for family coverage, and the annual out-of-pocket expenses (deductibles, copayments, and other amounts, but not premiums) do not exceed $6,550 for self-only coverage or $13,100 for family coverage.

Draft Reporting Instructions Released

The IRS released the draft reporting instructions for Forms 1094-C and 1095-C, and Forms 1094-B, and 1095-B. 1095-C Forms are due to employees by January 31, 2017. Paper filings are due to the IRS by February 28, 2017, and electronic filings are due by March 31, 2017. Penalties per form (for failure to file) have increased from $250 to $260.

1094-C

The 1094-C instructions provide clarification on applicable large employers and controlled group reporting.

An ALE Member is, generally, a single person or entity that is an applicable large employer, or if applicable, each person or entity that is a member of an Aggregated ALE Group.

A Form 1094-C must be filed when an ALE Member files one or more Forms 1095-C. An ALE Member may choose to file multiple Forms 1094-C, each accompanied by Forms 1095-C for a portion of its employees, provided that a Form 1095-C is filed for each employee for whom the ALE Member is required to file. If an ALE Member files more than one Form 1094-C, one (and only one) Form 1094-C filed by the ALE Member must be identified on line 19, Part I as the Authoritative Transmittal, and, on the Authoritative Transmittal, the ALE Member must report certain aggregate data for all full-time employees and all employees, as applicable, of the ALE Member.

1095-C

The instructions indicate Line 14 should never be left blank, even for months prior to and after an individual's employment. Two new codes are available for Line 14.

New codes 1J and 1K address conditional offers of spousal coverage (also referred to as coverage offered conditionally). A conditional offer is an offer of coverage that is subject to one or more reasonable, objective conditions (for example, an offer to cover an employee's spouse only if the spouse is not eligible for coverage under Medicare or a group health plan sponsored by another employer). Using new codes 1J and 1K, an ALE Member may report a conditional offer to a spouse as an offer of coverage, regardless of whether the spouse meets the reasonable, objective condition. A conditional offer generally would affect a spouse's eligibility for the premium tax credit under section 36B only if all conditions to the offer are satisfied (that is, the spouse was actually offered the coverage and was eligible for it). To help employees (and spouses) who have received a conditional offer determine their eligibility for the premium tax credit, the ALE Member should be prepared to provide, upon request, a list of any and all conditions applicable to the spousal offer of coverage.

The instructions also provide new information on reporting offers of COBRA coverage. Former employees (and their spouses or dependents) offered COBRA due to termination of employment would be reported as not being offered coverage on the 1095-C, without regard to their enrollment in COBRA. Employees offered COBRA during their employment are reported as having offers of coverage.

Employers who have more than 250 1095-C returns and who are not prepared to file electronically may file their first 250 forms on paper, and then pay the penalty for the missing remaining forms.

If you are required to file 250 or more information returns, you must file electronically. The 250-or-more requirement applies separately to each type of form filed and separately for original and corrected returns. For example, if you must file 500 Forms 1095-B and 100 Forms 1095-C, you must file Forms 1095-B electronically, but you are not required to file Forms 1095-C electronically. If you have 150 Forms 1095-C to correct, you may file the corrected returns on paper because they fall under the 250 threshold. However, if you have 300 Forms 1095-C to correct, they must be filed electronically. The electronic filing requirement does not apply if you apply for and receive a hardship waiver. The IRS encourages you to file electronically even though you are filing fewer than 250 returns. If you are required to file electronically but fail to do so, and you do not have an approved waiver, you may be subject to a penalty of $260 per return for failure to file electronically unless you establish reasonable cause. However, you can file up to 250 returns on paper; those returns will not be subject to a penalty for failure to file electronically. The penalty applies separately to original returns and corrected returns.

1094-B and 1095-B

Health insurance issuers are encouraged to report catastrophic health plan coverage for Marketplace plans for calendar year 2016. Form 1095-B now contains the language "Do not attach to your tax return. Keep for your records." The instructions were updated to reflect the fact that a taxpayer identification number (TIN) may be used on the 1095-B, Part I, lines 2 and 3, and Part IV, columns (b) and (c).

Question of the Month

Q. If an active employee is enrolled in the employer's group health plan and their spouse is Medicare eligible due to disability (not end stage renal disease), does Medicare or the group health plan pay first for the spouse's claims?

