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Earlier this week, the IRS issued Notice 2019-63, which extends both: (1) the filing deadline for Forms 1095-C and 1095-B; and (2) the good-faith reporting relief.  But this year, there’s more.  In limited circumstances, the IRS will not penalize entities for the failure to furnish information to individuals using Form 1095-B, and in some cases, Form 1095-C (see discussion of Section 6055 Relief below).

 Deadline Extension

Notice 2019-63 extends the due date for reporting entities to furnish 2019 Forms 1095-C and 1095-B to individuals from January 31, 2020 to March 2, 2020.  These forms must also be filed with the IRS (along with the applicable transmittal statement) by February 28, 2020 (if filed on paper) or March 31, 2020 (if filed electronically).  Reporting entities may, however, request individual extensions to file these forms with the IRS.

Good-Faith Reporting Relief

The IRS may impose penalties of up to $270 per form for failing to furnish an accurate Form 1095-C or 1095-B to an individual and $270 per form for failing to file an accurate Form 1095-C or 1095-B with the IRS.  As in prior years, the IRS indicated in Notice 2019-63 that it would not impose these penalties for incomplete or inaccurate forms for the 2019 calendar year (due in 2020), if the reporting entity can show that it “made good-faith efforts to comply with the information-reporting requirements.”  This good-faith reporting relief does not apply to forms that were untimely furnished to individuals or filed with the IRS.

Section 6055 Relief

Under Section 6055 of the Internal Revenue Code (the “Code”), providers of minimum essential coverage must furnish certain information to “responsible individuals” about enrollment in the minimum essential coverage during the previous calendar year.  The purpose of this reporting requirement is to assist the IRS enforce compliance with the “individual mandate” penalty under the ACA.

Under the Tax Cuts and Jobs Act of 2017, the individual mandate penalty was not repealed, but the penalty amount was reduced to zero.  This makes reporting under Section 6055 of the Code irrelevant.  As a result, Notice 2019-63 provides limited relief from the reporting requirements under Section 6055 of the Code.

Here is a brief summary of the Section 6055 reporting requirements:

  • Insurers. For employers that sponsor fully insured group health plans, the plan’s insurer must comply with the Section 6055 reporting requirements using Forms 1094-B and 1095-B.
  • Self-Funded Plan Sponsors. For employers that sponsor self-funded plans, the employer must comply with the Section 6055 reporting requirements. But, the applicable forms depend on whether or not the employer is an “applicable large employer” that is subject to the Employer Shared Responsibility Payment (i.e., the “pay or play” penalty):
    • Small Employers. Employers that are not subject to the pay or play penalty use Forms 1094-B and 1095-B.  (Employers that are not subject to the pay or play penalty generally don’t have enough employees to sponsor a self-funded plan.  So, it is rare for employers to file Forms 1094-B and 1095-B.)
    • Large Employers. Employers that are subject to the pay or play penalty generally use Forms 1094-C and 1095-C.  (Forms 1094-C and 1095-C allow the employer to comply with its reporting obligations under both Sections 6055 and 6056 of the Code.  Under Section 6056 of the Code, employers must report compliance with the pay or play penalty.)

Notice 2019-63 provides relief with respect to Forms 1095-B and limited relief with respect to Forms 1095-C.  For insurers and small self-funded employers, the entity must still prepare and file the Forms 1095-B with the IRS.  However, these entities are not required to furnish individuals with a copy of the Form 1095-B as long as the entity satisfies both of the following requirements:

  • The entity prominently posts a notice on its website stating that responsible individuals may receive a copy of their Form 1095-B upon request. The notice must contain both an email and a physical address that responsible individuals can use to request their Form 1095-B, and a telephone number that the responsible individual can use to contact the entity with questions.
  • The entity furnishes the responsible individual with their Form 1095-B within 30 days of the date that the entity receives the request.

Notice 2019-63 generally does not extend this relief to large self-funded employers, except for Forms 1095-C that are prepared on behalf of individuals who are not full-time employees for the entire 2019 calendar year.  A large employer sponsor of a self-funded plan may file a Form 1095-C on behalf of an individual who was enrolled in the self-funded plan during the 2019 calendar year, but was not a full-time employee during any month of the calendar year.  (For these individuals, the “all 12 months” column of line 14 is completed using the code “1G.”)  Examples of where this relief may extend to Forms 1095-C are: (1) former employees who terminated employment before 2019 but were enrolled in the self-funded plan under COBRA or retiree coverage; and (2) employees who were part-time during all of 2019, but were enrolled in the self-funded plan because the plan sponsor extended eligibility for the self-funded plan to part-time employees.

