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New PCORI Fee Amounts Announced for the 2022 Reporting Period

December 23 - Posted at 8:30 AM Tagged: , , ,

The IRS just released IRS Notice 2022-04 that provides the updated fee for Patient-Centered Outcomes Research Institute (PCORI) paid by fully insured and self-funded health plans for the upcoming tax reporting period.

Even though the original PCORI fee assessments under the Affordable Care Act were scheduled to end after September 30, 2019, Congress extended these fees to be assessed by the IRS under the Further Consolidated Appropriations Act of 2020 for another ten years, until at least September 30, 2029.

The updated PCORI fee is now $2.79 per covered life for all plan years ending on or after October 1, 2021, and before October 1, 2022, up from $2.66 for the prior period.  As a reminder, fully insured plans are to be assessed the applicable PCORI fee amount through their monthly premium payments made to their health insurance carrier.  Self-insured plans pay this fee as part of the annual IRS Form 720 filing due by July 31 of each year.

Draft Instructions for Forms 1094-C and 1095-C Make Accurate Completion of the Forms Imperative for the 2021 Reporting Season

November 22 - Posted at 9:00 AM Tagged: , , , , , ,

The draft instructions for the Forms 1094-C and 1095-C for the 2021 reporting season were released in late September 2021 with subtle, but important changes. To an untrained eye, these changes may fly under the radar. However, for the first time since the Affordable Care Act’s (ACA’s) inception, employers who file incorrect or incomplete Forms 1095-C with the IRS may suffer costly penalties. The remainder of this article will explore the changes made in the draft instructions for the Forms 1094-C and 1095-C in 2021.

The 2020 instructions to the Forms 1094-C and 1095-C included language that asserted no penalty would be imposed under IRC sections 6721 or 6722 for incorrect or incomplete Forms 1095-C so long as the employer showed that it made good-faith efforts to comply with the information reporting requirements. Similar language has been included in Notices released by the IRS that correspond to all the ACA reporting seasons to date. However, Notice 2020-76, the Notice that extended the good-faith efforts relief for the 2020 reporting season and was incorporated into the final instructions for the Forms 1094-C and 1095-C in 2020, stated that the good-faith efforts relief would not continue for tax reporting seasons past 2020.

As a result of the good-faith efforts relief no longer applying, if an employer submits a Form 1095-C to the IRS or furnishes a Form 1095-C to an employee that is incorrect or incomplete, the employer could be penalized $280 per return. It should be noted that this penalty would apply twice to the same Form 1095-C, once for the Form 1095-C that is furnished to the employee and once for the Form 1095-C that is submitted to the IRS for a total of $560.

The chart below details the cost an employer could incur depending on the percentage of its Forms 1095-C that are filed incorrectly or incompletely. While the chart only discusses the penalty under IRC section 6721, if the IRS were to aggressively penalize an employer, the penalty could be doubled by the IRS by utilizing the penalty under IRC section 6722. The column labeled “# of Forms 1095-C” states the number of Forms 1095-C filed by the employer. The columns labeled with a “x%” state the presumed number of Forms 1095-C that are hypothetically filed incorrectly or incompletely. The dollar figure in the chart states the hypothetical penalty.

# of Forms 1095-C1%3%5%10%15%20%25%
100$280$840$1,400$2,800$4,200$5,600$7,000
1,000$2,800$8,400$14,000$28,000$42,000$56,000$70,000
2,500$7,000$21,000$35,000$70,000$105,000$140,000$175,000
5,000$14,000$42,000$70,000$140,000$210,000$280,000$350,000
10,000$28,000$84,000$140,000$280,000$420,000$560,000$700,000
25,000$70,000$210,000$350,000$700,000$1,050,000$1,400,000$1,750,000
50,000$140,000$420,000$700,000$1,400,000$2,100,000$2,800,000$3,500,000

As the chart above displays, an employer who submits 1,000 Forms 1095-C to the IRS with 10 percent of the Forms 1095-C being incorrect could be subject to a penalty of $28,000 under IRC section 6721. Additionally, that employer could be subject to a separate $28,000 penalty for furnishing incorrect Forms 1095-C to employees under IRC section 6722. Many employers and service providers in the ACA space have submitted Forms 1095-C to the IRS that have a much higher error rate than 10 percent in previous years. Consequently, it is easy to envision staggering penalties under IRC sections 6721 and 6722 if the IRS stringently enforces these penalties. As a result, employers must be confident that the information reported to the IRS on the Forms 1094-C and 1095-C is complete, meticulous and error free in order to avoid IRS penalties.