A. If the employer has 100 or more employees, the group health plan will pay first and Medicare will pay second. If the employer has fewer than 100 employees, Medicare will pay first and the group health plan will pay second.


IRS Proposes New Section 6055 Reporting Requirements for Self-Insured Employers

Great article from our partner, United Benefit Advisors (UBA) by Vicki Randall

Employers with self-insured health plans are facing new Section 6055 regulations regarding the reporting of minimum essential coverage. The proposed regulation requires self-insured employers to report this information to the IRS on either Form 1095-B or in Part III of Form 1095-C, if the coverage is provided by an applicable large employer.

Section 6055 reporting identifies those individuals who are enrolled in minimum essential coverage. In order to accomplish this, the reporting forms require the inclusion of each individual’s Taxpayer Identification Number (TIN). For an individual, this is his or her Social Security number. While employers generally have the SSNs of their employees, they are less likely to have this information for an employee’s spouse or dependents. The proposed regulations include new guidance relating to the solicitation of TINs and the solicitation process employers should follow in order to avoid any penalties for filing without the proper TINs.

As long as “reasonable efforts” are made to secure the TINs of covered individuals, an employer is permitted to report a date of birth when no TIN has been provided. The proposed regulations lay out the following three-point process that should be used in order to meet the “reasonable efforts” guideline.

Reasonable efforts process chartIf individuals are already enrolled in coverage, July 29, 2016, is to be used as the initial solicitation date as long as a TIN was solicited as part of the application for coverage or at any other point before July 29, 2016. The second solicitation is then required within 75 days after July 29, 2016, which would be October 12, 2016.

Dan Bond, Principal at Compliancedashboard said, “Interestingly enough, these proposed regulations do not change the solicitation process for incorrect TINs, and there remains some confusion over what the IRS deems as a trigger for soliciting TINs in the situation that they are incorrect. They included a footnote in these proposed regulations that we presume is referencing the AIR [Affordable Care Act Information Returns] filing system that says just because an error message is received, that error message isn’t a notice for a penalty. Nor does the filer need to start the solicitation process in response to the error message. This statement leaves some question as to what triggers a solicitation need. We are watching to see what the IRS does with this.”

Although this process is part of a proposed rule, the IRS has stated that self-insured employers may rely on the process pending the release of a final rule.

For applicable large employers and self-funded employers of all sizes who have now completed the first round of required IRS reporting under the Patient Protection and Affordable Care Act (ACA), request UBA’s ACA Advisor, “IRS Reporting, Now What?” for information on play or pay penalties, when the penalty is triggered, how the penalty will be assessed and documentation employers must have.

Topics: ACA, PPACA, self funded health plans, IRS Form 1095, Section 6055 Reporting

See the original article Here.

Source:

Randall, V. (2016 September 6). IRS propses new section 6055 reporting requirements for self-insured employers. [Web log post]. Retrieved from address http://blog.ubabenefits.com/irs-proposes-new-section-6055-reporting-requirements-for-self-insured-employers


Feds reveal how to handle tax treatment of wellness rewards

Did you get the Wellness Program notice from the IRS? Jared Bilski outlines how the new memorandum may impact your wellness benefits in the article below.

Original Post from HRMorning.com on June 10, 2016

Most HR pros are focused on ensuring their wellness rewards meet the strict requirements of the ACA and the ADA. But the IRS just reminded employers there are other considerations as well.

Via its Office of Chief Counsel, the agency just released a memorandum on its views of the tax treatment of rewards under employer wellness plans.

Note: IRS memoranda don’t constitute formal advice. However, they do give employers a good understanding of how the agency views compliance topics.

Cash, cash-equivalent rewards

The memorandum confirms that certain tax rules apply to employer-sponsored wellness program. Coverage — including health screenings and other medical care — provided by an employer-sponsored wellness program is generally excluded from an employee’s income under specific sections of The Tax Code. But cash rewards or cash-equivalent rewards earned as a result of a wellness program are a different story.

According to the IRS, if an employee earns a cash reward under the program, that reward must be included in the employee’s gross income under Code Section 61 and is a payment of wages subject to employment taxes.

In addition, if an employee earns a cash-equivalent reward that isn’t excludible from his or her income — e.g., the payment of gym membership fees — the fair market value of that reward will be included in the employee’s gross income and is a payment of wages subject to employment taxes.

