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.

20 Things to Know About QSEHRAs

QSEHRAs allow small employers to provide health reimbursement arrangement (HRA) funds for employees to purchase individual coverage. They were part of the 21st Century Cures Act enacted on December 13, 2016. While the concept may sound simple enough, recent IRS guidance shows that these arrangements are complex tax arrangements.

Notice 2017-67 provides IRS guidance on the requirements for employers wishing to offer these arrangements. The complete notice can be found here.

Here are 20 things to know about QSEHRAS:

  1. 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.

 

  1. An eligible employer is one that is not an ALE under the definition in section 4980H of the ACA. An employer whose workforce increases to 50 or more full-time employees during a calendar year will not become an ALE before the first day of the following calendar year. Importantly, if a QSEHRA is provided on a non-calendar year basis, eligibility for the QSEHRA terminates on January 1 if the employer has become an ALE due to an increase in employees as noted.

 

  1. An employer must not offer a group health plan to any of its employees. For this purpose, a group health plan includes a plan that provides only excepted benefits such as a vision or dental plan.

 

  1. 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.

 

  1. The maximum dollar limit per year for 2017 is $4,950 for an individual employee and $10,050 for family coverage. 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 2018 maximum permitted benefit is $5,050 for self-only coverage and $10,250 for family coverage.

 

  1. 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.

 

  1. 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. An employer that provides a QSEHRA during 2017 or 2018 may have until the later of February 19, 2018 or 90 days before the first day of the plan year to provide the notice. 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.

 

  1. 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.

 

  1. Controlled group rules apply when determining whether an employer is an eligible employer to offer a QSEHRA. Each employer in the controlled group must provide a QSEHRA to all eligible employees with the same terms and same amounts of permitted benefits.

 

  1. Employees cannot waive the QSEHRA benefit.

 

  1. A safe harbor describes which employees may be deemed ineligible as part-time or seasonal. These would be any employee whose customary weekly employment is less than 25 hours or any employee whose customary annual employment is less than 7 months.

 

  1. A QSEHRA can only be provided to active employees. A 2% shareholder who is otherwise an employee is not an employee for QSEHRA nor is a retiree.

 

  1. An employer must base the permitted benefit on the number of family members who have minimum essential coverage (MEC). This would mean that an employee with self-only coverage would have to receive the family permitted benefit is their spouse is enrolled in a different plan or policy that provides MEC, even though the plan may be from another employer.

 

  1. A QSEHRA arrangement can limit reimbursements to one or more of: insurance premiums, cost-sharing expenses that are medical expenses or certain other medical expenses. It may also reimburse premiums for Medicare or Medigap policies. The arrangement must still be “effectively available” to all eligible employees.

 

  1. Eligible employees must provide proof that they have MEC at least annually in order to obtain QSEHRA reimbursements. Each reimbursement request must include an attestation that the individual seeking the reimbursement continues to have MEC.

 

  1. Requested reimbursements must be substantiated as qualified medical expenses. Substantiation requirements for FSAs (flexible spending arrangements) will satisfy this requirement.

 

  1. A QSEHRA is subject to the PCORI fee.

 

  1. A QSEHRA that reimburses any medical expense including cost-sharing disqualifies the person from making HSA contributions.

 

 

  1. Mistakes in reimbursements may result in the QSEHRA arrangement failing to satisfy the requirements for the QSEHRA. This failure may result in all payments to all employees under the arrangement becoming taxable.

 

  1. The guidance in Notice 2017-67 applies to plan years beginning on or after November 20, 2017.

 

 

 

 

 

 

 

 

 

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.

IRS Invokes ACA Individual Health Care Reporting Requirement

The IRS has announced a change of course regarding individual tax returns and ACA compliance. Individual tax returns filed in the 2018 filing season will not be accepted if the taxpayer does not indicate whether they had health coverage.

The IRS had previously planned to reject returns without the health coverage information during the 2017 filing season. They reversed course early in 2017 to respond to the Trump administration’s executive order to reduce administrative and regulatory burdens. This latest October 2017 announcement provides ample time for taxpayers and their tax advisors to prepare for this change.

The IRS is instructing taxpayers to indicate on their Forms 1040 whether they and everyone else on their return had minimum essential coverage, qualified for an exemption or whether they are making a payment for not having coverage.

The IRS statement on the reporting requirement and resources for tax professionals can be found here.

Taxpayers who fail to report whether they had coverage could face penalties for late filing due to the IRS not accepting a return. The IRS will not accept returns that omit the coverage information. As such, a person filing on April 17, 2018 who has their return rejected would be considered to be a late filer when they finally correct their omission. Note: The filing date for 2018 is shifted as April 15, 2018 is a Sunday and Monday is the Emancipation Day holiday in Washington, D.C.

Archived IRS tax tips note that there are eight (8) important points for filing or paying taxes late. Of note, both late filing and late payment penalties may apply in some situations. The maximum amount charged for the two (2) penalties in 2017 is five percent (5%) per month. IRS facts about late filing can be found here.