Conclusion

While the filing deadline extension and the extension of the good-faith reporting relief is likely welcome news to insurers and employers alike, it’s probably not surprising.   And, while the Section 6055 reporting relief is likely surprising, it’s probably only meaningful to insurers.

IRS Clarifies “Letter 227” & Releases Sample Letters

June 01 - Posted at 4:37 PM Tagged: , , , , , , , ,

The IRS has created a webpage on understanding Letter 227, which certain applicable large employers (ALEs) may receive in connection with the assessment of employer shared responsibility penalties (aka Pay or Play penalties). As background, the IRS uses Letter 226J to notify an ALE of a proposed penalty assessment. ALEs have 30 days to respond, using Form 14764 to indicate their agreement or disagreement with the proposed penalty amount. Letter 227 acknowledges the ALE’s response to Letter 226J and explains the outcome of the IRS’s review and the next steps to fully resolve the penalty assessment. There are five different versions of the letter (samples are provided of each version on the IRS website):

  • Letter 227-J states that the proposed penalty amount will be assessed because the ALE agreed with the proposed penalty. No response is required to this version of the letter, and the case is deemed closed.
  • Letter 227-K shows that the penalty amount has been reduced to zero. No response is required to this version of the letter, and the case is deemed closed.
  • Letter 227-L shows that the proposed penalty amount has been revised. This version of the letter includes an updated Form 14765 (PTC listing) and revised calculation table. The ALE can agree with the revised penalty amount, request a meeting with the IRS, or appeal the determination.
  • Letter 227-M shows that the penalty amount did not change. This version of the letter also includes an updated Form 14765 (PTC listing) and revised calculation table to the extent any data used in the computation of the proposed penalty amount changed based on information provided by the ALE. The ALE can agree with the revised penalty amount, request a meeting with the IRS, or appeal the determination.
  • Letter 227-N acknowledges the decision reached by the IRS appeals office and shows the resulting penalty amount. No response is required to this version of the letter, and the case is deemed closed.

Only Letters 227-L and 227-M call for a response, which must be provided by the date stated in the letter. The IRS stresses that the Letter 227 is not a bill. Notice CP 220J is used to collect the employer shared responsibility penalty payment.

Penalty Letters from The IRS Are Arriving

January 29 - Posted at 4:48 PM Tagged: , , , , , , , , , , , , , , , ,

Many Applicable Large Employers (ALE’s) have already started received Letter 226J from the IRS that indicates their proposed assessment of a penalty under the Employer Shared Responsibility provision of  the Patient Protection and Affordable Care Act (ACA).

Letter 226J outlines several things for the ALE receiving it. The letter will tell the ALE what the proposed penalty assessment could be and will also state whether the assessment is based on an “A” or “B” Penalty. An “A” Penalty is assessed when at least one full-time employee is provided a premium tax credit when the employee obtains coverage in the healthcare marketplace exchange. An ALE may be subject to a “B” Penalty if employees decline substandard coverage (aka coverage offered is not affordable) offered by the ALE and then receive a tax credit when obtaining coverage from the marketplace exchange. The letter also provides a list to the ALE of the full-time employees that received a premium tax credit and therefore created the potential for a penalty under the ACA.

It is very important for ALE’s to respond to Letter 226J and do so in a timely manner. The IRS provides 30 days, from the date of issuance, for ALE’s to respond, and if no response is made by the ALE, the IRS will conclude the employer does not disagree with the proposed assessment. ALE’s should not assume that because they received a letter that they will owe a penalty or that the amount outlined in the letter is the amount they will ultimately pay to the IRS for non-compliance with the ACA. Additionally, if no response is made to the IRS, the IRS will demand payment by issuing notice CP 220J. Only once the notice and demand for payment is received is the ALE required to make the penalty payment. Letter 226J is not requesting any payment but is giving ALE’s the chance to respond/disagree with the decision initially made by the IRS & Marketplace. 