Additional clarifications

A few additional clarifications in the IRS memorandum:

  • If employers reimburse all or a portion of the premiums paid by the employee through a cafeteria plan for the company’s wellness plan, those reimbursements will be included in the employee’s gross income and are payments of wages subject to employment taxes.
  • Although some non-cash benefits may be excludible as de minimis fringe benefits (e.g., a T-shirt for a company wellness plan), cash fringe benefits generally aren’t eligible to be treated as excludable de minimis fringe benefits.

Find the original article here.

Source:

Bilski, J. (2016, June 10). Fed reveal how to handle tax treatment of wellness rewards [Web log post]. Retrieved from http://www.hrmorning.com/feds-reveal-how-to-handle-tax-treatment-of-wellness-rewards/


IRS Update on Filing ACA Forms After June 30, 2016

The IRS is giving a pass this year but encourages those who missed the deadline to file ACA Forms to still complete filing returns. See the article below from ThinkHR.com for more information.

Original Post from ThinkHR.com on July 1, 2016

If you are an applicable large employer, self-insured employer, or other health coverage provider, the deadline to electronically file ACA information returns (e.g., Forms 1094-B, 1095-B, 1094-C and 1095-C) with the IRS was June 30, 2016. The ACA Information Returns (AIR) system will remain up and running after the deadline.  If you were not able to submit all required ACA information returns by June 30, 2016, you are advised to complete the filing of your returns after the deadline.

It is important to note the following:

  • The AIR system will continue to accept information returns filed after June 30, 2016.  In addition, you can still complete required system testing after June 30, 2016.
  • If any of your transmissions or submissions was rejected by the AIR system, you have 60 days from the date of rejection to submit a replacement and have the rejected submission treated as timely filed.
  • If you submitted and received “Accepted with Errors” messages, you may continue to submit corrections after June 30, 2016.

The IRS is aware that some filers are still in the process of completing their 2015 tax year filings.  As is the case for other information returns, penalties may be associated with the submission of the ACA information returns for failure to timely file required returns. As the IRS has publicly stated in various forums in recent months, filers of Forms 1094-B, 1095-B, 1094-C and 1095-C that miss the June 30, 2016 due date will not generally be assessed late filing penalties under section 6721 if the reporting entity has made legitimate efforts to register with the AIR system and to file its information returns, and it continues to make such efforts and completes the process as soon as possible. In addition, consistent with existing information reporting rules, filers that are assessed penalties may still meet the criteria for a reasonable cause waiver from the penalties.

If you are not an electronic filer and you missed the May 31, 2016 paper filing deadline for ACA information returns, you should also complete the filing of your paper returns as soon as possible.

For more information, the IRS provides helpful questions and answers on the ACA reporting requirements for applicable large employers here.

Read the original article here.

Source:

Unknown (2016, July 1). IRS Update on Filing ACA Forms After June 30, 2016 [Web log post]. Retrieved from https://www.thinkhr.com/blog/hr/irs-update-on-filing-aca-forms-after-june-30-2016/


Civil Penalties Adjusted with Interim Final Rule for ERISA Violations

Released by the United States Department of Labor through The Federal Register on July 1, 2016.

Effective August 1, 2016, the amounts for civil penalties will be adjusted as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

The interim final rule made adjustments to the civil monetary penalties enforced by the Employee Benefits Security Administration (EBSA) under the Employee Retirement Income Security Act of 1974 (ERISA). The adjustments apply to penalties assessed after August 1, 2016, whose violations occurred after November 2, 2015.
Some highlights of the new penalty amounts for ERISA violations include:
  • The maximum penalty for failure/refusal to properly file a plan annual report (Form 5500) increased from $1,100 per day to $2,063 per day the Form 5500 is late.
  • The maximum penalty for failure to provide a Summary of Benefits Coverage under the Public Health Services Act increased from $1,000 per failure to $1,087 per failure.
  • The maximum penalty for failure to provide an automatic contribution arrangement notice under ERISA increased from $1,000 per day to $1,632 per day.
  • The penalty for providing required CHIP notices under ERISA is increased from $100 per day to $110 per day
  • The maximum penalty for failure of a multiple employer welfare arrangement (MEWA) to file a report required by regulations issued under ERISA increased from $1,100 per day to $1,502 per day.
  • The maximum penalty for failure to furnish reports (e.g., pension benefit statements) to former participants and beneficiaries or maintain records increased from $11 per employee to $28 per employee.
  • The maximum penalty for failure to comply with ERISA requirements relating to genetic information increased from $100 per day to $110 per day.