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

ACA Employer Reporting Preparation Tips and Reminders

The bad news – for some — is that the ACA, including employer reporting, is still here despite the months of Congressional activity. The good news – for many employers subject to the ACA’s employer reporting requirements — is that the reporting forms are pretty much unchanged from last year. Few changes mean that many of the lessons learned over the past years don’t have to be jettisoned.

Due Dates

And, it’s not too soon for employers to prepare for filing of Forms 1094-C and 1095-C. For calendar year 2017, Forms 1094-C and 1095-C must be filed with the IRS by February 28, 2018 on paper or April 2, 2108, if filing electronically. Forms must be furnished to employees by January 31, 2018.

Forms and Instructions

The 1095-B Form for 2017 can be found here.

Instructions for Forms 1094-B and 1095-B can be found here.

The 1094-C Form for 2017 can be found here.

The 1095-C Form for 2017 can be found here.

Instructions for Forms 1094-C and 1095-C can be found here.

Q&A about Information Reporting by Employers can be found here.

Employers wishing to use a substitute Form 1094-C or 1095-C can find guidance in Publication 5223.

Tips and Reminders

Here are some reminders and tips on completing these forms.

Employers planning to use a vendor need to make decisions now, if they haven’t already. Time is needed to understand how information must be presented to the vendor and to allow time for preparation, testing and the like.

Box 10 of Form 1095-C asks for the employer’s contact number. It’s important that this number connects to a person who understands the employer’s reporting process or that the person answering the phone knows who to contact internally.

Statements must be furnished on paper by mail or hand delivered unless there is affirmative consent by the recipient to receive the statement electronically. Information on consent to receive electronic statements can be found here.

Consent to receive statements electronically should address the duration of the consent. If consent forms used last year didn’t specify that consent would be ongoing, new consent may be required for this year.

The Federal Poverty Line Safe Harbor maximum monthly employee contribution for 2017 is $95.93.

There is no specific code to enter on Form 1095-C if an employee has waived coverage. When an employee has waived coverage it behooves the employer to complete line 16 with a safe harbor code, if any applies.

Information reporting penalties may apply for failing to comply. For example, failure to file a correct return is $260 per return. Special rules apply for penalties due to intentional disregard.

 

 

October Due Date for Medicare Creditable Coverage Notices

Employers with Medicare eligible participants must provide a notice that specifies whether the plans that they sponsor constitute creditable coverage for Medicare Part D. The notice must be provided in conjunction with the Medicare Part D annual election period which begins on October 15.

This notice must be provided to all Medicare eligible individuals who are covered or eligible for a plan that includes prescription drugs.  Notices must be provided to those individuals on COBRA as well.

Employer plan sponsors are required by CMS to provide creditable coverage status to Part D eligible members at least once a year and at the following times:

  • Prior to an individual’s initial enrollment period;
  • Prior to the effective date of coverage for any Medicare-eligible individual that joins your plan;
  • Whenever prescription drug coverage ends or changes so that it is no longer creditable or becomes creditable;
  • Prior to the Medicare Part D Annual Coordinated Election Period beginning on October 15 of each year; or
  • Upon the request of a beneficiary.

Models of the notice are available here.  There are model notices for both creditable and non-creditable coverage in both English and Spanish.

Creditable coverage is defined as coverage that equals or exceeds the actuarial value of standard prescription drug coverage under the Medicare prescription drug benefit. And in communications to Part D eligible individuals, CMS has described creditable coverage as prescription drug coverage that “is, on average for all plan participants, expected to pay out as much as standard Medicare prescription drug coverage pays.”

Employers with insured plans should have received guidance from their carriers indicating whether their plan is creditable or not. In many cases, a high deductible health plan (HDHP) may not be creditable coverage.

Employers can use a “simplified” means to determine whether coverage is creditable or not. The plan must meet four (4) standards to be deemed creditable. A prescription drug plan is deemed to be creditable if it:

1) Provides coverage for brand and generic prescriptions;

2) Provides reasonable access to retail providers;

3) The plan is designed to pay on average at least 60% of participants’ prescription drug

expenses; and

4) Satisfies at least one of the following:

a) The prescription drug coverage has no annual benefit maximum benefit or a maximum annual benefit payable by the plan of at least $25,000, or

b) The prescription drug coverage has an actuarial expectation that the amount payable by the plan will be at least $2,000 annually per Medicare eligible individual.

c) For entities that have integrated health coverage, the integrated health plan has no more than a $250 deductible per year, has no annual benefit maximum or a maximum annual benefit payable by the plan of at least $25,000 and has no less than a $1,000,000 lifetime combined benefit maximum.

