One Final Refresher on the Affordable Care Act Requirements for 2015

by: Kevin Stedman

Our original post on the Affordable Care Act was written in September 2015 and covered many FAQ’s and scenarios for businesses that may have to comply.  The following is an update to that post:

Beginning this month, Internal Revenue Code (IRC) Section 6056 requires Applicable Large Employers (ALEs) to file information returns with the Internal Revenue Service (IRS) to report applicable healthcare information. An ALE must file Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, for each full-time employee, and the related Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. In addition, employers of all sizes will have a reporting requirement under IRC Section 6055 if the employer self-insures. These reporting requirements help administer the employer shared responsibility mandate and the individual mandate added as a part of the Patient Protection and Affordable Care Act.

Who Needs to File?

  • Employers with 50 or Full Time More Employees
  • Small Employers with Fewer Than 50 Employees That Are Members of a Controlled or Affiliated Service Group who have collectively more than 50 Full Time Employees
  • Employers with Employer-Sponsored Self-Insured Plans

What Are the Filing Deadlines?

Form 1095-C – March 31, 2016.

Form 1094-C (and copies of each Form 1095-C) – May 31, 2016, or by June 30, 2016 if filing electronically.

What Are the Fines and Penalties for Not Complying with the Reporting Requirements?

Employers who fail to report will be subject to fines. The penalty is $100 per violation, up to a maximum of $1.5 million per year. However, employers that report within 30 days of the deadline will be fined $30 per violation. Those that file within five months of the deadline will be fined $60 per violation. The penalties will increase to $250 per violation next year, with a maximum of $3 million per year, with $50 per violation if filed within 30 days, and $100 per violation if filed after 30 days.  Entities that intentionally disregard the reporting requirements face a penalty of $250 per violation this year and $500 per violation in 2016, with no cap on the potential liability.

What Actions Should an Employer Take to Prepare?

Given the complexity of information required to be reported and the potential size and impact of the penalties, employers need to ensure that adequate procedures are in place for determining and documenting each employee’s full-time or part-time status month-by-month, as well as procedures to collect information about health coverage and enrollment month-by-month.  For those employers in which the reporting requirements apply, make sure you have discussed your responsibilities with your plan administrator or payroll vendor and that there is a plan for the applicable forms to be prepared and filed.

Should you have any questions on your responsibilities or need assistance in preparing these forms, please reach out to your Hobe & Lucas representative by calling 216.524.8900.  You can also refer to our previous blog post.

Tax Extenders are now permanent!

by: Franco DiLiberto, CPA

Taxpayers are receiving a bundle of early Christmas gifts as Congress has avoided a shutdown by passing a major $680 billion tax bill that will extend and also make permanent several tax breaks. The following are the major tax provisions that have been made permanent, providing taxpayers with relief and a great level of certainty now and in the future:

Businesses:

Research and Development Credit (R&D)

  • The new tax bill permanently extends this credit and also adds one important modification.  Beginning in 2016, small businesses with less than $50 million in sales may claim the credit against alternative minimum tax liability (AMT), meaning that taxpayers will no longer be restricted from claiming the R&D credit due to an AMT limitation.

Section 179 Depreciation

  • The new tax bill permanently extends Section 179 expensing of the cost of new and used qualified property in the current tax year.
  • The maximum deduction allowed for 2015 remains at $500,000.  Businesses with asset purchases exceeding $2 million will have a dollar-for-dollar phase out of the $500,000, completely eliminating the deduction if purchases are above $2.5 million.
  • Beginning in 2016, the maximum deduction and phase out amounts will be indexed for inflation.
  • An additional modification in 2016 includes the treating of air conditioning and heating units as eligible for expensing.

Built-in Gains Tax Period for S-Corporations

  • The new tax bill permanently sets the period of 5 years for which an S-Corporation must hold its assets following conversion from a C Corporation to avoid the tax on built-in gains.

 

Individuals:

Child Tax Credit (CTC)

  • The CTC is a $1,000 credit that can be claimed for each qualifying child of the taxpayer.
  • This credit remains subject to adjusted gross income (AGI) limitations.  The phase out begins when AGI exceeds $75,000 for single taxpayers and $110,000 for married filing jointly.
  • If the CTC exceeds the taxpayer’s tax liability, the taxpayer is eligible for a refundable credit, known as the additional child tax credit.  The new tax bill permanently allows this refundable credit if earned income exceeds the permanent threshold of $3,000.