To read the full release from The Federal Register, click here

Fact Sheet
FAQ


IRS Reporting: Now What?

Original Post from UBABenefits.com

By: Danielle Capilla, Chief Compliance Officer at United Benefit Advisors

Applicable large employers and self-funded employers of all sizes have now completed the first round of required IRS reporting under the Patient Protection and Affordable Care Act (ACA). The ACA requires individuals to have health insurance, while applicable large employers (ALEs) are required to offer health benefits to their full-time employees.In order for the IRS to verify that (1) individuals have the required minimum essential coverage, (2) individuals who request premium tax credits are entitled to them, and (3) ALEs are meeting their shared responsibility (play or pay) obligations, employers with 50 or more full-time or full-time equivalent employees and insurers were required to report on the health coverage they offered. Similarly, insurers and employers with less than 50 full time employees but that have a self- funded plan also have reporting obligations. All of this reporting is done on IRS Forms 1094-B, 1095-B, 1094-C and 1095-C.

Now that the first set of forms has been completed, many employers are wondering what the next steps are. Employers that did not fulfill all of their obligations under the employer shared responsibility provision (play or pay) might owe a penalty to the IRS. A penalty will be owed in regard to the 2015 plan year if:

  • The employer does not offer health coverage or offers coverage to fewer than 70 percent of its full-time employees and the dependents of those employees, and at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace; or
  • The employer offers health coverage to all or at least 70 percent of its full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable to the employee or did not provide minimum value.

As of March 2016, the only information from the IRS on the payment of these penalties is as follows:

The IRS will adopt procedures that ensure employers receive certification that one or more employees have received a premium tax credit. The IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made. The contact for a given calendar year will not occur until after the due date for employees to file individual tax returns for that year claiming premium tax credits and after the due date for applicable large employers to file the information returns identifying their full-time employees and describing the coverage that was offered (if any).

If it is determined that an employer is liable for an Employer Shared Responsibility payment after the employer has responded to the initial IRS contact, the IRS will send a notice and demand for payment. That notice will instruct the employer on how to make the payment. Employers will not be required to include the Employer Shared Responsibility payment on any tax return that they file.

Employers will be notified if an employee who either was not offered coverage, or who was not offered affordable, minimum value, or minimum essential coverage, goes to the Exchange and gets a subsidy or “advance premium tax credit.” To understand this “Employer Notice Program” the appeals process, and how affordability must be documented, request UBA’s newest ACA Advisor, “IRS reporting Now What?”


Taxation of Identity Protection Services

Original post ubabenefits.com

According to the IRS, identity theft has been the number one consumer complaint to the Federal Trade Commission for 15 consecutive years. The Bureau of Justice Statistics estimates that 17.6 million people were victims of identity theft in 2014. Organizations at every level are trying to protect employee and customer personal information from computer hacking that can disclose sensitive information to identity thieves. As a protective measure, some businesses are providing identity theft protection services in the hopes of preventing and mitigating damage from a data breach. Some insurance carriers are now also offering identity protection services to their customers at no additional cost. Questions were posed to the IRS concerning the taxability of identity protection services provided at no cost to customers, employees, or other individuals whose personal information may have been compromised in a data breach.

The taxation of this identity protection benefit/service was considered by the IRS in 2015 and again in early 2016. Originally, the IRS determined that an individual whose personal information may have been compromised in a data breach does not have to include the value of such an identity protection service in his or her gross income. Similarly, the IRS had ruled that an employer providing such data protection services to employees whose personal information may have been compromised in a data breach of the employer’s recordkeeping system (or employer’s agent or service provider) does not have to include the value of such service in the employee’s gross income or wages. The value does not have to be reported on an individual’s W-2. (See IRS Announcement 2015-22.)

But what about identity theft protection services that are offered as a precautionary measure before a breach occurs? Blue Cross Blue Shield, for example, is now offering identity protection services to all eligible BCBS members on an opt-in basis as of January 1, 2016. The offering includes credit monitoring, fraud detection and fraud resolution support. After the IRS elicited comments on Announcement 2015-22, it decided to extend the same tax treatment to identity protection services provided to employees or other individuals before a breach occurs, similar to that offered by Blue Cross Blue Shield. (See Announcement 2016-02.) The reasoning behind this ruling is that providing identity protection services to employees and others before a data breach occurs will foster earlier detection of a data breach and may minimize the impact of a breach on operations.

