The IRS recently released a new fact sheet explaining the process the agency plans to use to administer the employer mandate under the Patient Protection and Affordable Care Act (ACA).
Beginning January 1, 2015, the ACA imposes two potential penalties— (1) a penalty imposed on employers that choose not to offer healthcare coverage to substantially all of their full-time employees, and (2) a penalty imposed on employers that offer coverage, but the coverage offered is not adequate or affordable under the law. Both penalties are triggered when any one full-time employee obtains health insurance through the Public Exchange Marketplace (Marketplace) and receives a premium tax credit.
The new IRS fact sheet details these two types of penalties and how they will be calculated. It sets forth how the penalties will be imposed month-by-month, and gives examples of how the penalties might be assessed in various scenarios.
The fact sheet also explains that employers will not self-report or calculate these employer shared responsibility payments. Rather, the IRS will calculate the potential penalty due and contact the employer. The IRS’ determination will occur after employees have filed their individual tax returns for the year claiming any premium tax credits. After the IRS sends the calculation to the employer, the employer will have an opportunity to respond to the IRS before any assessment or notice/demand for payment will be made. The IRS will adopt procedures to ensure that employers are notified when an employee receives the premium tax credit for purchasing coverage through the Marketplace.
Employers should begin to think about the ACA and to prepare now, before an assessment or collection notice arrives from the IRS. Applicable transition relief, ACA safe harbors, and careful workforce planning can minimize or prevent employer mandate penalties. Thorough documentation will be an employer’s best defense against an IRS claim that an employer mandate penalty is due. Please contact us for more information about planning for the ACA’s employer mandate.
On September 18, 2014, the Internal Revenue Service (IRS) issued notice 2014-55 permitting some additional exceptions to the 125 Plan election irrevocability rule. This IRS guidance introduces two new election change events for 125 Plan participants. These election change events generally allow employees to revoke 125 Plan elections prospectively to take advantage of eligibility opportunities through the state Exchanges (Marketplaces) established by Healthcare Reform. The IRS guidance is effective immediately and applies to all group health coverage (other than Flexible Spending Accounts and other types of supplemental benefits). Mid-year election changes may be permitted:
- When a participant’s hours of service are reduced so that the employee is expected to work on average less than 30 hours per week, but eligibility for coverage under the employer’s group health plan is not affected. New coverage under an alternative plan (including Exchange coverage) that provides minimum essential coverage should be effective no later than the first day of the second month following the month in which the employer’s group health coverage is revoked.
- During the annual open enrollment period or a Special Enrollment Period (defined by Healthcare Reform regulations) for an Exchange and a participant would like to terminate coverage under the employer’s group health plan and purchase coverage through an Exchange. A revocation during the Exchange open enrollment period will generally be available only to participants in non-calendar year employer group health plans. New coverage should be effective beginning no later than the day immediately following the last day of coverage under the employer’s group health coverage.
For both of these events, the employer may rely on the reasonable representation of an employee who has an opportunity to enroll in coverage through the Exchange, that the employee has enrolled or intends to enroll in the Exchange coverage within the time periods required by the guidance.
First Financial Administrators Inc. (First Financial) is currently in the process of drafting an amendment for employers to amend their 125 Plans to allow participants the opportunity to make these election changes if applicable. To view the full IRS notice, please visit: http://www.irs.gov/pub/irs-drop/n-14-55.pdf
On Tuesday, July 22, 2014 the U.S. Court of Appeals in the District of Columbia and the 4th District fell on opposite sides with regard to the ability of Federally-Facilitated Exchanges (FFEs) to provide subsidies (e.g., Premium Tax Credits) to offset the cost of health care. The decisions do not impact the ability of state run exchanges to offer subsidies. The implications that a Federal exchange not be allowed to offer subsides extends to individuals and employers. Individuals in the 36 states that are run by an FFE could lose their Premium Tax Credits and have to pay more for coverage through the Exchange. That scenario, though, may benefit employers in those states as the 4980H penalties only apply if an employee receives a Premium Tax Credit in the exchange. The DC decision (which struck down the law) has been stayed pending review by the full Circuit court, which is not expected before this fall. Therefore, these rulings change nothing for now with respect to how both employers and individuals operate in the new environment of Health Care Reform.
IRS Releases Draft Forms for Mandatory Employer Reporting
On July 24, the Internal Revenue Service (IRS) released draft forms to be used by employers and insurers for reporting information regarding health care coverage and “minimum essential coverage” (MEC) as required under Health Care Reform. Final regulations were issued earlier in the year implementing the MEC reporting (Section 6055 of the Internal Revenue Code) and the reporting of health coverage (Section 6056). Instructions to the form have not yet been published. The reports are required for the 2015 calendar year regardless of plan year effective date and the first reporting will be due in early 2016.