 

Additionally, for the first time in ACA reporting history the IRS appears set on keeping the deadline of January 31, 2022 to furnish the Forms 1095-C to employees. The 2021 draft instructions provide guidance on how an employer can request a 30 day extension. This extension is not automatically granted and therefore should not be relied upon by employers.

Two other small changes were made in the draft instructions to the Forms 1094-C and 1095-C. First, the maximum penalty under IRC sections 6721 and 6722 increased from $3,392,000 in 2020 to $3,426,000 in 2021. Second, two new codes were added for individual coverage health reimbursement arrangements (ICHRAs). Each new code involves employers who offered ICHRAs to the employee and the employee’s spouse.

  • Code 1T – Individual coverage HRA offered to employee and spouse (no dependents) with affordability determined using employee’s primary residence location ZIP code.

  • Code 1U – Individual Coverage HRA offered to employee and spouse (not dependents) using employee’s primary employment site ZIP code affordability safe harbor.

Since both new codes deal with ICHRAs and both should never be used, as the new codes do not offer coverage to dependent children, these new codes will have little impact on employers. Any employer who is using an ICHRA as part of their ACA strategy should be utilizing codes 1M, 1N, 1P, or 1Q depending on who in the employee’s family is eligible to utilize the ICHRA.

We anticipate the final instructions will be released any week with minimal, if any, changes compared to the draft instructions. While it is still possible the IRS may release a Notice extending the good-faith efforts relief to 2021 reporting and extend the due date to furnish the Forms 1095-C to full-time employees, employers should not rely on such a Notice this year. As a result, it is essential that employers make sure that every line 14 and 16 code combination submitted to the IRS is error free. 

IRS Released More Benefit Limits for 2022

November 12 - Posted at 10:34 AM Tagged: , , , , , ,

The IRS has released the 2022 contribution limits for FSA and several other benefits in Revenue Procedure 2021-45. The limits are effective for plan years that begin on or after January 1, 2022.

  • The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) increases to $2,850.

  • If the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $570.

  • The monthly limitation for qualified transportation fringe benefit regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $280. The monthly limit for qualified parking is also $280.

  • Health Savings Account limits were already published, but they also increased to $3,650 for employee-only coverage and $7,300 for family coverage.

Smaller Employers Beware: IRS Doesn’t Want Paper ACA Filings Next Year (or Paper W-2 and Similar Filings)

August 03 - Posted at 1:50 PM Tagged: , , , , , ,

The IRS has proposed two significant changes to electronic filing requirements for various information returns including not just the Forms 1094-C and 1095-C filings required of many employers by the Affordable Care Act (ACA), but common payee statements like Forms W-2 and 1099. If the proposed changes are finalized – we expect that to happen by this autumn – all but the very smallest employers will be required to file these forms electronically for filing due dates falling in 2022 and beyond. Employers wishing to engage an ACA reporting and/or payroll vendor to comply with electronic filings requirements will need to begin making changes to comply.

Background: ACA filings and electronic media

Under current e-filing rules, an employer subject to the ACA’s employer mandate is not required to file its Forms 1094-C and 1095-C electronically unless the employer is submitting at least 250 of the forms to the IRS. When determining whether the employer crosses the 250-return threshold, the employer separately counts the different returns it files, such as its Forms 1094-C and 1095-C, and even payee statements like Forms W-2, 1099, etc.

For example, an employer with 150 ACA full-time employees and 50 part-time employees over the course of the calendar year may be required to file 200 Forms W-2, 150 Forms 1095-C and one Form 1094-C, but because the employer is not filing at least 250 of the same form, the employer is not required to file any of the forms electronically.