While this tax treatment does not apply to cash received in lieu of the identity protection service or proceeds received under an identity theft insurance policy, it is a benefit that is worthwhile to flag for your clients at a time when identity theft continues be a growing problem in the United States.


Death and Taxes for Qualified Plans

Original post ubabenefits.com

An IRS plan audit uniquely focuses an employer’s mind on the core identity of its qualified retirement plan, which is that of a tax exempt organization, but one whose exemption (or “qualification”) requirements are far pickier than those applicable to one’s favorite charity. Any single material operational violation or non-conforming written plan provision risks disqualification and loss of the related special tax benefits.

And disqualification was in fact the Tax Court’s ruling in Family Chiropractic Sports Injury & Rehab Clinic, Inc. v. Commissioner, decided January 19, 2016. The plan victim was an Employee Stock Ownership Plan (ESOP), a type of qualified plan primarily designed to invest in the stock of the employer and whose sole participants were a divorced chiropractor and his exwife. Without acknowledging the ESOP’s ownership of virtually all of the stock of the company sponsor, the couple’s divorce decree awarded each one-half of the plan sponsor’s outstanding stock. By later documents the ex-wife transferred all of her ESOP share account to her former husband’s ESOP account. Plan disqualification was held effective as of the date of that transfer principally because: (1) it was not pursuant to a properly approved qualified domestic relations order (QDRO) and, therefore, violated the anti-alienation rules of the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code – which generally prohibit assignment of a participant’s plan benefit before it is properly distributed under the plan, and, independently, (2) the transfer violated the terms of the ESOP plan document regarding the distribution rights of participants.

In addition to ERISA fiduciary liability, the consequences of disqualification include, for open tax assessment years (generally three years back), taxes on the income of the plan’s trust, taxation of participants on vested undistributed benefits, taxation of otherwise tax-free rollovers from the plan, and disallowance or deferral of the plan sponsor’s deductions for contributions to the plan. In an IRS plan audit, a plan sponsor can avoid disqualification by not only fixing the mistake financially, but also paying as a sanction a negotiated percentage of the income tax amounts described above – potentially quite expensive, but normally far preferable to actual disqualification, which occurs only rarely.

Fortunately, the IRS’s Voluntary Correction Program (VCP) and other IRS Employee Plans Compliance Resolution System (EPCRS) correction procedures can reduce exposure resulting from the inevitable plan failures. But these procedures are most attractive when the employer discovers the failures and can voluntarily propose correction before the IRS announces an audit. Also, no standard IRS correction procedure exists to remedy a transfer of a plan benefit by a participant outside of the QDRO rules. In Family Chiropractic, undoing the illegal assignment of the ex-wife’s ESOP account may have simply been unacceptable to the IRS and the parties under the circumstances.

Disqualification exposure is reduced through regular administrative and legal review of plan operations in order to discover and deal with failures before the IRS does. IRS officials have stated that an employer’s probability of plan audit is reduced if the annual Form 5500 does not contain blank fields, internal inconsistencies, large unvested benefits for terminated participants (a partial termination risk), or substantial amounts of hard-to-value “other” assets.


IRS Reporting: Now What?

Original post ubabenefits.com

Applicable large employers and self-funded employers of all sizes have now completed the first round of required IRS reporting under the Patient Protection and Affordable Care Act (ACA). The ACA requires individuals to have health insurance, while applicable large employers (ALEs) are required to offer health benefits to their full-time employees. In order for the IRS to verify that (1) individuals have the required minimum essential coverage, (2) individuals who request premium tax credits are entitled to them, and (3) ALEs are meeting their shared responsibility (play or pay) obligations, employers with 50 or more full-time or full-time equivalent employees and insurers were required to report on the health coverage they offered. Similarly, insurers and employers with less than 50 full time employees but that have a self-funded plan also have reporting obligations. All of this reporting is done on IRS Forms 1094-B, 1095-B, 1094-C and 1095-C.