American Opportunity Credit (AOTC)

  • The AOTC is a $2,500 credit that be claimed each year for four years of post-secondary education.
  • The credit remains subject to adjusted gross income (AGI) limitations.  The phase out begins when AGI exceeds $80,000 for single taxpayers and $160,000 for married filing jointly.  The credit is disallowed for married filing separate taxpayers.
  • A new provision disallows taxpayers from claiming the credit for 10 years if they fraudulently claim the credit.

(Just a reminder that the AOTC cannot be claimed by taxpayer who is claimed as a dependent on another person’s tax return.)

Earned Income Tax Credit (EITC)

  • The EITC is a credit eligible for taxpayers with low to moderate incomes.  The credit increases as the number of qualifying children increases.
  • A new provision increases the amount for families with 3 or more qualifying children.
  • A new provision increases the phase out range for married filing jointly taxpayers.

Educator Expenses Above-the-line Deduction

  • The new bill has made permanent the $250 deduction for teachers on money they spend for books, supplies, and other materials in their classrooms.

(Beginning in 2016, the $250 will be indexed for inflation and include professional development expenses.)

Itemized Deduction of State and Local General Sales Tax

  • The new bill permanently extends the option to claim sales tax as an itemized deduction in the event that the sales tax exceeds state and local income taxes paid for the tax year.

Tax-free Distributions from Individual Retirement Plans for Charitable Purposes

  • The new tax bill permanently allows individuals who are at least 70 ½ years old to exclude from gross income qualified charitable distributions from Individual Retirement Accounts (IRAs).  The exclusion may not exceed $100,000.

______________________________________________________________________________

The following are non-permanent extensions of tax provisions as a result of the new tax bill:

Businesses:

Bonus Depreciation

  • Bonus Depreciation will be extended 5 years through 2019.
  • The Bonus Depreciation percentage is 50% for property placed into service during 2015, 2016, and 2017.  The percentage is reduced to 40% in 2018 and 30% in 2019.
  • The new tax bill modifies the AMT rules to increase the amount of unused AMT credits allowed while claiming bonus depreciation.

Just a reminder that bonus depreciation is not allowed for used property.

Work Opportunity Credit

  • The provision extends through 2019 the work opportunity tax credit.
  • The provision also modifies the credit beginning in 2016 to apply to employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) and increases the credit with respect to such long-term unemployed individuals to 40 percent of the first $6,000 of wages.

 

Individuals:

Debt Forgiveness from Personal Residence

  • The discharge of debt on a taxpayer’s personal residence is excluded from income.  This provision has been extended through 2016.

The itemized deduction of mortgage interest premiums is extended through 2016.

The large majority of energy incentive credits for individuals and businesses have been extended for two years.

As for the Affordable Care Act/Obamacare, the medical device tax and the Cadillac tax is delayed for two years.

As you can see, virtually all of the major tax deductions and credits have extended, some permanent and others temporarily.  In addition, many of these deductions and credits have been modified in ways that provide more tax relief to individuals and businesses.
Be prepared to take advantage of the tax breaks now and in the future.  Have questions or need assistance on the application and eligibility of these tax breaks as it pertains to you?  We are here to assist you with our expertise and high value services.  Contact us at 216.524.8900 or our form to discuss your individual situation.

 

A quick lesson on the “Cadillac Tax”

Wondering what all the buzz is about regarding the “Cadillac Tax”? Will the Cadillac Tax affect you? We break it down for you right here:

What is the Cadillac Tax?

The Cadillac Tax will be levied on employers who offer high-cost health benefits to their employees. The main purpose behind the Cadillac Tax is to raise revenue in order to help finance coverage under the Patient Protection and Affordable Care Act. This 40% non-deductible tax will be imposed on the difference between the total cost of health benefits for each employee and the set thresholds in a given year. Although final regulations have not yet been released, the Cadillac tax is set to take effect in 2018.

Will the “Cadillac Tax” affect me?

