Page 1 of 25
As we near closer to Thanksgiving, it’s safe to say we are in “late 2017” territory. Last week, the IRS issued new FAQ guidance informing employers that they can expect notice of any potential ACA employer mandate pay or play penalties in late 2017.
What Will the Letter Look Like?
The IRS recently posted a copy of the Letter 226J here: https://www.irs.gov/pub/notices/ltr226j.pdf
Letters Will Look Back to 2015
The ACA employer mandate pay or play rules first took effect in 2015. The IRS Letters 226J at issue will relate only to potential penalties in that first year, and therefore they will be relevant only to employers that were applicable large employers (ALEs) in 2015.
In general, an employer was an ALE in 2015 if it (along with any members in its controlled group) employed an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year (2014).
Note that a special 2015 transition rule provided that certain “mid-sized” employers between 50 and 100 full-time employees could have reported an exemption from potential pay or play penalties.
What Are the Potential 2015 Penalties?
a) §4980H(a)—The “A Penalty” aka No Coverage Offered
This is the big “sledge hammer” penalty for failure to offer coverage to substantially all full-time employees. In 2015, this standard required an offer of coverage to at least 70% of the ALE’s full-time employees. (For 2016 forward, this standard has been increased to 95%).
The 2015 A Penalty was $173.33/month ($2,080 annualized) multiplied by all full-time employees then reduced by the first 80 full-time employees (reduced by the first 30 full-time employees for 2016 forward). It was triggered by at least one full-time employee who was not offered group coverage enrolling in subsidized coverage on the Exchange.
The reduced 70% threshold for the 2015 penalty should be sufficient for virtually all ALEs in 2015 to avoid the A Penalty, provided they offered a group health plan with eligibility set at 30 hours per week or lower. It would be very unlikely for a surprise A Penalty to arise for 2015.
b) §4980H(b)—The “B Penalty” aka Coverage Not Affordable
This is the much smaller “tack hammer” penalty that will apply where the ALE is not subject to the A Penalty (i.e., the ALE offered coverage to at least 70% of full-time employees in 2015, or 95% thereafter). It applies for each full-time employee who was not offered coverage, offered unaffordable coverage, or offered coverage that did not provide minimum value and was enrolled in subsidized converge on the Exchange.
The 2015 B Penalty was $260/month ($3,120 annualized). Unlike the A Penalty, the B Penalty multiplier is only those full-time employees not offered coverage (or offered unaffordable or non-minimum value coverage) who actually enrolled in the Exchange. The multiple is not all full-time employees.
What Happened to My Section 1411 Certification?
In the vast majority of states, they never came!
In short, the 1411 Certification (typically referred to as Employer Exchange Notices) informs the employer that one or more of their employees have been conditionally approved for subsidies (the Advance Premium Tax Credit) to pay for coverage on the exchange.
One important purpose of the notice is it provides employers with the chance to contemporaneously challenge the employee’s subsidy approval. Near the time of the employee’s subsidy approval, the ALE can show that it made an offer of minimum essential coverage to the full-time employee that was affordable and provided minimum value.
In other words, the notices provide the ALE with the opportunity to prevent the employee from incorrectly receiving the subsidies, and the ALE from ever receiving the Letter 226J from the IRS (because all ACA pay or play penalties are triggered by a full-time employee’s subsidized Exchange enrollment).
CMS admitted in a September 2015 FAQ that they were not able to send the notices for 2015 for federal exchange enrollment (most state exchanges took the same approach), but the potential penalties will nonetheless still apply.
The result is that ALEs will for be receiving their first notice of potential 2015 penalties via IRS Letter 226J in “late 2017.”
How Does the IRS Determine Potential Penalties?
The 2015 ACA reporting via Forms 1094-C and 1095-C (as well as the employee’s subsidized exchange enrollment data for 2015) serve as the primary basis for the IRS determination.
What Do I Need to Do?
First of all, review the information carefully.
The first-year ACA reporting for 2015 was a particularly difficult one, and one in which the IRS provided extended deadlines and a good faith efforts standard. It is very possible that the numerous challenging systems issues that made the first-year (and, frankly, all subsequent years) ACA reporting so difficult resulted in certain inaccuracies on the 2015 Forms 1094-C and 1095-C.
Be sure to review any potential penalties carefully with your systems records to confirm the reporting was correct.
a) If You Agree with the Penalty Determination – You will complete and return a Form 14764 that is enclosed with the letter, and include full payment for the penalty amount assessed (or pay electronically via EFTPS).
b) If You Disagree with the Penalty Determination – The enclosed Form 14764 will also include a “ESRP Response” form to send to the IRS explaining the basis for your disagreement. You may include any documentation (e.g., employment or offer of coverage records) with the supporting statement.
The response statement will also need to include what changes the ALE would like to make to the Forms 1094-C and/or 1095-C on the enclosed “Employee PTC Listing,” which is a report of the subsidized Exchange enrollment for all of the ALE’s full-time employees. The Letter 226J includes specific instructions on completing this process.