The Patient-Centered Outcomes Research Institute (PCORI) fee, required to be reported only once a year on the second quarter, is based on the average number of lives covered under the policy or plan, if certain conditions apply. For 12-month plan years that end January 1, 2013 through September 30, 2013, the first PCORI fee is due by July 31, 2014.
Who is subject to the fee?
Employers may be subject to these fees for their Health Flexible Spending Accounts if:
Health FSA Participants are NOT offered other group major medical plan coverage in addition to the Health FSA or eligibility requirements are different for the major medical plan and the Health FSA. If an employer contributes more than $500 to employees’ Health FSA or funds Section 125 flex credits that an employee may use for a Health FSA and 50% or more is not available as a cashout option.
How do you pay the fee?
The employer is required to file Tax Form 720 and make a payment to the IRS for the amount due.
Where do you get Tax Form 720?
Tax Form 720 is available here.
For more information, please contact your First Financial Account Representative. We are here to assist you.
The IRS has released the 2015 inflation adjusted amounts for health savings accounts (HSAs). To be eligible to contribute to an HSA, an individual must be covered under a high deductible health plan (HDHP) and meet certain other eligibility requirements.
Annual Contribution Limitation
For calendar year 2015, the annual limitation on HSA deductions for an individual with self-only coverage under an HDHP is $3,350. The annual limitation on HSA deductions for an individual with family coverage under an HDHP is $6,650.
High Deductible Health Plan
For calendar year 2015, a “high deductible health plan” is defined as a health plan with an annual deductible that is not less than $1,300 for self-only coverage or $2,600 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,450 for self-only coverage or $12,900 for family coverage.
(Note that a health plan will not fail to qualify as a high deductible health plan merely because it provides certain preventive health services without a deductible, as required under Health Care Reform.)
The IRS released two memoranda March 28, 2014 providing some additional guidance on the Health Flexible Spending Account (Health FSA) new $500 permitted Carryover and correction procedures for improper Health FSA reimbursements. First Financial Administrators, Inc. has been operating in accordance with the conclusions in this guidance based on prior informal guidance from the IRS and previously available published guidance. Our Health FSA administrative procedures, therefore, will not change. This new guidance simply verifies our ongoing procedures.
Summary of HSA Carryover Guidance:
- Anyone who is eligible for a Health FSA that covers a broad range of medical expenses (General Purpose Health FSA), even if only due to the $500 Carryover, is not an eligible individual for Health Spending Account (HSA) purposes for the entire plan year, regardless of when the Health FSA amounts are reimbursed during the plan year.
- A plan may permit (or automatically treat) anyone who is eligible for a Carryover from a General Purpose Health FSA to elect the Carryover be used for a limited purpose HSA compatible FSA (Limited Purpose Health FSA) (but no other type of FSA, such as Dependent Day Care Flexible Spending Account).
- A plan may permit anyone who is eligible for a Carryover from a General Purpose Health FSA to waive the Carryover for the following plan year in order to be eligible for an HSA.
- If a participant elects to Carryover amounts from a General Purpose Health FSA to a limited purpose Health FSA, claims should be paid from the General Purpose Health FSA during the run-out period and once the Carryover amount is determined, claims can be paid from the limited purpose Health FSA from the Carryover amount. Any newly elected amount for the plan year for the limited purpose Health FSA must otherwise be available for claims reimbursement from that FSA until the Carryover amount is determined.
Summary of FSA Overpayment Corrections Guidance:
- The correction procedures for debit card overpayments outlined in the proposed 125 Plan regulations may be used for all FSA overpayments.
- An employer or agent of the employer may alter the order of the correction procedures as outlined in the proposed 125 Plan regulations, except that treating the overpayment as business indebtedness must be a last resort.
For more information, please contact 866-853-3539.
Health Care Reform requires employers to report the cost of employer-sponsored health care coverage on employees’ W-2 Forms. Most employers (except Federally recognized Indian tribes and tribally chartered corporations wholly owned by Federally recognized Indian tribes) were required to report the aggregate cost of employer-sponsored health care coverage on W-2 Forms beginning with the 2012 calendar year. Small employers, defined as those who file fewer than 250 Form W-2s for the previous calendar year, are exempt from the new reporting requirement until further notice. The amount is reported in Box 12 of Form W-2, using code DD.
W-2 reporting is required for all employer-sponsored health care coverage that is excludable from employee income with certain exceptions. The IRS has published a chart that lists the common employer benefits to be included in the calculation. For example, premiums for specified disease coverage (such as cancer or critical illness insurance) are reportable only if paid by the employee on a pre-tax basis or paid for with employer contributions; they are not reportable if paid on an after-tax basis. Contributions to Health Flexible Spending Accounts (FSAs) are generally not reportable if only the employee (not the employer) makes contributions. Premiums for accident and disability insurance are not reportable regardless of tax treatment.
