ACA Affordability Measure for 2019 Announced

The IRS published Revenue Procedure 2018-34 announcing the affordability percentage measure for plan years beginning after calendar year 2018. The new amount is 9.86%.

This new amount is an increase from the 2018 affordability percentage of 9.56%. Affordability was pegged at 9.69% in 2017.

Employers who are applicable large employers (ALEs) use the affordability percentage to ensure that employer-sponsored coverage is “affordable” and thereby avoid the ACA’s employer penalty. A simplified example of affordability is shown below:

Year       Affordability %   Annual W-2     Affordability      Max. Contribution

2017      9.69%                   $45,000               $4360.50               $363.38

2018      9.56%                   $45,000               $4302.00               $358.50

2019      9.86%                   $45,000               $4437.00               $369.75

The IRS Revenue Procedure announcing the 2019 affordability measure is here.

Cautions and Caveats Regarding Health Care Sharing Ministries

There has been a significant increase in enrollment in health care sharing ministries over the years since enactment of the Affordable Care Act (ACA). ACA specifically referenced health care sharing ministries, allowing an exemption from the individual mandate for individuals participating in one.

According to the Alliance of Health Care Sharing Ministries there are more than 100 registered health care sharing ministries across the country. And, the alliance claims more than one million participants.

A health care sharing ministry is not insurance. Instead, they are faith-based organizations that provide “financial, emotional, and spiritual support” to members. Participating individuals pay a monthly membership fee if they meet the qualifications to join the ministry. In many cases, the monthly membership fee is significantly lower than an insurance plan.

Qualifications may require regular attendance at worship services, abstention from tobacco and alcohol and other unhealthy activities. In some cases applicants must pledge to live a Christian lifestyle or get a recommendation from their clergy.

Since these plans are not insurance, states are generally unable to require the ministries to meet solvency requirements or establish required reserves for claims. Other protections regarding appeals for claims decisions are also not applicable to these plans.

A new wrinkle with the health care sharing ministry plans is the interest of some employers in offering these plans to employees. Apart from the concerns regarding solvency and minimal state or federal oversight, there are tax implications to consider. A letter from the IRS unequivocally states that a health care sharing ministry is “not employer-provided coverage under an accident or health plan.” The cost of employee participation is “not excluded” from the employee’s gross income. The IRS letter can be reviewed here.

Employers who are subject to the employer shared responsibility (ESR) provisions face additional hurdles if considering these plans. A health care sharing ministry plan is not considered minimum essential coverage (MEC). As such, employers could face ESR penalties if they cannot meet the required 95% offer of coverage requirement to avoid the “no offer” penalty of $2,320 per employee in 2018.

Employees may also balk at an employer offering a plan that is inextricably tied to religion and religious practices.

Employers should obtain legal guidance before offering a health care sharing ministry plan to explore all issues surrounding these plans. Individuals interested in the plans should ensure that they understand fully the requirements and restrictions associated with them.

IRS Pushes Back Due Date for ACA’s Employer Reporting

The IRS delivered a highly coveted holiday gift to employers when it announced that employers could delay sending 1095-B and 1095-C forms to employees. Notice 2018-06 was published just before Christmas.

The notice allows applicable large employers (ALEs) subject to the ACA filing requirements to furnish the required notices to individuals as late as March 2, 2018 rather than January 31, 2018. The notice advises that individuals do not need to wait for the 1095-B or 1095-C forms if they wish to file their taxes before receiving the notices from their employer or insurer.

Importantly, the notice does not provide relief for filing with the IRS. Employers must still file information returns and transmittals with the IRS before February 28, 2018 or April 2, 2018 if filing electronically. Electronic filers would normally have to file by March 31. However, since March 31 is a Saturday, the due date is pushed to the first business day following the due date.

Good faith transition relief has also been extended to employers filing returns for the 2017 year. The IRS will not impose penalties on reporting entities that have made good-faith efforts to comply with the reporting requirements. This relief is applicable to the “furnishing and filing of incorrect or incomplete information reported on a statement or return.”

