IRS Eases Filing Requirement for Individuals

In response to the Trump administration executive order that directed federal agencies to use discretion to reduce regulatory burdens, the IRS recently reversed course regarding individual tax returns and ACA compliance. The IRS had planned to reject individual tax returns if they were filed without information relating to whether the taxpayer had health coverage. In response to the executive order, these returns will be processed rather than rejected.

An individual shared responsibility payment for tax year 2016 is reported on line 61 of Form 1040, line 38 of Form 1040A, or line 11 of Form 1040EZ.

This doesn’t give individual filers who may not have had health coverage for all or part of 2016 a free pass. The IRS notice specifically notes that “legislative provisions of the ACA law are still in force until changed by the Congress, and taxpayers remain required to follow the law and pay what they may owe.”

The IRS reserves its right to follow-up with questions about a return and pursue amounts owed.

The announcement regarding this change in processing returns can be found here.

More information on the individual shared responsibility provision can be found on the IRS website here.

 

Contribution Strategy May Complicate Compliance

One of the recurring questions posed by NAHU members asks whether employers can vary the employer contribution to health coverage by employee class. For example, an employer may want to pay 75% of coverage for hourly workers and 50% for salaried workers. Or, an employer may want to offer 100% of coverage for workers who were with the company prior to January 1, 2017 but only 75% for those hired on or after January 1, 2017.

The short answer is “yes.” Employers have had a long history of varying contributions based on classes of employees.

The complication enters if the employer allows for pre-tax deductions of the employee portion of the premium. Cafeteria plans are subject to the Section 125 nondiscrimination rules, but there is a safe harbor exception available for premium only plans, commonly called POP plans. The safe harbor is available for POP plans if the employer allows all employees to elect the same salary reduction. These rules by the IRS indicate the following:

(f) Safe harbor test for premium-only-plans—(1) In general. A premium-only-plan (as defined in paragraph (a)(13) of this section) is deemed to satisfy the nondiscrimination rules in section 125(c) and this section for a plan year if, for that plan year, the plan satisfies the safe harbor percentage test for eligibility.

What this safe harbor means is that a plan is deemed to satisfy the Section 125 nondiscrimination rules because all employees can participate and can elect the same salary reductions for the same benefits.  There is no need to test utilization.

Here is an example from the IRS rules:

(2) Example. The following example illustrates the rules in paragraph (f) of this section:

Example. Premium-only-plan. (i) Employer F’s cafeteria plan is a premium-only-plan (as defined in paragraph (a)(13) of this section). The written cafeteria plan offers one employer-provided accident and health plan and offers all employees the election to salary reduce same amount or same percentage of the premium for self-only or family coverage. All key employees and all highly compensated employees elect salary reduction for the accident and health plan, but only 20 percent of nonhighly compensated employees elect the accident and health plan.

(ii) The premium-only-plan satisfies the nondiscrimination rules in section 125(b) and (c) and this section.

Keep in mind that this POP plan safe harbor is not available if the employer is offering other benefits beside just facilitating the payment of premiums. If the employer is offering a health FSA, the POP safe harbor  would not be applicable. Full Section 125 testing would be required.

The long answer, therefore, is that an employer wanting to create separate classes and vary contributions, eligibility or benefits will not be able to use this POP safe harbor. Full Section 125 testing will be required. A vendor or legal counsel can help the employer determine if the plan will be able to vary contributions, eligibility or benefits and still pass the Section 125 nondiscrimination testing.

 

 

New Rule Aimed at Market Stabilization

The Trump administration has published a new proposed rule aimed at stabilizing the individual insurance market. This coincides with NAHU’s emphasis on the critical need to stabilize the individual insurance market.

Critics will say that the rule doesn’t do enough. However, the rule advises that this first step is one of several that will be taken.

One of the provisions calls for individuals to verify that they qualify for a Special Enrollment Period (SEP). Anyone applying for new coverage will be required to provide verification of their SEP beginning in June 2017. Coverage will be pended awaiting verification.  The administration estimates that this may impact as many as 650,000 individuals.

The proposal would also require that SEP enrollment due to marriage would require that one of the spouses had minimum essential coverage prior to filing for coverage via SEP. The proposal would also limit changes in metal levels – the richness of the plan – for SEP-related changes.

Comments are due by March 7, 2017.

The rule can be reviewed here.