Letter 226J clearly outlines instructions on how to respond to the letter if the ALE feels that it is not liable for the proposed penalty. ALE’s will complete Form 14764 responding to the IRS that it does not agree with the penalty determination. The ALE will provide the IRS with a signed statement explaining why it does not agree with the determination. Any supporting documentation should be provided to the IRS (for example, records indicating dates of termination of employees, proof that the ALE offered coverage to full-time employees) and any other information requested in Letter 226J. The ALE should also make any changes to the Employee Premium Tax Credit (PTC) Listing that was enclosed with Letter 226J. The Employee PTC Listing (Form 14765) will be included with Letter 226J and Form 14764 (ESRP Response). The Employee PTC Listing identifies each employee who received a PTC by month and also the line 14 and line 16 indicator codes that were provided on the employee’s 1095-C form. If the ALE provided the incorrect indicator codes on form 1095-C, the Employee PTC Listing provides a line for the ALE to correct the codes used.

Once the IRS receives the response to Letter 226J, it will acknowledge that it has received the response by sending the ALE a version of Letter 227. There are 5 versions of Letter 227, and the ALE will receive the appropriate version, acknowledging receipt of their response and an outline of any further action that may be required.

IRS has begun notifying employers of their potential liability for an ACA employer shared responsibility payment in connection with the 2015 calendar year. It recently released Forms 14764 and 14765, which employers can use to dispute the assessment.

Background

The Affordable Care Act (ACA) imposes employer shared responsibility requirements that are commonly referred to as the “employer mandate.” Beginning in 2015, applicable large employers (ALEs) – generally, employers with at least 50 full-time employees – are required to offer minimum essential coverage to substantially all full-time employees and their dependents, or pay a penalty if at least one full-time employee enrolls in marketplace coverage and receives a premium tax credit. Even if they offer employees coverage, ALEs may still be subject to an employer shared responsibility payment if the coverage they offer to full-time employees does not meet affordability standards or fails to provide minimum value. 

The IRS announced their plans in Fall of 2017 to notify employers of their potential liability for an employer penalty for the 2015 calendar year. It released FAQs explaining that Letter 226J will note the employees by month who received a premium tax credit, and provide the proposed employer penalty. Additionally, the IRS promised to release forms for an employer’s penalty response and the employee premium tax credit (PTC) list respectively. 

Employer Penalty Response & Employee Premium Tax Credit Forms Now Available

IRS subsequently issued Form 14764, the employer penalty Response, and Form 14765, the Employee PTC Listing. Together, these forms are the vehicle for employers to respond to a Letter 226J.

On Form 14764, employers indicate full or partial agreement or disagreement with the proposed employer penalty, as well as the preferred employer penalty payment option. An employer that disagrees with the assessment must include a signed statement explaining the disagreement, including any supporting documentation. This form also allows employers to authorize a representative, such as an attorney, to contact the IRS about the proposed employer penalty.

On Form 14765, the IRS lists the name and last four digits of the social security number of any full-time employee who received a premium tax credit for one or more months during 2015 and where the employer did not qualify for an affordability safe harbor or other relief via Form 1095-C. Each monthly box has a row reflecting any codes entered on line 14 and line 16 of the employee’s Form 1095-C. If a given month is not highlighted, the employee is an assessable full-time employee for that month – resulting in a potential employer assessment for that month.

If information reported on an employee’s Form 1095-C was not accurate or was incomplete, an employer wishing to make changes must use the applicable indicator codes for lines 14 and 16 described in the Form 1094-C and 1095-C instructions. The employer should enter the new codes in the second row of each monthly box by using the indicator codes for lines 14 and 16. The employer can provide additional information about the changes for an employee by checking the “Additional Information Attached” column. As mentioned:

Employers: Carefully Consider 226J Letter Responses
Miscoding can happen for different reasons, including vendor errors and inaccurate data. To minimize risk of additional IRS exposure, employers should carefully consider how best to respond to a 226J letter given circumstances surrounding the disputed assessments. For example, changing the coding on the 1095-C of an employee from full-time to part-time could trigger further review or questions by the IRS on the process for determining who is a full-time employee – and may increase the likelihood of IRS penalties for reporting errors on an employer’s Form 1095-Cs.

If No IRS Notice in 2017, Is an Employer Home Free in Connection with 2015 Employer Penalty?

In its October FAQs, the IRS stated that it “plans to issue Letter 226J informing ALEs of their potential liability for an employer shared responsibility payment, if any, in late 2017.” If the IRS sticks to that timing, all notices should be sent out by the end of this calendar year. However, because the IRS has not indicated that it will inform employers that they have no employer penalty due, it is impossible to say that an employer not receiving a Letter 226J in 2017 is home free for 2015 employer penalties.