An integrated plan is any plan of benefits that is offered to a Medicare eligible individual where the prescription drug benefit is combined with other coverage offered by the entity (i.e., medical, dental, vision, etc.). The plan must have all of these provisions:

  • A combined plan year deductible for all benefits under the plan
  • A combined annual benefit maximum for all benefits under the plan, and
  • A combined lifetime benefit maximum for all benefits under the plan.

The Creditable Coverage Simplified Determination process guidance is here.

Employers with account based plans may find that their coverage is creditable despite the carrier’s assessment. Coverage may be creditable if the employer has an HRA arrangement. The HRA amount may factor in to the creditable assessment in whole or in part depending on how the plan is structured. Guidance on determining creditable coverage status with account based plans, including HRAs, can be found here.

Individuals should keep any notice in case it is required when they decide to sign up for Medicare Part D. The notice may be necessary to show that they had creditable coverage and are not, therefore, subject to the penalty of one percent per month for late enrollment.

Employers also have an obligation to advise CMS whether coverage is creditable or not. The Disclosure to CMS Form can be found here.

EAPs Pose Compliance Complications

Employee Assistance Plans (EAPs) are popular employer-sponsored plans that help employees address personal and work related problems that impact their health or job performance. Benefits provided by EAPs are varied in both scope and breadth. Benefits may include:

  • Mental health referral services
  • Mental health counseling
  • Financial counseling
  • Drug or alcohol abuse counseling
  • Assistance with addressing major life events.

The wide variety of EAPs allow employers to find a plan that is both affordable and of value to employees. But, this variety also makes it difficult to determine the compliance requirements that surround an EAP. And, sometimes EAP services may even be included in life or disability packages.

ERISA

To determine if an EAP is subject to ERISA, it depends on whether the plan provides medical care. If a plan provides medical care it is subject to ERISA. The federal Department of Labor (DOL) has issued advisory opinions that an EAP with trained counselors who provide counseling services is providing medical care. Of note, the trained counselors do not have to be doctors or psychologists to meet this threshold.

A plan that only provides referrals to counselors may not be deemed to “provide medical care” and may, therefore, not be an ERISA plan. However, if the service providers that make the referrals are trained in a field related to the EAP’s services, this could mean that the plan would be deemed to provide medical benefits.

ERISA also applies only when a plan is “established or maintained” by an employer. If the employer doesn’t contribute to the cost of the EAP or otherwise endorse the EAP, it may not be considered as “established or maintained” by the employer.

If a determination is made that the plan is subject to ERISA, then the plan is subject to ERISA’s plan document, Summary Plan Description (SPD) requirements and other ERISA provisions. Of note, information provided by the EAP vendor may not be sufficient to meet ERISA requirements.

COBRA

If the plan provides counseling it would be considered a group health plan that is subject to COBRA. EAPs are generally offered to all employees, even those who may not participate in the employer-provided health plan. As such, an EAP subject to COBRA requires that the COBRA initial notice be provided to all EAP-eligible employees.

To determine the applicable COBRA premium, employers should determine the premium attributable to the health care related benefits only. For example, the premium attributable to job counseling or financial counseling services would not be included in the COBRA premium.

Open enrollment presents yet another challenge. If an employee continues EAP coverage under this scenario, but the employee was eligible for the group health plan, but not enrolled, then an opportunity to elect the health plan would be required.

Employers may limit eligibility for the EAP to those employees who enroll in the group health plan to avoid this COBRA complication. But, limiting coverage to those participating in the group health plan poses ACA problems as the next paragraphs illustrate. Alternatively, the EAP’s benefits may continue after what would be a qualifying event for 36 months. As a result, there would be no loss of EAP coverage and no COBRA trigger.

Affordable Care Act (ACA)

EAPs posed particular problems after enactment of the ACA. The DOL and Treasury departments issued rules that EAPs would be considered “excepted benefits” and, therefore, exempt from the ACA.

An EAP is considered an “excepted benefit” if four requirements are met:

  1. They must not provide significant benefits in the form of medical care. The amount, scope, and duration of covered services will be considered in evaluating compliance with this requirement.
  2. EAP benefits may not be coordinated with group health plan benefits
    1. EAP participants may not be required to use or exhaust EAP benefits before they are eligible for group health plan benefits
    2. Eligibility for EAP benefits may not be made dependent on participation in another group health plan
  3. No employee premiums or contributions can be required for participating in an EAP
  4. An EAP that is an excepted benefit may not impose cost-sharing requirements.

The final rule that includes these requirements is here.

Health Savings Accounts (HSAs)

Since EAP plans often include coverage for services irrespective of the employer’s high deductible health plan (HDHP), this raises the concern that an EAP could cause a person to lose eligibility to contribute to an HSA. The IRS has provided guidance that an EAP is not a health plan if it does not provide “significant benefits in the nature of medical care or treatment.”

IRS Notice 2004-33 Q&A number 10 addresses this concern.

Caution Required

As with many compliance issues in employee benefits, the facts and circumstances are critical to assessing compliance. And, the “right” answer may not be clear or apparent.

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.