Good- faith relief requires that the employer made a good -faith effort to comply with the regulations. It is applied to situations where there is missing or incorrect taxpayer identification numbers, dates of birth or other information on a return. Notably, it does not extend to failure to furnish or timely furnish a statement or return.

Failure to file returns timely or at all can result in significant penalties. Penalties range from $50 to $540 per return. The IRS notice 2017-58 regarding penalties can be found here.

Employers who have not met the due dates to file returns should do so as soon as practicable. The IRS can abate these penalties for reasonable cause. Reasonable cause requires a reporting entity to demonstrate that it acted in a responsible manner and that the failure to file was due to events beyond the reporting entity’s control.

While employers had been asking the IRS for delayed filing, this notice specifically states that such relief is not likely in future years.

The IRS news release explaining the delay can be found here.

IRS Notice 2018-06 can be seen here.

ACA Employer Reporting Penalties Increase for 2018

Many employers are getting unwelcome mail from the IRS –Letter 226J- assessing employer shared responsibility penalties. Early reports of employers receiving these letters are that errors made on the 1094-C and 1095-C forms may be the trigger.

Hopefully, these errors can be corrected and many of the penalties will be abated. But, this experience points out how important completion and filing of these forms can be. It is far better to file information correct and timely and avoid having to address an IRS missive demanding penalties!

Employers who fail to file reports timely or with incorrect information will find that doing so will cost more in 2018. Revenue Procedure 2017-58 ups some penalties for 2018.

Scenario                                            Penalty Per Return 2017         Penalty Per Return 2018

Failure to file correct returns                           $260                                                  $270

Failure to file w/in 30 days of due date          $50                                                    $50

Failure to file by August 1                                  $100                                                 $100

Intentional Disregard                                          $540                                                 $540

These are filing penalties. Employers may also face employer shared responsibility penalties for not offering coverage or for offering coverage which doesn’t meet the affordability standard.

The IRS notice regarding penalties can be found here.

30 Days to Act on IRS Letter 226J

Nestled amid holiday cards may be a less welcome letter from the IRS. The IRS has confirmed that the initial notices to employers that they may owe employer shared responsibility (ESR) penalties are going out before year-end. Letter 226J will address preliminary calculations of amounts employers owe for tax year 2015.

Employers subject to the ESR provisions are those employers who met the definition of an “applicable large employer” or ALE.  ALE status, according to the IRS, is determined each calendar year, and generally depends on the average size of an employer’s workforce during the prior year.  An employer who has at least 50 full-time and full-time equivalent employees on average during the prior year is an ALE for the current calendar year.

For calendar year 2015, the Employer Shared Responsibility Payment (ESRP) amounts are $2,080 and $3,120.

What Employers Must Do

First and most important is that employers should not ignore this letter. In fact, with only 30 days to respond, employers should be on the lookout for the letter which is expected to be sent before the end of this year.

Employers must tell the IRS whether they agree or disagree with the IRS’ assessment.

If the employer agrees with the findings in the letter he must complete, sign and date the Form 14764 response. It must be sent by the date indicated on the first page of the letter. Payment should accompany the letter or it may be paid electronically.

An employer that disagrees with the IRS’ assessment must also complete Form 14764. There must be a signed statement explaining the areas of disagreement. Documentation supporting the statement must be provided. Employers providing added documentation should indicate this by entering a check in the column on the Employee PTC listing titled “Additional Information Attached.”

Employers are not directed to file a corrected Form 1094-C. Instead, any changes should be made on the Employee PTC Listing.

The IRS will reply with an acknowledgement letter following the employer’s response that provides their final determination.

If the employer does not respond within the time frame the IRS will send a Notice and Demand for the proposed amount in the letter 226J. The amount will be subject to IRS lien and levy enforcement actions. Interest will also accrue from the date of the Notice and Demand and continue until the amount due is paid.