In Closing

Employers should review the newly released forms so they are prepared to respond within 30 days of the date on the Letter 226J. They should also ensure processes are in place to make these payments, as necessary. Even employers who are not expecting any assessments will need to prepare to respond to the IRS within the limited timeframe to dispute any incorrect assessments.

ACA Pay or Play Penalty Letters Coming “Late 2017”

November 09 - Posted at 11:19 AM Tagged: , , , , , , , , , , , , , ,

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.

 

IRS Won’t Accept 2017 Individual Tax Returns without ACA Information

October 25 - Posted at 8:26 AM Tagged: , , , , , , , , , , , , , , , , ,

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.

With the Republicans’ failure to pass a bill to repeal and replace the Affordable Care Act (ACA), employers should plan to remain compliant with all ACA employee health coverage and annual notification and information reporting obligations.

Even so, advocates for easing the ACA’s financial and administrative burdens on employers are hopeful that at least a few of the reforms they’ve been seeking will resurface in the future, either in narrowly tailored stand-alone legislation or added to a bipartisan measure to stabilize the ACA’s public exchanges. Relief from regulatory agencies could also make life under the ACA less burdensome for employers.

“Looking ahead, lawmakers will likely pursue targeted modifications to the ACA, including some employer provisions,” said Chatrane Birbal, senior advisor for government relations at the Society for Human Resource Management (SHRM). “Stand-alone legislative proposals have been introduced in previous Congresses, and sponsors of those proposals are gearing up to reintroduce bills in the coming weeks.”

These legislative measures, Birbal explained, are most likely to address the areas noted below.
(more…)

The Affordable Care Act (ACA) established Health Insurance Marketplaces (also called Exchanges) where individuals can shop and enroll in health coverage. Individuals who meet certain criteria are eligible for premium subsidies and cost-sharing reductions for coverage on the Marketplace.


For the first time, in 2016 some employers will receive a notice from a Marketplace indicating that one of their employees signed up for health coverage through the Marketplace and received advanced premium subsidies. Many employers are asking what these notices mean and what actions they should take if they receive one.

Background

 

Premium subsidies and cost-sharing reductions are designed to expand healthcare coverage by making insurance, and its utilization, more affordable. Premium subsidies, more accurately referred to as a premium tax credit, are claimed on an individual’s income tax return at the end of the year. What is unique about this tax credit is that an individual can choose to have the expected premium tax credit advanced throughout the year, in which case the government makes payments directly to the health insurer on the individual’s behalf. Importantly, individuals who have access to health coverage through an employer that is affordable and meets minimum value are not eligible to receive the premium tax credit or advances of the premium tax credit for their coverage.


The ACA generally requires that applicable large employers – generally employers with 50 or more full-time employees, including full-time equivalents – offer health coverage that is affordable and of minimum value to their full-time employees (and their dependents) or face an Internal Revenue Service (IRS) tax. This is often referred to as the employer “pay or play” or employer mandate provision. Tax liability under this employer provision is triggered if one of the employer’s full-time employees receives a premium tax credit and the amount of the tax liability is determined by the number of full-time employees who received the premium tax credit.


Marketplace Notices

During the Marketplace application process, individuals are asked a host of questions, including questions about access to health coverage through an employer. If the Marketplace determines that the individual does not have access through an employer to coverage that is affordable and meets the required minimum value, and assuming the individual meets other eligibility criteria, advance payments of the premium tax credit can begin.


In such an instance, the Marketplace is required to send the employer a Marketplace notice. This will be the first year the Federally Facilitated Marketplace (FFM) is sending out these notices. It is worth noting that there is not a commitment to send a notice to all employers, and the FFM has said it can send a notice only if the individual provides a complete employer address. Consequently, some employers expecting Marketplace notices may not receive them and notices may not be mailed to the preferred employer address.


Potential Tax Liabilities

The Marketplace notices will give employers advance warning that they may have potential tax liability under the employer mandate of the ACA. However, there are reasons that receiving a notice does not necessarily mean the IRS will be in hot pursuit, including:


  • The Marketplace cannot distinguish whether the employer is large enough to be subject to the employer mandate. That is, the Marketplace will be sending out notices to smaller employers that are not subject to the tax. An employer receiving a Marketplace notice may want to confirm whether it is an applicable large employer subject to the employer mandate.