Now that the first set of forms has been completed, many employers are wondering what the next steps are. Employers that did not fulfill all of their obligations under the employer shared responsibility provision (play or pay) might owe a penalty to the IRS. A penalty will be owed in regard to the 2015 plan year if:

  • The employer does not offer health coverage or offers coverage to fewer than 70 percent of its full-time employees and the dependents of those employees, and at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace; or
  • The employer offers health coverage to all or at least 70 percent of its full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable to the employee or did not provide minimum value.
As of March 2016, the only information from the IRS on the payment of these penalties is as follows:

The IRS will adopt procedures that ensure employers receive certification that one or more employees have received a premium tax credit. The IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made. The contact for a given calendar year will not occur until after the due date for employees to file individual tax returns for that year claiming premium tax credits and after the due date for applicable large employers to file the information returns identifying their full-time employees and describing the coverage that was offered (if any).

If it is determined that an employer is liable for an Employer Shared Responsibility payment after the employer has responded to the initial IRS contact, the IRS will send a notice and demand for payment. That notice will instruct the employer on how to make the payment. Employers will not be required to include the Employer Shared Responsibility payment on any tax return that they file.

Exchange Notification "Employer Notice Program"

The penalty is only triggered if an employee, who either was not offered coverage, or who was not offered affordable, minimum value, or minimum essential coverage, goes to the Exchange and gets a subsidy or "advance premium tax credit."

Although the IRS has not completely determined its system for penalty assessment, it does have a system to notify employers when one of their employees enrolls in Exchange coverage and is eligible to receive advance payment of the premium tax credit. The Marketplace notice will identify the employee, that he or she is eligible for the tax credit, that this could trigger a penalty on the part of the employer, and that the employer may appeal the decision. Employers are strictly prohibited from retaliating against an employee for going to the Exchange or receiving a tax credit.

The IRS has a four-page Employer Appeal Request form, which must be submitted within 90 days of receipt of a Marketplace notice. The form asks for basic information about the employer, provides a place to identify a secondary contact, and asks for the employer to explain why it is appealing the determination that the employee is eligible for premium assistance.

Alternatively, the employer can send a letter requesting an appeal. An employer must submit an appeal with the following information:

  • Business name
  • Employer ID Number (EIN)
  • Employer's primary contact name, phone number and address
  • The reason for the appeal
  • Information from the Marketplace notice received, including date and employee information
Employers must then mail the appeal request form or letter and a copy of the Marketplace notice to:

Health Insurance Marketplace
Department of Health and Human Services
465 Industrial Blvd.
London, KY 40750-0061

This appeal will not determine if the employer owes a fee, but could help prevent employees from erroneously obtaining an advance premium tax credit, which in turn could provide the employer with information about whether or not it might owe a penalty. By preventing employees from incorrectly obtaining the advance premium tax credit, employers could lessen the chance of being asked to provide further information to the IRS to prove they met their obligations under the employer shared responsibility requirements.

Documentation

Employers should keep in mind that, in order to consider their offer of coverage affordable, they must meet the requirements of one of three affordability safe harbors. Affordability may be met under any of these criteria:

  • The W-2 test, which requires that the employee's cost not exceed 9.5 percent (indexed) of the employee's income as reported in Box 1 of the W-2.
  • The rate of pay method, which requires that the employee's cost not exceed 9.5 percent (indexed) of the lowest hourly rate paid to the employee, multiplied by 130 hours per month.
  • The federal poverty line test, which requires that the employee's cost not exceed 9.5 percent (indexed) of federal poverty rate (or about $93/month for 2015).
In some rare instances an employer might meet the requirements of an affordability safe harbor, but based on unique factors in an employee's household, the employee will be eligible for premium assistance (a tax subsidy or an advance premium tax credit) because the coverage is not affordable in relation to their household income. This situation would not trigger a penalty for the employer, so long as it met the requirements of one of the three affordability safe harbors. As a best practice, employers should have documentation that their offer of coverage fulfilled the requirements of their chosen affordability safe harbor.

When it comes to the "Cadillac" tax, there's no escaping death and taxes

Original post ubabenefits.com

The 2015 UBA Health Plan Survey data reveals who will not escape the 40% excise tax to take effect in 2020. The “Cadillac” tax, now called the excise tax, was originally set to start in 2018, but legislation passed the end of 2015 delayed the start date by two years.

The Patient Protection and Affordable Care Act (ACA) mandated that plans providing coverage that exceeds a threshold value, currently set at annual premiums of $10,200 or more for single coverage or $27,500 for other than single coverage, would be subject to this excise tax of 40%. The thresholds will need to be adjusted for inflation for 2020.

The excise tax was originally intended to be based on ”richer” benefit plans, however, industry experts have been quick to point out that premiums have little to do with the benefit plan design. The age, claims history, geography, and other demographics of group members are more relevant to premium cost.