IRS Missive Seeks Out Non-Filing ALEs

It seems that some employers are receiving requests from the IRS asking where their reports are! These letters appear to be one of the first efforts by the IRS to enforce the employer responsibility requirements of the ACA.

Employers who have 50 or more full-time and full-time equivalent employees are required to file Forms 1094-C and 1095-C with the IRS. Last year was the first year that employers were required to file these forms addressing coverage provided in 2015.

The letter requires a response from the employer within 30 days from the date on the letter.

Employers are directed to check a box indicating their status for 2015. Choices include:

  • An assertion that filing had already occurred
  • Acknowledgement that the employer is an ALE and that the forms are included along with the response to the IRS letter
  • Acknowledgement that the employer is an ALE and the date that the employer will file the required forms
  • An assertion that the employer was not an ALE for calendar year 2015.

The letter closes with a reminder that noncompliance with reporting requirements could result in an assessment of penalties.

Employers that have not yet filed these information returns for calendar year 2015 should do so as soon as possible, if they receive a letter or not. It would also be wise to memorialize the reason for the delay and steps taken to come into compliance so that an employer can provide these facts in any effort to claim they made a “good faith compliance” effort.

Employers should take this enforcement effort as a gentle nudge to comply with the upcoming filing deadlines for the 2016 returns. Reports are due to be filed with the IRS on the following dates:

  • February 28, 2017 for paper forms
  • March 31, 2017 for electronical filing.

 

ACA’s Individual Mandate — IRS Provides Update

With all of the talk about whether the Affordable Care Act will be repealed, replaced, delayed or some other description, one can forget about the fact that individuals have had tax consequences related to the ACA. A recent IRS letter that updated members of Congress about tax return data and the ACA provides an interesting window into the tax side of the ACA.

One of the provisions of the ACA provides advance payments of premium tax credits to help people reduce their out-of-pocket premium costs through the year. These are generally referred to as APTC (advanced premium tax credits).

APTC is calculated based on an individual or household’s expected income, family size and other factors. APTC is reconciled when taxes are filed at the end of the tax year. In some cases individuals will have received too much of a credit while in other cases they may qualify for more credit when their taxes are calculated.

Taxpayers who received APTC must reconcile the advanced payments using Form 8962. The IRS reported that forms 8962 processed as of December 15, 2016 showed:

  • The average premium tax credit for 5.3 million taxpayers was $3,620
    • 49% of these taxpayers claimed less than $2,000
    • 22% claimed $5,000 to $10,000
    • 5% claimed credits in excess of $10,000
  • About 2.4 million filers were due additional tax credits when they filed their taxes
    • The average additional amount received was about $670
    • 80% claimed less than $1,000
  • About 3.3 million taxpayers reported excess APTC meaning that they had to repay the excess
    • The average excess to be repaid was $870; totaling $2.9 billion
    • 50% of these filers owed a repayment of less than $500
    • 75% reported owing less than $1,000
  • There are statutory repayment caps that may apply which are based on household income
    • Statutory repayment affected approximately 921,000 taxpayers; about 28% of those claiming excess APTC
    • Approximately $874 million in excess APTC for tax year 2015 was above the statutory caps.

Individuals who have not enrolled in qualifying coverage for periods during the year may owe an individual responsibility payment – the individual mandate penalty. The individual responsibility payment for 2015 was 2% of income above the filing threshold or$325 per adult, whichever is greater.

Approximately 6.5 million taxpayers reported a total of $3.0 billion in individual shared responsibility payments. The average payment was around $470 with about 70% of payments $500 or less.

21st Century Cures Act Includes New HRA Provision for Small Employers

The 21st Century Cures Act passed the House and Senate on a bipartisan basis and  signed  by the President on December 13, 2016. This 1,000 page bill includes language that allows small employers to provide health reimbursement arrangement (HRA) funds for employees to purchase individual coverage.

Key provisions of Section 18001 titled “Exception from Group Health Plan Requirements for Qualified Small Employer Health Reimbursement Arrangements.

A “qualified small employer health reimbursement arrangement” is one that is funded solely by an eligible employer without salary reduction. It is provided on the same terms to all eligible employees.

Notwithstanding this requirement, the amount of the benefit may vary based on the price of a policy in the individual insurance market based on the age of the employee and/or family members and the number of family members eligible.

The arrangement provides payment or reimbursement of an eligible employee’s expenses for medical care under Section 213(d) incurred by the employee and eligible family members.