The current benefit thresholds in place are $10,200 for individuals and $27,500 for families. Employers offering plans exceeding these thresholds will be subject to the tax. Types of benefits included in the calculation of the Cadillac Tax include both employer and employee contributions for health insurance and prescription drug coverage, and also include contributions to health savings and flexible spending accounts, wellness programs, on-site medical clinics, among others. Types of coverage not included are workers’ compensation, liability insurance and long term care.

The 2018 tax year may be a few years away, but proactive employers are already making the necessary changes to plans they offer in order to avoid the Cadillac Tax. The details that have been released are subject to change with the final regulations, but can be used as general guidelines in your health coverage and tax planning.

If you have questions regarding the Cadillac Tax or feel that you may fall into this category, contact us!

ACA Employer Shared Responsibility Provisions: Will they affect your business?

The federal government granted a reprieve in 2015 for certain-sized employers from many of the mandates of the Affordable Care Act (ACA). It didn’t, however, free them from others. Given the potentially confusing nature of these changes, we sat down with John Foster, CPA to talk through the key regulator changes to the ACA, and to discuss what you need to know for 2015.

Foster_JohnQ: Let’s start with who should care about the ACA Employer Shared Responsibility provisions. Who will this affect in 2015?

A: The new rules affect employers with at least 50 full-time employees (someone employed for an average of 30 hours per week) or a combination of full-time and part-time employees (for example, 40 full-time employees and 20 part-time employees) that is equivalent to 50 full-time employees. Such business owners are known as “applicable large employers”—you’ll see that term around a lot.
Whether you are considered an applicable large employer for the year can be determined by simply counting how many full-time equivalent employees you had last year based on a month-to-month average.  

Applicable large employer status applies whether you’re for profit, non-profit, public or private. If you own multiple companies, combine the number of people you employ to determine whether or not you are an applicable large employer. If so, then each separate company you own is subject to the Employer Shared Responsibility provisions—let’s call them “ESR” provisions for the sake of this article—even those companies that individually do not employ enough employees to meet the threshold .

Q: What other circumstances can affect whether an employer owes an ESR payment?

A: For 2015 and after, an applicable large employer will be liable for an ESR payment only if:

  • They do not offer health coverage at all, or offer coverage to fewer than 70% for 2015 and 95% thereafter of their full-time employees (and the dependents of those employees), AND at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace or “Exchange”

OR

  • They offer health coverage to all or at least 70% in 2015 and 95% thereafter of their full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace. This may occur because the employer did not offer coverage to that employee, or because the coverage the employer offered that employee was either unaffordable to the employee or did not provide minimum value

Q: What dictates “affordable” coverage?

A: If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered “affordable”. Because employers generally don’t know their employees’ household incomes, employers have three optional “affordability safe harbors” that they can take advantage of based on information the employer has available to them.

Q: What is an “affordability safe harbor”?  

A: They are basically ways for employers to designate an offer of coverage as “affordable” regardless of whether it was truly affordable to the employee for purposes of the premium tax credit. Safe harbor options include:

  • Determining affordability based on the employee’s Form W-2 wages
  • Determining affordability based on the employee’s usual rate of pay
  • Determining affordability based on the federal poverty line

These safe harbors are all optional. Employers can use one or more of the safe harbors as long as they offer full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan. Employers may choose to use safe harbors for all of their employees or for any reasonable category of employees as long as they do so on a uniform and consistent basis. If an employer offers multiple healthcare coverage options, the affordability test applies to the lowest-cost “self-only” option available to the employee that also meets the minimum value requirement.

Q: How do you know if a plan provides “minimum value?”

A: A plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. You can estimate this by using the minimum value calculator created by the Department of Health and Human Services and the IRS.

Q: Are there any other caveats regarding whether an employer will owe a payment?

A: Yes, a few. First of all, an applicable large employer will not be subject to an ESR payment solely because any employees purchase health insurance coverage for their spouse or dependents through a Marketplace or enroll their spouse or dependents in Medicare or Medicaid as long as the employer meets the affordable health coverage requirement. Also, they won’t be liable for a payment unless a full-time employee receives a premium tax credit.

Q: So let’s say an employer does owe a payment. How do they determine how much it will cost?  

A: In general, if the employer meets the criteria above for owing an ESR payment, the cost will be equal to the number of their full-time employees for the year (minus up to 30) multiplied by $2,000. Note, though, that for purposes of this calculation a full-time employee does not include a full-time equivalent. 