For example, more remote locations will have higher insurance premium costs due to higher transportation (ambulance, either land or air) claims. Due to their location, 87% of plans in Alaska will be facing the excise tax as of 2020. That state’s current average deductible is more than $1,900, and the current out-of-pocket maximum is just under $4,700. Similarly, 71% of Wyoming employers will also be facing the excise tax, with a current average deductible of $2,125 and a maximum out-of-pocket cost of almost $5,000. Conversely, for New Mexico employers, with a current average deductible of $250, and an average out-of-pocket maximum of less than $1,900, only 33% of their groups will be facing the excise tax.

Health insurance premiums are also directly related to the cost of medical care. Employers with an aging workforce face an uphill battle as there is little they can do to directly affect their premiums without strong nurse coaching and care management programs. The same is true for a group with higher than average claims. Industries that are aging faster than others face steep excise taxes as seen below.

 Industry Plans Subject to
Cadillac Tax in 2020
Current Average
Deductible
 Fitness and Recreational Sports Centers 32% $2,222
 Insurance Agencies and Brokerages 34% $2,000
 Banking/Financial 47% $1,535
 Nonprofits/Civic/Community Organizations/Unions 50% $1,487
 Schools - Elementary/Secondary/Colleges/Universities 52% $1,258
 Offices of Lawyers 56% $1,647
 Government/Police/Fire/Political Subdivisions 59% $1,332
 Cemeteries/Funeral Homes 72% $1,264
 Dry Cleaning/Laundry 82% $1,993
 Bus and Other Motor Vehicle Transit Systems/Other
Urban Transit Systems/Commuter Rail
93%   $900

Cemeteries and funeral homes, as well as dry cleaners and laundries, representing mostly small ”Main Street America” companies, will likely drop their coverage, as 72% and 82%, respectively, face the excise tax as of 2020. This gives new meaning to the expressions “there’s no escaping death and taxes” and “getting taken to the cleaners!” Small business employers typically have fewer than 50 employees, so there is no penalty if they drop coverage. Many in these industries will likely add to the rolls of citizens across the country claiming advanced premium tax credits on the insurance Marketplaces, adding to the cost of the ACA for other taxpayers.

Larger companies will also face the dilemma of paying the fines for not offering coverage versus paying premiums and the excise taxes. The table below shows several applicable large employers (ALEs) that would benefit from dropping coverage and paying the per-person fine. The excise taxes on the first example are higher than the employer dropping the coverage and paying the employer shared responsibility per-employee penalty, which is likely to be approximately $3,000 in 2020 (depending on adjustments for inflation).

 State No. of
Employees
 Industry 2020
Single
Premium
2020
Family
Premium
Single
Deductible
Single
Out-of-
Pocket
Maximum
 Wisconsin 85  Civic & Social Organization $18,827 $64,021 $5,000 $6,350
 Alaska 120  Real Estate Credit $16,937 $50,165 $6,350 $6,350
 Ohio 80  Other Individual & Family Services $15,426 $47,821 $4,000 $6,350
 Virginia 200  Trucking $11,047 $36,479 $2,000 $4,500

These employers want to retain good workers and provide medical insurance benefits, but at some point may not be able to keep up with the cost of coverage.

The premiums in these examples assume a 6% annual increase and only count the actual premium dollars, not any other account-based benefits offered. At this time, proposed regulations for the excise tax would also include flexible spending account (FSA) contributions by employees, health reimbursement arrangement (HRA) contributions by employers, and health savings account (HSA) contributions by either the employer or the employee. Several of the employers in the examples above offer one or more account-based benefits to help offset the high out-of-pocket maximums on their plans. The account-based plans will be the first benefits cut if the excise tax remains in effect. These citizens will be hurt financially, as the account-based plans may be their only way to help fund those high out-of-pocket costs.

Health insurance is expensive because health care is expensive. Until we can truly tackle rising health care and prescription costs, insurance premiums will continue to rise faster than general inflation. With more and more people taking monthly prescriptions which cost thousands or even tens of thousands of dollars each month, health insurance premiums will continue to be driven upward, and the number of employers facing the excise tax will grow even faster. The cost of healthcare must be addressed first and foremost, with transparency of costs being a key factor, in order to make any strides on leveling out premium increases.

To compare your health plan costs against those in your industry, region and size bracket, request a custom benchmark from Hierl!