There has been a lot of energy spent, articles written and seminars taught recently on the Affordable Care Act (ACA), and in particular, its IRS reporting requirements for Applicable Large Employers (ALEs). But what if you aren’t a large employer, and have less than 50 full-time employees? What aspects of the ACA could impact you? What do you need to know?
Reimbursements for an Employee’s Cost of Individual Health Insurance Policies – No Longer Allowed $100/day penalty could apply
Prior to January 1, 2014, an employer could reimburse an employee (or the employee’s insurance company) for the cost of their individual health insurance policy premiums (i.e., an insurance policy that is not issued under an employer-sponsored group health plan) and these reimbursements were not taxable to the employee.
Now, employers should no longer reimburse the employee or the employee’s insurance provider for the premiums of an employee’s individual health insurance policy. If, after January 1, 2014, an employer continues these reimbursements, a $100 penalty, per day, per employee, or $36,500 per employee (under Section 4980D), is applicable.
It was first believed that a way to eliminate this penalty was to have these reimbursements be taxable income to the employee as the IRS appeared to indicate it was the tax-free nature of the reimbursement that caused the problem. However, the Department of Labor, in a November 2014 FAQ, noted that any employer reimbursement arrangement (whether pre- or post-tax) violates market reform and the employer would be subject to the $100/day per employee penalty. This was further confirmed with IRS Notice 2015-17.
If, as the employer, you want to continue to assist your employees with obtaining their own individual health insurance policy while avoiding this $100/day penalty, you have a couple of options:
- Consider establishing your own employer-sponsored group health insurance plan;
- Increase the employee’s base pay without any restrictions on the use of this additional pay (i.e., no requirement to be used for insurance premiums)
Are you self-insured for health insurance or considering self-insuring?
If you are an employer that is self-insured for health insurance, regardless of the number of employees, you must comply with the IRS-required information reporting. In addition, employers that are self-insured must also pay two separate fees related to the number of covered lives under their health insurance plan.
- PCORI (Patient Centered Outcomes Research Institute) fee
- Fee is effective for policy years ending after September 30, 2012 through September 30, 2019.
- The fee is based on the number of covered lives during the policy year multiplied by the applicable fee for the year.
- $1.00 per covered life for policy years ending before September 31, 2013
- $2.00 per covered life for policy years ending before September 31, 2014
- $2.08 per covered life for policy years ending before September 31, 2015
- The fee is reported annually using IRS Form 720, Quarterly Federal Excise Tax Return, with payment made via the IRS Electronic Funds Payment System. Fee and Form 720 is due on July 31st of the year following the last day of the policy or plan year.
- Reinsurance Fee
- Fee is effective for 2014 – 2016
- The fee is assessed for each member or covered life (employees, spouses, dependents) under your health plan.
- 2014 benefit year – $63 per covered life
- 2015 benefit year – $44 per covered life
- 2016 benefit year – Proposed – $27 per covered life
- The fee is paid annually on pay.gov. Employers must submit their covered life counts by November 15th of the benefit year and remit the fee in January 2015 (could have elected to pay the majority by January 15 and then the balance by November 15).
- IRS Form 1094-C and 1095-C reporting requirements for 2015
- Beginning with the 2015 calendar year, self-Insured employers (regardless of the number of employees) must provide each full-time employee (30+ hours/week) a 2015 Form 1095-C by January 31, 2016.
- Form 1095-C will provide health insurance coverage information for the employee and their covered dependents. Employees will use this information when preparing their individual income tax returns.
- Employers will submit these Form 1095-Cs to the IRS (just as they do their W-2s and 1099s) using Form 1094-C as the transmittal form. The 1094-C does require additional information regarding monthly counts of full-time employees as well as total employees.
You may be eligible for a tax credit
Although this credit has been available since tax years that began after 2009, there was a significant change to who is now eligible for the credit. For tax years beginning after 2013, you are only able to claim the Small Employer Health Insurance Premium Credit if you obtain your employer-sponsored group health insurance through a Small Business Health Options Program (SHOP) Marketplace. If employer-sponsored health insurance is obtained through the SHOP Marketplace you will be provided a “Marketplace Identifier.” This identifier will need to be entered on Form 8941, Credit for Small Employer Health Insurance Premiums to show you are eligible for the credit.
The basics of the credit calculation remain the same; however, there are 2 significant changes that need to be pointed out.
- The potential credit increases to 50% of premiums paid, instead of 35% in prior years (percentage is less for not for profit organizations); and
- The credit is only applicable for 2 consecutive tax years.
As a reminder, for purposes of this credit, a small employer is one that has fewer than 25 full time equivalents (FTEs) with average annual wages less than $51,000 per FTE.
For more information, or if you have further questions, please reach out to your CPA or HR consultant.
Stacey Huff is the Advisory Services Director at MCM CPAs & Advisors, where she works closely with the firm’s HR consultants. Her practice expertise is currently in tax compliance as it relates to the Affordable Care Act, and her experience also includes retirement plan administration and not-for-profit tax compliance and consulting.
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