The IRS will respond with a Letter 227 that acknowledges the ALE’s response to Letter 226J and describes any further actions the ALE may need to take. If you disagree with the Letter 227, you can request a “pre-assessment conference” with the IRS Office of Appeals within 30 days from the date of the Letter 227.
If the IRS determines at the end of the correspondence and/or conference that the ALE still owes a penalty, the IRS will issue Notice CP 220J. This is the notice and demand for payment, with a summary of the pay or play penalties due.
Under the Affordable Care Act, (ACA) a fund for a new nonprofit corporation to assist in clinical effectiveness research was created. To aid in the financial support for this endeavor, certain health insurance carriers and health plan sponsors are required to pay fees based on the average number of lives covered by welfare benefits plans. These fees are referred to as either Patient-Centered Outcome Research Institute (PCORI) or Clinical Effectiveness Research (CER) fees.
The applicable fee was $2.26 for plan years ending on or after October 1, 2016 and before October 1, 2017. For plan years ending on or after October 1, 2017 and before October 1, 2018, the fee is $2.39. Indexed each year, the fee amount is determined by the value of national health expenditures. The fee phases out and will not apply to plan years ending after September 30, 2019.
As a reminder, fees are required for all group health plans including Health Reimbursement Arrangements (HRAs), but are not required for health flexible spending accounts (FSAs) that are considered excepted benefits. To be an excepted benefit, health FSA participants must be eligible for their employer’s group health insurance plan and may include employer contributions in addition to employee salary reductions. However, the employer contributions may only be $500 per participant or up to a dollar for dollar match of each participant’s election.
HRAs exempt from other regulations would be subject to the CER fee. For instance, an HRA that only covered retirees would be subject to this fee, but those covering dental or vision expenses only would not be, nor would employee EAPs, disease management programs and wellness programs be required to pay CER fees.
In a recent statement released by the IRS it advised that it would not accept individual 2017 tax returns that did not indicate whether the individual had health coverage, had an exemption from the individual mandate, or will make a shared responsibility payment under the individual mandate. Therefore, for the first time, an individual must complete line 61 (as shown in previous iterations) of the Form 1040 when filing his/her tax return. This article explains what the new IRS position means for the future of ACA compliance from an employer’s perspective.
First, it will be critical (more so this year than in year’s past) that an employer furnish its requisite employees the Form 1095-C by the January 31, 2018 deadline. In previous years, this deadline was extended (to March 2, 2017 last year). However, with the IRS now requiring the ACA information to be furnished by individual tax day, April 17, 2018, employers will almost certainly have to furnish the Form 1095-C to employees by the January 31, 2018 deadline. This is a tight deadline and will require employers to be on top of their data as the 2017 calendar year comes to a close.
An employee who is enrolled in a self-insured plan will need the information furnished in part III of the Form 1095-C to complete line 61 on his/her tax return. It is reasonable to assume that an employee is more likely to inquire as to the whereabouts of the Affordable Care Act information necessary to complete his/her 2017 tax return. Therefore, the possibility of word getting back to the IRS that an employer is not furnishing the Form 1095-C statements to employees is also likely greater in 2017 compared to past years. Remember, an employer can be penalized $260 if it fails to furnish a Form 1095-C that is accurate by January 31, 2018 to the requisite employees. This penalty is capped at $3,218,500. The $260 per Form penalty and the cap amount can be increased if there is intentional disregard for the filing requirements.
The IRS statement continues the IRS’ trend of being more strenuous with ACA requirements. Many employers have received correspondence from the IRS about missing Forms 1094-C and 1095-C for certain EINs. Frequently, this has been caused by the employer incorrectly filing one Form 1094-C for the aggregated ALE group as opposed to a Form 1094-C for each Applicable Large Employer member (ALE member). While the IRS’ latest statement does not ensure that enforcement of the employer mandate (the section 4980H penalties) is coming soon, one could infer that the IRS will soon be sending out penalty notices with respect to the employer mandate.
With the actions taken by the IRS in 2017, all employers need to be taking the reporting of the Forms 1094-C and 1095-C seriously. As of the date of this publication, the Form 1095-C must be furnished to an employer’s requisite employees by January 31, 2018.
For more information about the VSP Eyes of Hope program, you can visit their website at www.vspglobal.com/disasteroutreach.
One of your employee’s comes to you and asks to cancel their medical insurance in the middle of the year. Seems like a simple request but is it really? Since most employers are deducting health, dental, vision, and/or supplement coverage premiums from employees on a pre-tax basis, the employee’s request must first meet certain requirements before they are eligible to adjust their election mid plan year.
With a valid Section 125 Cafeteria Premium Only Plan in place, the IRS allows employers to withhold premium deductions from employees for certain cover pre-tax. Part of the IRS requirement for taking deductions pre-tax is that employees must experience a qualifying event in order to change their election in the middle of the group’s plan year. The employee must notify their employer of the qualifying event (aka change in status) within 30 days of the event date to be able to adjust their election. If the employee fails to meet the requirements of a qualifying event or does not notify their employer within the allotted time frame, the employee must either wait until they experience another qualifying event or until the next open enrollment period at the group to adjust their election.