 


  • Even if the employer is an applicable large employer, the individual identified in the notice may not be a full-time employee. Determining whether a particular employee is a full-time employee, as defined by the law and related regulations, is not always easy. An employer receiving a Marketplace notice may want to confirm whether the individual identified in the notice is an employee and whether, in fact, the employee was, or is, a full-time employee.


  • In addition to considering its potential tax liability under the employer mandate, an employer should also be mindful of its employees’ potential tax liability. As noted above, an individual with access through an employer to health coverage that is affordable and meets minimum value is not eligible for a premium tax credit. Consequently, any advance payments of the premium tax credit made on that individual’s behalf throughout the year will be subject to repayment when the individual files their income tax return. This will be an unwanted and unexpected surprise to many individuals.


Sample Notice Clarifications

The FFM recently posted a sample of its 2016 notice which can be found here.


Please note that the notice suggests that employers should call the IRS for more information if they have questions, however, IRS telephone assistors will be unable to provide information on the Marketplace process, including the appeals process, and will be unable to tell an employer whether they owe a tax under the employer mandate.


Considerations for Employers

An employer who receives a Marketplace notice may want to appeal the decision that the individual was not offered employer coverage that was affordable and of minimum value. An employer has 90 days from the date of the notice to file an appeal, which is made directly to the Marketplace. Importantly, the IRS will independently determine whether an employer has a tax liability, and the employer will have the opportunity to dispute any proposed liability with the IRS. Similarly, an individual will have the opportunity to challenge an IRS denial of premium tax credit eligibility. Any contact by the IRS, however, will occur late in the game after the year’s tax liabilities have already been incurred. Therefore, although an appeal is not required, it may be advisable.


Regardless of whether an employer pursues an appeal, an employer, particularly one that offers affordable, minimum value health coverage, should communicate to its employees about its offering. Although an applicable large employer is required to furnish IRS Form 1095-C to full-time employees detailing the employer’s offer, a better option is providing employees with information before they enroll in Marketplace coverage.


In summary, the Marketplace notice serves as an advance warning that either the employer or the employee may have a tax liability. Given this exposure, employers should review Marketplace notices and their internal records and consider taking action.

Beginning in Spring 2016, the Affordable Care Act (ACA) Exchanges/Marketplaces will begin to send notices to employers whose employees have received government-subsidized health insurance through the Exchanges. The ACA created the “Employer Notice Program” to give employers the opportunity to contest a potential penalty for employees receiving subsidized health insurance via an Exchange.


What are the Potential Penalties?

The notices will identify any employees who received an advance premium tax credit (APTC). If a full-time employee of an applicable large employer (ALE) receives a premium tax credit for coverage through the Exchanges in 2016, the ALE will be liable for the employer shared responsibility payment. The penalty if an employer doesn’t offer full-time equivalent employees (FTEs) affordable minimum value essential coverage is $2,160 per FTE (minus the first 30) in 2016. If an employer offers coverage, but it is not considered affordable, the penalty is the lesser of $3,240 per subsidized FTE in 2016 or the above penalty. Penalties for future years will be indexed for inflation and posted on the IRS website. The Employer Notice Program does provide an opportunity for an ALE to file an appeal if employees claimed subsidies they were not entitled to.

Who Will Receive Notices?

The first batch of notices will be sent in Spring 2016 and additional notices will be sent throughout the year.  For 2016, the notices are expected to be sent to employers if the employee received an APTC for at least one month in 2016 and the employee provided the Exchange with the complete employer address.


Last September, the Centers for Medicare and Medicaid Services (CMS) issued FAQs regarding the Employer Notice Program. The FAQs respond to several questions regarding how employers should respond if they receive a notice that an employee received premium tax credits and cost sharing reductions through the ACA’s Exchanges.


Appeal Process

Employers will have an opportunity to appeal the employer notice by proving they offered the employee access to affordable minimum value employer-sponsored coverage, therefore making the employee ineligible for APTC. An employer has 90 days from the date of the notice to appeal.  If the employer’s appeal is successful, the Exchange will send a notice to the employee suggesting the employee update their Exchange application to reflect that he or she has access or is enrolled in other coverage.  The notice to the employee will further explain that failure to provide an update to their application may result in a tax liability.


An employer appeal request form is available on the Healthcare.gov website. For more details about the Employer Notice Program or the employer appeal request form visit www.healthcare.gov.