An eligible employer is one that is not an ALE under the definition in section 4980H of the ACA. Also, the employer must not offer a group health plan to any of its employees.

The maximum dollar limit per year is $4,950 for an individual employee and $10,000 for family members.

The maximum benefit may be prorated based on the months that an individual is covered by the arrangement. The annual maximum is to be adjusted for inflation using the Consumer Price Index (CPI) inflation rate.

The plan is subject to nondiscrimination requirements and may exclude employees defined in Section 105(h)(3)(B). The Act amends these requirements for the purposes of this provision by substituting 90 days for “3 years” in clause (i). As such, employees that may be excluded are:

  • Employees who have not completed 90 days of service
  • Employees who have not attained age 25
  • Part-time and seasonal employees
  • Employees who are members of a collective bargaining agreement
  • Employees who are nonresident aliens and who receive no earned income in the US.

Notice Required

 Employers are required to provide a notice 90 days before the beginning of the year or when an employee is first eligible for the plan. The notice must contain:

  • Statement of the amount of the eligible employee’s permitted benefit
  • Statement that information regarding the benefit must be provided by the employee to any health insurance exchange if applying for APTC
  • Statement that if the employee is not covered under MEC (minimum essential coverage) for any month that the employee may be subject to the individual mandate tax for the month and any reimbursements under the arrangement may be included in gross income.

Failure to provide the notice can result in a penalty of $50 per employee per incident not to exceed $2,500.

 Notices must be provided to years beginning after 12/31/16 or 90 days after the date of enactment of the Act.

HRA and Affordability

The HRA reimbursement is treated as affordable coverage for a month if the amount that would be paid by the employee as premium for self-only coverage under the second lowest cost silver plan offered in their respective individual health insurance market does not exceed the household affordability threshold. The applicable amount for a month is calculated based on 1/12 of the employee’s permitted benefit.

Effective Dates and Other Notes

The provisions of the section are effective for years beginning after 12/31/16. Coordination with the health insurance premium credit applies to taxable years beginning after 12/31/16.

Form W-2 reporting applies to calendar years beginning after 12/31/16.

 The HRA benefit is not subject to COBRA continuation requirements.

This small employer HRA is not considered a “group health plan” for some ERISA purposes.

There are some provisions for transitional relief which may benefit small employers that have had HRAs that were not in compliance with previous IRS guidance.

 

 

Preparing for 2017 – Checking Status and Filing Forms

Santa may be making a list and checking it twice, but employers have to check their ALE status and prepare to file forms!

Employers of all sizes need to take stock by calculating the number of full-time and full-time equivalent employees for the year 2016. If the average meets or exceeds 50, the employer will be an applicable large employer, or ALE, for 2017.

Determination of ALE status is done on a calendar year basis. It is not done based on an employer’s health plan renewal date. Importantly, employers that don’t currently offer a health plan must make this assessment!

The end of the year also has employers assembling the information necessary to complete Forms W-2 for employees. And, effective with the New Year, employers have this one filing deadline for both employee and agency copies of this form. These are due to be distributed by January 31, 2017. More details on this filing change can be found here.

One crunch employers faced has been eased by a recent IRS delay in the filing deadline for ACA’s 1095-C forms. Notice 2016-70 provides a 30 day extension to the due date for furnishing the 1095-B and 1095-C forms to individuals. These must be provided by March 2, 2017 rather than January 31, 2017.

This delay is particularly helpful for employers who use the W-2 safe harbor to determine whether health coverage was affordable for employees. Without a delay, employers would have to gather the wage data for the Form W-2 and apply that information to the 1095-C reporting regarding the safe harbor so that the two forms – W-2 and 1095-C could be issued to meet the January 31 deadline.

 

IRS Notice Delays ACA Employer Reporting to Individuals

In a surprise pre-Thanksgiving Day notice, the IRS has given employers some breathing space to complete and provide ACA’s 1095-C forms to employees. Notice 2016-70 provides the following:

It extends the “good faith compliance” transition relief from penalties when there is a good-faith effort to comply with information reporting requirements under sections 6055 and 6056

  • It provides an automatic extension of 30 days for the due date to provide forms 1095-B and 1095-C, but only for providing forms to individuals
  • Due dates for reporting to the IRS are not extended
  • It reminds taxpayers that they do not need to have their forms 1095-B and 1095-C to complete their tax return. They can obtain needed information from other sources.