The proposed rule: Nearly every employer would be in the e-filing boat

The new IRS proposal would drop the 250-return threshold to 100 for returns due in 2022 (and to 10 for returns due in 2023 or later years), and, most significantly, would require employers to aggregate the number of different returns it files when determining whether the 250-return threshold is reached. In the example above, for returns due in 2022, the employer would aggregate the 200 Forms W-2, 150 Forms 1095-C and the one Form 1094-C, for a total of 351 returns. Because the aggregated total of returns due from the employer is at least 250, all the returns must be filed electronically.

Lining up an ACA (and perhaps payroll) reporting vendor

Many employers that until now have filed their Forms 1094-C/1095-C, W-2, 1099, etc. on paper will be required – assuming the IRS shortly finalizes the newly proposed regulations – to submit those forms to the IRS electronically for filings due in 2022. Almost all employers will be required to e-file by 2023. For employers wishing to engage a vendor to conduct electronic filing – particularly those for whom the e-filing status quo will change next year – the search for an e-filing vendor should begin. 

PCORI Fee Increases to $2.66 for 2020 Calendar Year Plans

June 09 - Posted at 10:00 AM Tagged: , , ,

The IRS has released IRS Notice 2020-84 providing the adjusted $2.66 Patient-Centered Outcomes Research Institute (PCORI) fee per covered individual for health plan years ending on or after October 1, 2020 and before October 1, 2021, which includes 2020 calendar plan years.  The fee has increased $0.12 per covered individual from last year (from $2.54).

As detailed in last year’s alert, Congress surprisingly extended the PCORI fee for another decade (until 2029). Despite the originally scheduled sunsetting of the fee in the 2019 filing (for calendar plan years), PCORI filings are now here to stay as a summer staple for the foreseeable future.

The annual PCORI fee must be reported and paid to the IRS by August 2, 2021 via the second quarter Form 720

What is the PCORI Fee Used For?

The fee is imposed on health insurance issuers and self-insured health plan sponsors in order to fund the Patient-Centered Outcomes Research Institute (PCORI).  The mission of the institute is to improve healthcare delivery and outcomes by producing and promoting high-integrity evidence-based information that comes from research guided by patients, caregivers and the broader health community.

The institute currently maintains a robust portfolio of patient-centered outcomes research that addresses a variety of high priority conditions and topics.

PCORI research projects are also targeting certain populations of interest such as: racial and ethnic minorities, low socioeconomic status, women, older adults and individuals with multiple chronic conditions.  The PCORI website lists current and completed research projects as well as outcomes.

Who Needs to Pay the PCORI Fee?

Fully Insured Medical Plans:  Health Insurers (aka insurance carriers) are responsible for paying the fee on fully insured health policies.  This fee is built into the insurance premium, so there is no action required by employers.

Self-Insured Medical Plans (Including HRAs): The plan sponsor (aka the employer) is responsible for paying the PCORI fee for self-insured health plans.   Self-insured plans include so-called “level funded” plans. The employer must file the Form 720 and pay the fee.

To Which Plans Does the PCORI Fee Apply?

The PCORI fee generally applies only to major medical plans and health reimbursement arrangements (HRAs).  (See below for an exception that applies to many HRAs.)

The PCORI fee does not apply to dental and vision coverage that are excepted benefits (whether through a stand-alone insurance policy or meeting the “not integral” test for self-insured coverage).   Virtually all dental and vision plans are excepted benefits. 

The PCORI fee also does not apply to health FSAs (which must be an excepted benefit to comply with the ACA) or HSAs (which are not a group health plan).

For a quick reference guide, the IRS has published a table which summarizes the applicability of the fee to common types of health and welfare benefits.

Does the PCORI Fee Apply to HRAs?

Yes, an HRA is a self-insured health plan.  However, the PCORI rules provide an exception to the fee requirement for an HRA where it is offered along with a self-insured major medical plan that has the same plan year as the HRA.  This avoids the need to pay the PCORI fee for both the HRA and the self-insured major medical plan (i.e., each person covered by both plans is counted only once for purposes of determining the PCORI fee).