Advice

Although CMS has provided these guidelines to apply only to the Federal Exchange, it is likely that the state-based Exchanges will have similar notification programs.


Employers should prepare in advance by developing a process for handling the Exchange notices, including appealing any incorrect information that an employee may have provided to the Exchange.  Advance preparation will enable you to respond to the notice promptly and help to avoid potential employer penalties.

Even small employers notsubject to the Affordable Care Act’s (ACA) coverage mandate can’t reimburse employees for nongroup health insurance coverage purchased on a public exchange, the Internal Revenue Service confirmed. But small employers providing premium reimbursement in 2014 are being offered transition relief through mid-2015.


IRS Notice 2015-17, issued on Feb. 18, 2015, is another in a series of guidance from the IRS reminding employers that they will run afoul of the ACA if they use health reimbursement arrangements (HRAs) or other employer payment plans—whether with pretax or post-tax dollars—to reimburse employees for individual policy premiums, including policies available on ACA federal or state public exchanges.


This time the warning is aimed at small employers—those with fewer than 50 full-time employees or equivalent workers. While small organizations are not subject to the ACA’s “shared responsibility” employer mandate to provide coverage or pay a penalty (aka Pay or Play), if they do provide health coverage it must meet a range of ACA coverage requirements.

“The agencies have taken the position that employer payment plans are group health plans, and thus must comply with the ACA’s market reforms,” noted Timothy Jost, J.D., a professor at the Washington and Lee University School of Law, in a Feb. 19 post on the Health Affairs Blog. “A group health plan must under these reforms cover at least preventive care and may not have annual dollar limits. A premium payment-only HRA or other payment arrangement that simply pays employee premiums does not comply with these requirements. An employer that offers such an arrangement, therefore, is subject to a fine of $100 per employee per day. (An HRA integrated into a group health plan that, for example, helps with covering cost-sharing is not a problem).”


Transition Relief

The notice provides transition relief for small employers that used premium payment arrangements for 2014. Small employers also will not be subject to penalties for providing payment arrangements for Jan. 1 through June 30, 2015. These employers must end their premium reimbursement plans by that time. This relief does not extend to stand-alone HRAs or other arrangements used to reimburse employees for medical expenses other than insurance premiums.


No similar relief was given for large employers (those with 50 or more full-time employees or equivalents) for the $100 per day per employee penalties. Large employers are required to self-report their violation on the IRS’s excise tax form 8928 with their quarterly filings.


“Notice 2015-17 recognizes that impermissible premium-reimbursement arrangements have been relatively common, particularly in the small-employer market,” states a benefits brief from law firm Spencer Fane. “And although the ACA created “SHOP Marketplaces” as a place for small employers to purchase affordable [group] health insurance, the notice concedes that the SHOPs have been slow to get off the ground. Hence, this transition relief.”


Subchapter S Corps.

The notice states that Subchapter S closely held corporations may pay for or reimburse individual plan premiums for employee-shareholders who own at least 2 percent of the corporation. “In this situation, the payment is included in income, but the 2-percent shareholder can deduct the premiums for tax purposes,” Jost explained. The 2-percent shareholder may also be eligible for premium tax credits through the marketplace SHOP Marketplace if he or she meets other eligibility requirements.


Tricare

Employers can pay for some or all of the expenses of employees covered by Tricare—a Department of Defense program that provides civilian health benefits for military personnel (including some members of the reserves), military retirees and their dependents—if the payment plan is integrated with a group health plan that meets ACA coverage requirements.


Higher Pay Is Still OK

One option that the IRS will allow employers is to simply increase an employee’s taxable wages in lieu of offering health insurance. “As long as the money is not specifically designated for premiums, this would not be a premium payment plan,” said Jost. “The employer could even give the employee general information about the marketplace and the availability of premium tax credits as long as it does not direct the employee to a specific plan.”


But if the employer pays or reimburses premiums specifically, “even if the payments are made on an after-tax basis, the arrangement is a noncompliant group health plan and the employer that offers it is subject to the $100 per day per employee penalty,” Jost warned.


“Small employers now have just over four months in which to wind down any impermissible premium-reimbursement arrangement,” the Spencer Fane brief notes. “In its place, they may wish to adopt a plan through a SHOP Marketplace. Although individuals may enroll through a Marketplace during only annual or special enrollment periods, there is no such limitation on an employer’s ability to adopt a plan through a SHOP.” 

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