Note that the ESRP is not deductible for income tax purposes.

Employers should keep a copy of the letter and any documents that are submitted to the IRS.

The IRS has a web page to explain the letter 226J. It can be found here.

IRS Drops the Mic on Employer Shared Responsibility Payments

Employers who have been counting on the IRS to forget about employer shared responsibility payments apparently have run out of luck. The IRS recently revised one of their FAQ documents to outline their upcoming issuing of penalty demand letters.

Employers can look forward to receiving Letter 226J. The letter will include:

  • A summary table itemizing each month an employer may be liable for a payment
  • A response form, Form 14764, “ESRP Response”
  • Form 14765 which will list by month an ALE’s assessable full-time employees
  • A description of actions the ALE employer should take to dispute the letter’s findings.

The Letter 226J will include a due date for the employer’s response. It will generally be 30 days from the date of the letter. If an employer doesn’t respond or doesn’t respond timely, the IRS will issue a notice and demand for payment, Notice CP 220J.

Letter 226J can be found here https://www.irs.gov/pub/notices/ltr226j.pdf

Samples of the letters and forms are not yet available for review. However, the IRS states that the Letter 226J for calendar year 2015 will be issued in “late 2017.”

The IRS FAQs that provide details are numbered 55-58 and can be found here.

Counting Employees Not as Easy as 1…2…3

Most children can count to 10 in preschool. The average child can count to 200 at age six. But, employee benefit professionals know that counting – when counting employees — is anything but easy.

The reason that counting employees isn’t easy is that it depends why they’re being counted. Different laws at the federal and state level count employees in different ways. This is particularly true for laws that impact employee benefits.

The Affordable Care Act (ACA) requires that employers count employees to determine whether an employer is an “applicable large employer” or ALE.  An ALE is subject to the employer shared responsibility requirements of the law. First an employer needs to consider if the firm is part of a controlled group. Then, an employer must determine the number of full-time and full-time equivalent employees. Employers must make this determination of ALE status each year. The IRS guidance on determining ALE status can be found here.

COBRA, the federal employee continuation law requires a different method of counting employees. COBRA requires that employers count full-time and part-time employees. A part-time employee is counted as a fraction equal to the number of hours worked divided by the hours an employee must work to be considered full-time. A more detailed explanation of counting employees for COBRA purposes can be found in An Employer’s Guide to Group Health Continuation Coverage Under COBRA.

State continuation laws may count employees differently than COBRA.

Medicare Secondary Payer (MSP) provisions require yet another counting method. The MSP provision applies to group health plans of employers with 20 or more employees. Generally speaking, MSP looks to employees on the payroll. But, the technical aspects of counting employees are more involved as Section 10.3 of the Medicare Secondary Payer (MSP) Manual Chapter 2 reveals.

Form 5500 filing requirements for welfare plans add yet another counting complication. A welfare benefit plan that covered fewer than 100 participants as of the beginning of the plan year may be exempt from the filing requirements. The instructions for Form 5500 provide the details.

Other laws or regulations that may require different counting methods include:

  • Family and Medical Leave Act (FMLA)
  • Pregnancy Discrimination Act (PDA)
  • Age Discrimination Employment Act (ADEA)
  • PCORI fee
  • Form W-2 cost of health benefits requirement
  • Numerous other federal and state laws.

IRS Releases New Employer Reporting Forms

First the “bad news”…

Employers hoping that the IRS will relax ACA employer requirements may find the recent release of the draft 2017 employer reporting forms disheartening.

Many had hoped that President Trump’s Executive Order directing the Department of the Treasury to review tax regulations to reduce the tax regulatory burdens would include ACA’s employer reporting requirements and attendant penalties. However, the Treasury Department’s Notice 2017-38 regarding the review of regulations to identify regulatory burdens notably did not include any reference to ACA compliance.