A qualifying event is simply explained as any major life event that affects and employee or dependent(s) eligibility for benefits. The following are qualifying events that may allow an employee to change their election mid plan year:
1. Change in legal martial status (i.e marriage, divorce, death of spouse, legal separation, etc.)
2. Change in number of dependents (i.e. birth, adoption, etc)
3. Change in the employment status of employee, spouse, or dependent which results in change in benefits (i.e. termination or start of employment, change in worksite, etc).
5. Dependent ceasing to satisfy eligibility requirements for coverage due to attainment of age, student status, marital status, etc.
6.Change in place of residence of employee, spouse, or dependent where current coverage is not available
7. Judgements, decrees, or orders
8. Change in the coverage of a spouse or dependent under another employer’s plan
9.Open enrollment under the plan of another employer for employee, spouse, or dependent.
10. COBRA qualifying event
11. Loss of coverage under the group health plan of governmental or education institution (i.e SHOP, Medicaid, etc)
12. Entitlement to Medicare or Medicaid
13. Change in Citizenship Status
14. Loss / Gain of coverage in the Marketplace or Exchange by employee, spouse or dependent
Once you have determined if an employee has experienced a qualifying event, you will need to have them complete a new election form (or change form) indicating the reason for their mid-year change and the date of the qualifying event. An employer is not required to keep copies of additional documents as proof of the qualifying event (i.e birth certificate, marriage certificate, etc) but you are required to inspect any necessary documents to validate an appropriate qualifying event has occurred and the date of occurrence. Be sure to indicate on the employee’s updated election/change form the date of the actual qualifying event as this will be the date that the coverage change takes effect with the carrier(s).
Example- Employee gets married on August 5th and wishes to add their new spouse to their coverage. They notify you within the allotted 30 day time frame. The spouse’s new coverage begins under your group plan as of the date of marriage (August 5th) and you will need to adjust any payroll deductions accordingly.
It is important to make sure you (as the employer) have documentation of any employee elections /change in the event that your group experiences an audit or an employee questions any elections/payroll deductions.
Depending on how your current contracts are set up with your insurance carriers will depend on how qualifying event changes affect your premiums with respect to any mid-month changes. Make certain any qualifying event changes are also processed with payroll and their deductions are adjusted accordingly once changes are processed with the insurance carriers.
Should you have any questions about how to properly administer a qualifying event change or if you want to implement a Section 125 Premium Only Plan, please contact our office for assistance.
The Office of Management and Budget (OMB) announced late Tuesday (8/29/17) that it was implementing an immediate stay of the revised EEO-1 Report, putting a halt to long-awaited pay data reporting requirements. The stay creates much needed relief for employers, but is expected to further refocus pay equity discussions on a statewide and local level.
Quick Recap Of Pay Data Reporting
Historically, employers with 100 or more employees, and federal contractors with 50 or more employees, have been required to submit Employer Information Reports (EEO-1 Reports) disclosing the number of employees by job category, race, sex, and ethnicity annually. Last year, the EEOC finalized proposed changes to the EEO-1 Report which would require employers to include pay data and the number of hours worked in their reporting. The proposed reporting expansion was intended to identify pay gaps, which the agency could then use to target specific employers and investigate pay discrimination practices.
The revised form, revealed in October 2016, required employers to submit the newly requested data based on a “workforce snapshot” of any pay period between October 1, 2017 and December 31, 2017 and was due to be submitted by March 31, 2018.
The U.S. Chamber of Commerce and many other observers identified serious flaws in the proposed rule. Following pushback by numerous business groups, the EEOC announced it would issue a second set of revisions to the form. However, the revisions encompassed only two minor changes and failed to alleviate significant employer concerns. Businesses across the country had thus been preparing to usher in a new day when it came to having their pay practices placed under a federal microscope, and until yesterday, it appeared inevitable that the disclosure would proceed as planned.
Feds Press Pause On Pay Data Reporting
All of that changed yesterday with the announcement from the federal government. In issuing an immediate stay of the revised EEO-1 report, the OMB voiced its own concerns with the revised reporting requirements. The office announced: “…[we are] concerned that some aspects of the revised collection of information lack practical utility, are unnecessarily burdensome, and do not adequately address privacy and confidentiality issues.”
Employers are still required to submit EEO-1 Reports using the previously approved form. The deadline for submission of 2017 data remains March 31, 2018. However, employers can breathe a sigh of relief when it comes to the proposed expanded pay data reporting requirements – for now.
Whether this development foreshadows the ultimate demise of the revised EEO-1 Report is currently unclear. However, national attention on wage inequities remains despite yesterday’s announcement, and the focus on pay equity enforcement is increasingly shifting to state and local levels. States like California, New York, Massachusetts, Oregon, Nevada, and others have all passed pay equity legislation in the last year. Consequently, with each state acting as its own incubator for how to best address these disparities, pay equity analysis and related litigation is becoming more complicated.