There is no exception from the PCORI fee for an HRA offered along with fully insured major medical coverage.  While the insurance carrier is responsible for paying the PCORI fee for the fully insured medical plan, the employer is responsible for paying the PCORI fee on the HRA.   The IRS is essentially double-dipping in this scenario by imposing the PCORI fee on the same lives covered by both the major medical and the HRA.  In recognition of this, the HRA PCORI fee paid by the employer is determined by counting only one life per employee participating in the plan (and not dependents).

Summary: The PCORI fee is required for an HRA unless it is paired with a self-insured major medical plan that has the same plan year as the HRA.  Where the PCORI fee is required, the employer is responsible for filing the Form 720 and paying the PCORI fee for an HRA solely for the covered employees (not dependents).

How is the PCORI Fee Calculated?

Plan Sponsors of self-insured health plans (other than an HRA) calculate the fee based on the average number of total lives covered by the plan (both employees and dependents).

Plan Sponsors can use one of three alternative methods which are summarized by the IRS in its PCORI fee homepage and PCORI fee FAQs:

  • Actual count method
  • Snapshot method
  • Form 5500 method

Upon reinstatement of the fee in 2020, the IRS allowed plan sponsors an alternative method of calculating the average number of covered lives.  Plan sponsors were able to use any reasonable method to calculate the average number of covered lives.  This guidance was not extended to the 2021 filing, and employers must use one of the above three methods.

How Much Do I Need to Pay on the July 2021 Form 720?

  • Plan Years Ending January 2020 – September 2020: $2.54 per covered life (including spouses/dependents)
  • Plan Years Ending October 2020– December 2020: $2.66 per covered life (including spouses/dependents)

For calendar plan years, the applicable rate for the 2020 plan year will be $2.66 per covered life.

Employers filing for a self-insured medical plan should keep in mind that the plan year is the ERISA plan year reflected in the plan document, SPD, and Form 5500 (if applicable).  The PCORI fee also applies to short plan years, defined as any plan year less than 12 months.

The fee is due July 31st (August 2nd in 2021) of the year following the last day of the plan year, including short plan years.

Examples

  • Employer with a calendar plan year first changes to a self-insured medical plan (including level funded) effective January 1, 2021. Employer must file the first Form 720 to pay the PCORI fee in July 2022 based on the TBD PCORI rate for next year.
  • Employer with a July 1 plan year first changes to a self-insured medical plan (including level funded) effective July 1, 2020. Employer must file the first Form 720 to pay the PCORI fee of $2.66 per covered life in July 2022.
  • Employer with a self-insured medical plan has short plan year from July 1, 2020 through December 31, 2020 to transition to a calendar plan year as of 2021. Employer must file the Form 720 in July 2021 to pay the PCORI fee for both the full plan year ending June 2020 ($2.54 per covered life) and the short plan year ending December 2020 ($2.66 per covered life). The PCORI fee amount is prorated for the short plan year, as detailed in the IRS PCORI Fee FAQ.

The IRS has published a table of the applicable filing deadline and rate for each plan year ending date.

How do we file the PCORI fee?

The PCORI fee is filed on the second quarter IRS Form 720, which is due by August 2, 2021 (July 31st is a Saturday in 2021).  Consult the IRS Instructions for Form 720 for direction on completing the form (see pages 8-9).

 

 

IRS Answers to Your American Rescue Plan Act COBRA Subsidy Questions

May 21 - Posted at 8:24 AM Tagged: , , , , , , , , , , , ,

In much-anticipated guidance, the Internal Revenue Service has offered its insight on the implementation of the COBRA temporary premium subsidy provisions of the American Rescue Plan Act of 2021 (ARPA) in Notice 2021-31.

Spanning more than 40 pages, the IRS-answered frequently asked questions (FAQs) finally resolve many issues relating to temporary premium assistance for COBRA continuation coverage left unanswered in the Department of Labor’s publication of model notices, election forms, and FAQs.

The practical implications of the guidance for employers are many. Significantly, employers must take action prior to May 31, 2021, to ensure compliance with some of the requirements under ARPA and related agency guidance.