Employers who had already filed for a 30 day extension to provide notices to employees will not receive a response from the IRS due to this automatic extension.

The notice also states that the good-faith compliance recognition applies only to incorrect or incomplete information. It does not apply for a failure to file a statement or return or a failure to furnish statements on a timely basis.

Preparing for ACA’s Employer Reporting in 2017

Despite the results of the election, compliance with the ACA goes on, unless and until Congress takes action. Even then, odds are that changes to the ACA will take time to be implemented.

As such, with 2016 drawing to a close, employers are reminded that they have to calculate whether they will be an Applicable Large Employer (ALE) for 2017. An employer who is an ALE has employer shared responsibility requirements under the Affordable Care Act (ACA).

Employers with 50 or more full-time and full-time equivalent employees during the previous year are deemed to be ALEs (applicable large employers) who must report to the IRS and to employees. Therefore, employers who averaged 50 or more full-time and full-time equivalent employees during the calendar year 2015 are considered ALEs for 2016 and must report in 2017. Reporting in 2017 reflects enrollment and offers of coverage for 2016.

Employers who meet the ALE definition must report whether or not they offer an insured or self-insured health plan. Employers who meet the ALE definition must report even if they don’t offer any health coverage to employees. And, employers who are too small to be ALEs, but who offer self-insured health coverage, must report to the IRS regarding coverage offered to their employees.

The deadlines for reporting for coverage year 2016 are as follows:

  • Deadline to distribute forms to employees and covered individuals will be January 31, 2017
  • Deadline to file paper forms with the IRS will be February 28, 2017
  • Deadline to file electronically with the IRS will be March, 31, 2017.

The requirement to furnish the Form 1095-C is met if the form is addressed and mailed on or before the due date. Statements must be mailed or hand delivered unless the recipient has affirmatively consented to receive the statement electronically.

Employers can obtain an automatic 30-day extension of time to file forms to the IRS by completing Form 8809 — Application for Extension of Time To File Information Returns. This form must be filed in advance of the due date for the returns. It should be filed as soon as an employer determines that an extension of time is necessary.

An extension of time to furnish statements to employees is not automatic. A letter requesting an extension must be sent to the IRS. Instructions on filing for this extension are found on page 6 of the instructions for Forms 1094-C and 1095-C. The instructions can be found here.

Penalties for failing to report or making errors in reporting can be sizeable. It’s important to note that the IRS will no longer operate under a “good faith compliance” standard for this year’s reporting.

  • The penalty for failure to file a correct information return is $260 per return
  • The penalty for failure to provide a correct payee statement is $260 for each statement with the failure
  • There are limits to the size of the penalties unless there is “intentional disregard” to file and furnish the required statements.

Penalties may be waived due to reasonable cause. However, ignorance of the requirement to file is unlikely to gain a penalty waiver. As such, employers who discover that they should have filed this past year would be wise to file as soon as possible or consult with tax advisors.

 

 

Medicare Enrollment and “Seamless Conversion”

Anyone approaching Medicare age is sure to be swamped with mail regarding the coverage options to consider. For many people, these mailers are put aside or disregarded as “junk mail.” But, Medicare enrollment is an important decision which has both medical care and financial implications.

Individuals are finding that a process intended to make Medicare enrollment simpler is sometimes leading to undesired consequences. CMS allows insurance companies to automatically enroll individuals who have current healthcare coverage into a Medicare Advantage (MA) plan offered by the insurance company when the person first becomes eligible for Medicare.

This process is called “seamless conversion enrollment.” Individuals will receive a written notice at least 60 days prior to the Medicare Advantage coverage effective date. Someone who doesn’t wish to have the MA coverage offered must opt-out of the coverage before the coverage begins.

CMS has released a list of insurance companies that have received approval for “seamless conversion.” It can be found here. CMS has suspended approving additional carriers pending a review of “seamless conversion” amid complaints that have surfaced from Medicare enrollees.

“Seamless conversion” may help people who wish to remain with their known insurance company. But, it’s important that anyone enrolled in the MA plan ascertain that any desired medical providers continue to be part of the MA plan.

Selecting any insurance plan – whether as a senior citizen or at any age – is a complicated and confusing obligation. A health insurance broker can help navigate the many options and advise on the most appropriate policy to fit an individual’s needs.