Q: You said full-time employees “minus up to 30”… Why is that?

A: There is an exclusion for up to 30 employees in the payment calculation. However, if the employer is related to other employers, then the 30-employee exclusion is allocated among all the related employers in proportion to each employer’s number of full-time employees.  

Q: What if an employer offers coverage for some months, but not others?

A: In that case the payment is computed separately for each month for which coverage was not offered. You calculate monthly payments in this scenario by multiplying the number of full-time employees for the month (minus up to 30) by 1/12 of $2,000.   

Month-by-month calculation actually applies in another scenario, too: If an employer offers coverage to at least 95% of their full-time employees, but has one or more full-time employees who receive a premium tax credit. In this case the payment is computed based on the number of full-time employees who received a premium tax credit for that month multiplied by 1/12 of $3,000. 

Q: Are there any limits to how much can be owed?

A: Yes; the amount of the payment for any calendar month is capped at the number of the employer’s full-time employees for the month (minus up to 30) multiplied by 1/12 of $2,000. This ensures that the payment for an employer that offers coverage can never exceed the payment that employer would owe if it did not offer coverage.

Q: How will an employer know when they are expected to make an ESR payment?

A: The short answer is that the IRS will let the employer know. If an employee receives a premium tax credit, the IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond befor

Q: Is there anything else applicable large employers need to know about ESR payments?

A: Yes, actually. It is possible they may not owe any ESR payments in 2015 thanks to a transitional relief clause in certain cases if they had fewer than 100 full-time employees (including full-time equivalents) in 2014. For employers with non-calendar-year health plans, this applies to any calendar month during the 2015 plan year, including months during the 2015 plan year that fall in 2016. 

Q: How does an employer qualify for payment relief?

A: The employer has to meet three key conditions for ESR payment relief  for 2015. Essentially, they are eligible for relief if:

  • They employed at least 50, but fewer than 100 full-time employees (including full-time equivalents) on average during 2014 business days
  • They did not reduce the size of their workforce or the overall hours of service of their employees (except for bona fide business reasons) between February 9 and December 31, 2014 in order to qualify for the transition relief
  • They do not eliminate or materially reduce the health coverage, if any, that they offered as of Febre any liability is assessed/payment is expected. uary 9, 2014 between that date and the end of their 2015 policy year. The employer will qualify as not reducing coverage as long as:
  • They continue to offer each eligible employee an employer contribution toward the cost of employee-only coverage that is either at least 95 percent of what they offered on February 9, 2014, OR at least the same percentage of the cost of coverage offered on February 9, 2014
  • In the event of a change in benefits under the employee-only coverage offered, the coverage still provides minimum value after the change
  • The employer does not alter the terms of its group health plans to narrow or reduce the class or classes of employees (or their dependents) to whom coverage was offered on February 9, 2014

For periods on or after the last day of an employer’s 2015 plan year, the transition relief for 2015 generally is not available.  

Q: Is there any new tax paperwork required for all of this?

A: Isn’t there always? Employers who had more than 50 full-time equivalent employees in 2015 will need to provide employees with IRS Form 1095-C no later than February 1, 2016 so that they can be filed with employees’ federal income tax returns. Form 1095-C (used to report information about each employee) must be filed along with Form 1094-C (used to report summary information for each employer and to transmit Forms 1095-C to the IRS) by February 29, 2016, or March 31, 2016, if filing electronically.  

Q: Finally, what about small employers? Do they need to be concerned about these regulations?

A: No and yes… As long as employers stay below the 50 full-time employee threshold, they won’t be subject to ESR provisions for now. The vast majority of businesses in the world employ less than 50 full-time people, so the ACA ESR provisions shouldn’t be too much of a concern for most. That said, the ACA ESR provisions are certainly something employers should be aware of if there is a possibility their business with expand beyond 50 employees.

Q: These are clearly complicated issues, but thank you for helping to clarify the main points. Do you have any additional advice for those dealing with the ACA ESR provisions for the first time?

A: Sure. Your best bet is to talk about your specific situation with an employee benefits expert if you have a chance—as you said, these aren’t exactly simple regulations to follow. We have a variety of specialists at Hobe & Lucas who would be pleased to discuss anything related to the ACA. 

Give us a call at 216-524-8900 and we’ll help you make sense of everything!