Notice 2021-31 Topics

Notice 2021-31 provides comprehensive guidance on the ARPA subsidy and tax credit implementation issues (although it acknowledges there are many issues that still need to be addressed). Some of the key topics addressed include:

  • Clarifying that COBRA premium assistance is available for COBRA continuation coverage under vision-only plans, dental-only plans, and health reimbursement arrangements;
  • Describing the circumstances in which retiree coverage can be considered COBRA coverage and qualify for the subsidy and when non-COBRA retiree coverage will constitute other coverage for purposes of disqualifying an individual from the subsidy;
  • Defining what constitutes an “involuntary termination”;
  • Confirming that employers may rely on employee attestations regarding eligibility for premium assistance and record retention requirements;
  • Addressing the impact of employer-provided COBRA premium subsidies on the availability of the tax credit;
  • Providing instructions on how the ARPA COBRA premium subsidy notice and election rights are coordinated with the previously issued COVID-19 relief extending deadlines for certain actions; and
  • Addressing eligibility for the tax credit for church plans, small employer plans, and professional employer organization or other third-party payer arrangements.

Immediate Next Steps

For employers, there are some immediate takeaways:

  1. Review Your Lists of Potential Applicable Eligible Individuals (AEIs) Before May 31, 2021.

As expected, the IRS expansively defines an “involuntary termination.” For purposes of the ARPA COBRA subsidy, involuntary terminations include employee-initiated terminations due to good reason as a result of employer action (or inaction) resulting in a material adverse change in the employment relationship.

The guidance provides helpful COVID-19-specific examples. Employees participating in severance window programs meeting specified regulatory requirements could qualify. Voluntary employee terminations due to an involuntary material reduction in hours also could qualify. Further, voluntary terminations due to daycare challenges or concerns over workplace safety may constitute an involuntary termination, but only in the narrow circumstances in which the employer’s actions or inactions materially affected the employment relationship in an adverse way, analogous to a constructive discharge.

Employer action to terminate the employment relationship due to a disability also will constitute an involuntary termination, but only if there is a reasonable expectation before the termination the employee will return to work after the end of the illness or disability. This requires a specific analysis of the surrounding facts and circumstances. The guidance notes that a disabled employee alternatively may be eligible for the subsidy based on a reduction in hours if the reduction in hours causes a loss of coverage.

A number of the circumstances that meet the involuntary termination definition in the guidance may not be coded in payroll or HRIS systems as involuntary terminations. As employers have an affirmative obligation to reach out to employees who could be AEIs, employers will need to look behind the codes to understand the circumstances of the terminations.

Further, to identify all potential AEIs, employers may need to sweep involuntary terminations or reductions in hours occurring prior to the October 1, 2019, date referenced in the Department of Labor’s FAQs. The IRS makes clear that COBRA-qualified beneficiaries who qualified for extensions of COBRA coverage due to disability (up to 29 months), a second qualifying event (up to 36 months), or an extension under state mini-COBRA potentially can qualify for the subsidy if their coverage could have covered some part of the ARPA COBRA subsidy period (April 1, 2021–September 30, 2021).

An involuntary termination is not the only event that can make an employee potentially eligible for the subsidy. Employees who lose coverage due to a reduction in hours (regardless of the reason for the reduction) can be eligible for premium assistance as well. This can include employees who have been furloughed, experienced a voluntary or involuntary reduction of hours, or took a temporary leave of absence to facilitate home schooling during the pandemic or care for a child.

  1. Re-Evaluate Employee Exit Strategies, Severance Plans to Assess Eligibility for the Tax Credit

The IRS explains that, if an employer subsidizes COBRA premiums for similarly situated covered employees and qualified beneficiaries who are not AEIs, the employer may not be able to claim the full ARPA tax credit. In this case, the amount of the credit the employer can receive is the premium that would have been charged to the AEI in the absence of the premium assistance and does not include any amount of subsidy the employer would otherwise have provided. For example, if a severance plan covering all regular full-time employees provides that the employer will pay 100 percent of the COBRA premium for three months following separation, this employer could not take a tax credit for the subsidy provided during this three-month period.

Notice 2021-31 does not elaborate on this issue beyond providing specific examples involving a company severance plan. Thus, ambiguity remains as to whether this guidance would prohibit an employer from claiming a tax credit where an employer has agreed to provide a COBRA subsidy in a negotiated separation or settlement agreement and not pursuant to an existing severance plan or policy. Further IRS guidance on this point may be forthcoming. In light of this guidance, employers should re-evaluate their COBRA premium subsidy strategies.