Now the “good news” (sort of)…

The draft 2017 reporting forms have few changes. Sections related to expired transition relief have been deleted. Consistency in the forms from last year is good news for employers who have figured out how to complete the forms from the prior years. Changes may still be in the offing once instructions for the forms are published and the forms are finalized.

The draft forms are:

Form 1094-B

Form 1095-B

Form 1094-C

Form 1095-C

And, the “no news”…

There still haven’t been any signs that the IRS is sending notices to employers that they owe penalties under the “pay or play” provisions of the ACA. Some pundits believe that employers may see any demands for payments before the close of 2017.

In the meantime…

Employers should continue to comply with the requirements of the ACA.

Caution — Affordability Percentage Declining for 2018

Employers who are beginning assessing their plans for 2018 may need to revisit their contribution strategy if they are subject to the employer responsibility requirements of the ACA. Employers who are “applicable large employers” (ALEs) must ensure that coverage is “affordable” in order to avoid the ACA’s employer penalty.

Employer sponsored coverage was initially defined as an employee contribution for self-only coverage of no more than 9.5% of  the employee’s household income. The safe harbor established by the IRS affirmed that employers don’t know an employee’s household income; substituting the use of Form W-2 wages.

The affordability percentage is indexed and, as such, has gradually increased reaching 9.69% in 2017. However, 2018’s limit will decrease to 9.56%. As a result, even if an employer’s health plan premium doesn’t increase, the employer may have to up the employer’s contribution to keep coverage affordable. See the simplified example below:

Year       Affordability %   Annual W-2     Affordability      Max. Contribution

2017      9.69%                   $45,000               4360.50               $363.38

2018      9.56%                   $45,000               4302.00               $358.50

Employers who use the federal poverty level safe harbor will benefit from an increase in the federal poverty level to offset the affordability percentage decrease. The maximum monthly contribution using the FPL safe harbor will increase as shown below.

Federal Poverty Level Safe Harbor

Year                  Prior Year FPL   Affordability %   Maximum Monthly Contribution

2017                     $11,880               9.69%                   $95.93

2018                     $12,060               9.56%                   $96.08

With the daily news of Congressional deliberations to “repeal and replace” the ACA, some wonder if compliance with the ACA is still required. Unless and until legislation is passed by the House and Senate and signed by the President, compliance with the provisions of the ACA is recommended.

The IRS Revenue Procedure announcing the 2018 affordability measure is here.

ACA Employer Reporting Compliance Still Required

Mark Twain has been quoted as saying, “The rumors of my death have been greatly exaggerated.” One could use this same phrase to describe the penalties that employers face for noncompliance with the ACA’s employer reporting requirements.

President Trump’s first executive order signed on January 20th may be the “rumor” that ACA compliance is stayed. The order includes the following statement:

“Sec. 2.  To the maximum extent permitted by law, the Secretary of Health and Human Services (Secretary) and the heads of all other executive departments and agencies (agencies) with authorities and responsibilities under the Act shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”

Despite this order, the law still stands, as well as the pages of regulations published to implement the law. Whether the order can be used by any federal agency to waive penalties is unclear and could result in legal action.

The recent release of a TIGTA report may indicate that the IRS is still moving forward in its efforts to assess penalties on noncompliant employers. TIGTA is the Treasury Inspector General for Tax Administration. TIGTA issued a final report on April 7, 2017 titled: Affordable Care Act: Assessment of Efforts to Implement the Employer Shared Responsibility Provision. The report can be read here.

The report found that the IRS has had difficulty processing the ACA-related forms that employers have filed. Despite these delays some of the needed systems are expected to come online in May 2017.

Much of the 43 page report focuses on technical review and analysis of IRS processes. But, it is clear that progress is being made to implement the penalty assessment capabilities of the IRS that will identify noncompliant Applicable Large Employers (ALEs).

Employers are advised to continue to comply with the requirements of the ACA unless and until President Trump signs a law that ends them. Anything else amounts to “rumors.”