By: Sam DiSalvo, Tax Director
The IRS has created a new, and user friendly website to provide information and guidance on the tax provisions of the ACA. This website is located at www.IRS.gov/aca.
The home page is divided into three sections that will allow individuals, businesses, and other organizations (such as governmental entities and tax exempt organizations) to access the health care laws, and receive education on how the laws may affect them.
The site provides information about tax provisions that are in effect now and those that will go into effect in 2014 and beyond. Visitors to the new site will find information about legal guidance, the latest news, and links to additional resources.
The IRS/ACA webpage is user friendly, with easy to find resource information. For example, the new web based flyer -- Healthcare Law Online Resources (Publication 5093), provides a number of informational links on the ACA for individuals and employers. The website also categorizes organizations into small (fewer than 50 full time employees) and large employers, as well answering frequently asked questions, such as “Do I need to do anything right now to get ready for the changes coming in 2014?”
Delayed Until 2015, Employers Should Consider that other Reporting Requirements Could Still Apply
The business community has been expressing concerns about the complexity of the reporting requirements under the Affordable Care Act. In response to these concerns the IRS announced on July 2, 2013 (and confirmed on July 9th) that it will provide an additional year before ACA reporting requirements begin. As a result the IRS reporting requirements and the related employer mandate penalty will not apply until 2015.
The IRS indicated that it expects to issue formal guidance before summer’s end to “simplify” the onerous reporting requirements.
Even though the IRS reporting requirements have been have been delayed for one year, the individual aspects of the ACA, namely an employee’s the access to a tax credit and insurance from an exchange, still applies. As a result each employee who applies for a credit to acquire insurance on an exchange in 2014 could require its employer to fill out 12 page application.
This application can be found on the following website address: http://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/AttachmentC_042913.pdf
Due Date of July 31, 2013 for Payment of Tax on Certain Self-funded Health Insurance Plans
The Affordable Care Act of 2010 established the Patient-Centered Outcome Research Institute (PCORI) for the purpose of conducting research to evaluate and compare health outcomes, clinical effectiveness, risks and benefits of two or more medical treatments, services, and procedures. This “PCORI fee” was created, in part, to pay for its activities.
The fee is one dollar, times the “average number of lives” covered under the plan, for each plan year ending after September 30, 2012 and before October 1, 2013 and two dollars per covered person for each plan year that ends thereafter and up through September 30, 2019.
The “average number of lives” is determined by one of four optional methods. For plan years beginning before July 11, 2012 and ending after October 1, 2012 any reasonable method can be used per IRS Form 720.
Employers with self-funded health insurance plans (including VEBAs) are now required to pay a “fee” to the IRS for each plan year ending after September 30, 2012 and before October 1, 2019.
Employers with self insured plans that have year-ends between October 1, 2012 and December 31, 2012 are required to pay the fee and file Form 720, Quarterly Federal Excise Tax Return by July 31, 2013.
The fee is considered to be a deductible tax expense.
Generally, health insurance policies and self-insured plans that provide only excepted benefits, such as plans that offer benefits limited to vision or dental benefits, are not subject to the PCORI fee. The PCORI tax applies to tax-exempt organizations and governmental entities.
Employer Mandate Penalty - 2014
Starting in 2014 the ACA will impose an annual penalty on employers who:
(1) do not offer group health insurance coverage to at least 95% of its employees OR
(2) offer its employees coverage that is unaffordable. Health insurance coverage is considered affordable if an employee's required contribution to the plan for self coverage does not exceed 9.5% of the employee's household income (or Form W-2) for the tax year.
For an employer that offers no coverage, the tax is $2,000 for each full time employee (in excess of 30) if at least one employee is certified and enrolled in qualified health care coverage under an insurance exchange. If an employer offers unaffordable coverage, the tax is $3,000 for each employee that is certified. The penalty is calculated on a monthly basis and applies to tax exempt organizations and government entities.
Applicable tax is determined on 2013 employee levels
Only an applicable large employer (ALE) is subject to the tax. The ALE threshold is triggered if an employer hires an average of 50 full time employees (which includes full time equivalents or “FTEs”) in the preceding calendar year. FTEs are determined by aggregating part-time employees under specific rules provided. There are also special rules for seasonal employees. Part-time employees are considered only for purposes of determining ALE status. They are not considered in calculating the penalty.
Thus, for 2014, an employer determines whether it qualifies as an ALE by virtue of its employee count in 2013. An employer can determine whether it has exceeded the ALE threshold by looking at any consecutive six month period it chooses to use in 2013, instead of the full year.
Aggregation of separate businesses may be required in determining ALE status.
Generally, the employee count for separate businesses that share a significant level of common ownership must be aggregated and treated as a single employer in determining whether ALE status applies.
In 2013 employers should assess effort to compile information needed.
Calculating the number of employees subject to the penalty could become very complicated. This is because employers could have a number of different employee “types” (i.e. variable hour, part-time, seasonal, salaried, common law employees v. independent contractors, etc.) Employers should assess the effort needed to make an accurate count of its full time employees There is also an obligation to furnish information to the employees, which is due January 31st of the calendar year following the year for which the employer return is required to be filed. Whether ALEs or employers providing minimal health insurance coverage, there is still a reporting requirement to the IRS even if no penalty is due.
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