IRS Announces 2022 Limits For HSAs, HDHPs AND Excepted Benefit HRA’s

May 12 - Posted at 1:00 PM Tagged: , , , , , ,

The Internal Revenue Service (IRS) recently announced (See Revenue Procedure 2021-25) cost-of-living adjustments to the applicable dollar limits for health savings accounts (HSAs), high-deductible health plans (HDHPs) and excepted benefit health reimbursement arrangements (HRAs) for 2022. Many of the dollar limits currently in effect for 2021 will change for 2022. The HSA catch-up contribution for individuals ages 55 and older will not change as it is not subject to cost-of-living adjustments.

The table below compares the applicable dollar limits for HSAs, HDHPs and excepted benefit HRAs for 2021 and 2022.




IRS Fact Sheet: Employer Tax Credits for Employee Paid Leave Due to COVID-19

April 26 - Posted at 10:33 AM Tagged: , , , , , , ,

The American Rescue Plan Act of 2021 (ARP) allows small and midsize employers, and certain governmental employers, to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19, including leave taken by employees to receive or recover from COVID-19 vaccinations. The ARP tax credits are available to eligible employers that pay sick and family leave for leave from April 1, 2021, through September 30, 2021.

Here are some basic facts from the IRS website about the employers eligible for the tax credits and how these employers may claim the credit for leave paid to employees who take leave to receive or recover from COVID-19 vaccinations.

Eligible Employers

An eligible employer is any business, including a tax-exempt organization, with fewer than 500 employees. An eligible employer also includes a governmental employer, other than the federal government and any agency or instrumentality of the federal government that is not an organization described in section 501(c)(1) of the Internal Revenue Code. Self-employed individuals are eligible for similar tax credits.

Paid sick and family leave for which tax credits can be claimed

Eligible employers are entitled to tax credits for wages paid for leave taken by employees who are not able to work or telework due to reasons related to COVID-19, including leave taken to receive COVID–19 vaccinations or to recover from any injury, disability, illness or condition related to the vaccinations. These tax credits are available for wages paid for leave from April 1, 2021, through September 30, 2021.

The amount of the tax credits and how they are calculated

The paid leave credits under the ARP are tax credits against the employer’s share of the Medicare tax. The tax credits are refundable, which means that the employer is entitled to payment of the full amount of the credits if it exceeds the employer’s share of the Medicare tax.

The tax credit for paid sick leave wages is equal to the sick leave wages paid for COVID-19 related reasons for up to two weeks (80 hours), limited to $511 per day and $5,110 in the aggregate, at 100 percent of the employee’s regular rate of pay. The tax credit for paid family leave wages is equal to the family leave wages paid for up to twelve weeks, limited to $200 per day and $12,000 in the aggregate, at 2/3rds of the employee’s regular rate of pay. The amount of these tax credits is increased by allocable health plan expenses and contributions for certain collectively bargained benefits, as well as the employer’s share of social security and Medicare taxes paid on the wages (up to the respective daily and total caps).

Claiming the credit

Eligible employers may claim tax credits for sick and family leave paid to employees, including leave taken to receive or recover from COVID-19 vaccinations, for leave from April 1, 2021, through September 30, 2021.

Eligible employers report their total paid sick and family leave wages (plus the eligible health plan expenses and collectively bargained contributions and the eligible employer’s share of social security and Medicare taxes on the paid leave wages) for each quarter on their federal employment tax return, usually Form 941, Employer’s Quarterly Federal Tax Return PDF. Form 941 is used by most employers to report income tax and social security and Medicare taxes withheld from employee wages, as well as the employer’s own share of social security and Medicare taxes.

In anticipation of claiming the credits on the Form 941 PDF, eligible employers can keep the federal employment taxes that they otherwise would have deposited, including federal income tax withheld from employees, the employees’ share of social security and Medicare taxes and the eligible employer’s share of social security and Medicare taxes with respect to all employees up to the amount of credit for which they are eligible. The Form 941 instructions PDF explain how to reflect the reduced liabilities for the quarter related to the deposit schedule.