More information about the W-2 reporting of health costs is available on our preferred vendors website at www.HCReducation.com/w2reporting, or feel free to contact our Health Care Reform Consultant, John Rahlfs, at 800-523-8422.
The Health Insurance Portability and Accountability Act (HIPAA) includes portability and nondiscrimination provisions applicable to group health plans. Health Care Reform amended HIPAA to provide for plan design mandates, such as prohibiting annual and lifetime limits on essential health benefits and waiting periods longer than 90 days. Generally, these provisions only apply to health care benefits. Certain benefits are excluded from these provisions, and they are referred to as excepted benefits. Excepted benefits are also excluded from certain provisions under Health Care Reform such as the Patient Centered Outcomes Research Fee, the requirement to report under the Summary of Benefits and Coverage (SBCs), and the requirement to report the cost on the employee’s W-2.
Dental and vision benefits are excepted benefits if they are 1) provided under a separate policy, certificate, or contract of insurance; or 2) otherwise not an integral part of a group health plan. The first exception applies to insured plans, and the second applies to both insured and self-funded plans. Regulations previously provided that benefits are not an integral part of a group health plan unless the plan allows participants the right to elect or decline dental or vision coverage, and, if coverage was elected, the participant was required to pay an additional premium for the coverage. In these recent regulations, the Agencies proposed to eliminate the requirement that an additional premium needs to be paid for the dental or vision benefit to be an excepted benefit.
The Agencies also issued guidance relating to Employee Assistance Programs (EAP). EAPs generally are programs that provide assistance to employees such as short term substance abuse or financial counseling. If an EAP provides medical care, it could be a group health plan subject to HIPAA and Health Care Reform, which could be problematic because many EAPs are meant as a supplement to a group health plan, and, by their nature provide limited benefits. Under the proposed regulations, an EAP would be an excepted benefit if the EAP:
- Does not provide significant medical benefits;
- Does not coordinate its benefits with benefits under another group health plan;
- Does not charge any employee premiums; and
- There is not cost sharing for EAP services.
Although the proposed effective date for these changes is plan years beginning on and after January 1, 2015, the Agencies stated that dental and visions benefits and EAPS that meet the criteria in the proposed regulations in 2014 would be considered excepted benefits. Final regulations will be issued no earlier than February 22, 2014, which marks the end of the comment period for these proposed regulations.
For more information, visit our preferred vendors Health Care Reform website
October 31, 2013, The U.S. Department of the Treasury and IRS issued a notice modifying the longstanding “use-or-lose” rule for health flexible spending arrangements. Participants now can carry over up to $500 of their unused FSA balances remaining at the end of the plan year.
The rule will go into effect in plan year 2014.
Effective immediately, employers that offer FSA programs that do not include a grace period will have the option of allowing employees to roll over up to $500 of unused funds at the end of the current 2013 plan year. Employers cannot offer employees both a carryover and a 2 ½ month grace period.
What are the benefits to the consumer?
- This modification makes Health FSAs more consumer friendly by relaxing the use-or-lose rule.
- Individuals can now participate in a Health FSA with less risk of losing all of their unused contributions.
We are actively reviewing this full release, keeping in mind how it may impact our valued customers.
Please contact your First Financial Representative if you have any questions during this process. We will be very happy to visit with you.
Read the full press release from the U.S. Department of the Treasury here.
Under federal tax law, spouses receive special treatment for certain benefits. For example, employer provided health care coverage for spouses is not included in the employee’s income, and an employee may pay for spousal coverage on a pre-tax basis. Under the Defense of Marriage Act, the IRS did not recognize same sex spouses for federal tax purposes. As a result, employers withheld employment and income tax with respect to certain benefits provided to same sex spouses.
The Supreme Court recently found DOMA unconstitutional, and the IRS now recognizes same sex spouses for tax purposes. The IRS issued guidance on how an employer can expedite overpayments of Federal Insurance Contribution Act (FICA) taxes and Federal income tax withholding that occurred because same sex spouses were not recognized. The guidance provides that if an employee made pre-tax salary reductions under a cafeteria plan and paid for health care coverage for a same sex spouse on an after-tax basis, an employer may treat the amount that an employee paid for same sex spousal coverage on an after-tax basis as pre-tax salary reductions. The FICA and income tax paid on the after-tax amount would be considered an overpayment.
For 2013, there are two alternatives. First, if an employer repays or reimburses its employees for the amount of the over collected FICA tax and income tax withholding with respect to the same-sex spouse benefits for the first three quarters of 2013 on or before December 31, 2013, the employer can then reduce the amount of FICA and income tax withholding reported for the fourth quarter on Form 941. If the employer does not repay or reimburse employees before the end of 2013, the employer may correct the overpayments using Form 941-X, provided it otherwise satisfies the Form 941-X filing requirements, such as obtaining employee consent. Employers must file a claim for a refund by the later of the three years from the date the return was filed or within two years of paying the tax.