If an eligible employer does not have enough federal employment taxes set aside for deposit to cover amounts provided as paid sick and family leave wages (plus the eligible health plan expenses and collectively bargained contributions and the eligible employer’s share of social security and Medicare taxes on the paid leave wages), the eligible employer may request an advance of the credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. The eligible employer will account for the amounts received as an advance when it files its Form 941, Employer’s Quarterly Federal Tax Return, for the relevant quarter.

Self-employed individuals may claim comparable tax credits on their individual Form 1040, U.S. Individual Income Tax Return 

DOL Issues Guidance on Outbreak Period Extensions

March 01 - Posted at 1:41 PM Tagged: , , , , , , , , ,

The COVID-19 extensions that the DOL and IRS had issued last year as part of their “Joint Notice” were set to expire at midnight on February 28th.  For weeks, many have been asking the DOL and IRS for guidance on how to handle the statutorily-mandated expiration, and as a result of the lack of guidance, most plans, TPAs, insurers, and COBRA administrators had to make a judgment call as to how to proceed.

But – with 2 days to spare – DOL finally issued Disaster Relief Notice 2021-01  on February 26th.

Notice 2021-01 sets forth the DOL and IRS’ position that the COVID-19 extensions will continue past February 28th, and that all such extensions must be measured on a person-by-person basis – which was not clear from the prior guidance.  Plans, TPAs, insurers, and COBRA administrators may have to reconsider their administrative practices in light of this new direction.

Short Background

The original Joint Notice (85 Fed. Reg. 26351 (May 4, 2020) required that health and retirement plans toll a number of deadlines for individuals during the COVID-19 National Emergency, plus a 60-day period (the “Outbreak Period”) starting March 1, 2020.

But, as described in Footnote 4 of the Joint Notice, ERISA and the Code limit DOL and Treasury’s ability to toll deadlines to one year (“Tolling Period”).

The deadlines impacted in the Joint Notice are:

  • Deadline to elect COBRA;
  • Deadline to pay COBRA premiums;
  • Deadline to elect HIPAA special enrollment;
  • Deadlines to file claims, appeals, and requests for external review; and
  • Deadline for plan to provide COBRA election notice


When there has been disaster relief guidance in the past, these periods have not bumped up against the statutorily-imposed one-year limit, so this COVID-19 extension is new territory – hence all the requests for the agencies to issue guidance regarding the expiration date.

Disaster Relief Notice 2021-01

In this late-breaking Notice 2021-01, DOL says it coordinated with HHS and IRS, and the agencies are interpreting the Tolling Period to be read on a person-by-person basis.

Specifically, DOL says that the Tolling Period ends the earlier of:

  1. One year from the date the deadline would have begun running for that individual; or
  2. 60 days from the end of the National Emergency (which is still ongoing).

This means that each individual has his or her own Tolling Period!

For example, a COBRA Qualified Beneficiary (QB) has 60 days to elect COBRA, counted from the later of their loss of coverage or the date their COBRA election notice is provided.  Under the Joint Notice, a QB’s 60-day deadline was tolled as of March 1, 2020, until the end of the Outbreak Period (that is, until the end of the National Emergency + 60 days).

At the end of the Outbreak Period, the deadlines would start running again, and the QB would have their normal 60-day COBRA election period (or the balance of their election period if it started before March 1, 2020).

BUT – with the 1-year expiration, DOL’s new Notice 2021-01 says that the one-year period does not end on February 28, 2021 for all individuals, but rather each individual has his/her own one-year Tolling Period.

Examples:

  • If QB A’s election period started 2/1/20, her election deadline was tolled as of 3/1/20. Her one-year Tolling Period would end 2/28/21, so her election period would start 3/1/21, and she would have the balance of her 60-day election period.
  • If QB B’s election period started 3/1/20, her election deadline was tolled as of 3/1/20. Her one-year Tolling Period would end 2/28/21, so her 60-day election period would start 3/1/21.
  • If QB C’s election period started 6/1/20, her election deadline was tolled right away, as of 6/1/20. Her one-year Outbreak Period would end 5/31/21, so her 60-day Tolling period would start 6/1/21.
  • If QB D’s election period starts 4/1/21, her election deadline also will be tolled right away on 4/1/21, as long as we are still in the National Emergency. Her one-year Tolling Period would end 3/31/22, so her 60-day election period would start 4/1/22.

For all of these examples, the tolling would end earlier if the National Emergency ends.  In that case, the election period would end 60 days after the end of the National Emergency.

Reasonable Accommodation Requirement

Notice 2021-01 also says that DOL recognizes that enrollees may continue to encounter COVID issues, even after the one-year Tolling Period expiration.  DOL says that the “guiding principle” is for plans to act reasonably, prudently, and in the interest of the workers and their families.  DOL says that plan fiduciaries should make “reasonable accommodations to prevent the loss of or undue delay in payment of benefits . . . and should take steps to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established time frames.”

Notice 2021-01 does not provide any direction regarding what would constitute a “reasonable accommodation.”  It sounds like plans may need a process to consider whether to continue to waive deadlines on a case-by-case basis, but without any guidance as to what parameters to apply.  And DOL suggests that failure to do so could be a fiduciary issue.


Notices

Regarding communicating these changes to enrollees, DOL says:

  • The plan administrator or fiduciary “should consider” affirmatively sending a notice regarding the end of the one-year relief period (presumably to each person based on her own customized extension period).
  • Plans “may need” to reissue or amend prior disclosures if they failed to provide accurate information regarding these new extension deadlines.
  • Plans “should consider” making enrollees aware of other coverage options, such as the Special Enrollment Period under the Health Insurance Marketplace.

DOL seems to be saying that plans may need to notify each individual when his or her one-year extension is about to be up and should include information about the Health Insurance Marketplace.  In addition, plans may need to update prior communications that did not anticipate this new DOL interpretation.

Enforcement

DOL says it acknowledges that there may be instances when plans or service providers themselves may not be able to fully and timely comply with pre-established timeframes and disclosure requirements.  DOL says that where fiduciaries have acted in “good faith and with reasonable diligence under the circumstances,” DOL’s approach to enforcement will be “marked by an emphasis on compliance assistance,” including grace periods or other relief.

Key 2021 ACA Reporting Deadlines

January 06 - Posted at 1:52 PM Tagged: , , , , , , , , , ,

Every year Applicable Large Employers (ALEs) must file and furnish their ACA information to the IRS and their employees, respectively. Failing to do so can result in significant IRS penalty assessments.

To recap, only groups with 50 or more full time  or equivalent employees or those groups under 50 with self funded medical coverage are required to furnish their employees with copies of either the 1095-B or 1095-C forms (based on group size)

Employers will need to be sure you meet the following IRS deadlines for complying with the ACA’s Employer Mandate for 2020:

  • February 28, 2021: Paper file your 2020 Forms 1094-C and 1095-C with the IRS no later than this date.
  • March 2, 2021: Furnish Forms 1095-C to your full-time employees no later than March 2, 2021. This date was originally January 31, 2021, but the IRS has since issued an extension.
  • March 31, 2021: Employers must electronically file the 2020 Forms 1094-C and 1095-C with the IRS no later than this date. 

Failing to meet these deadlines can result in penalties under IRC 6721/6722, which the IRS is issuing through Letter 972CG. If you receive one of these notices, you only have 45 days from the issue date to respond to the penalty notice. 

For the 2020 tax year, the penalties associated with failing to comply with IRC 6721/6722 for employers with average gross receipts of more than $5 million in the last three years are as follows:

Failure to timely file and furnish correct information returns 

If employers file ACA information returns with the IRS no more than 30 days after the deadline they could be subject to a $50 penalty per return not filed, not to exceed an annual maximum of $556,500. If the ACA information returns are 31 or more days late, up to August 1, 2021, the penalty per return jumps up to $110, not to exceed an annual maximum of $1,669,500. After August 1, the penalty amount steepens to $270 per return, not to exceed an annual maximum of $3,339,000. For intentional disregard, meaning the deadline was missed willfully, the penalty more than doubles to $550 per return with no annual maximum limit.

The penalty amounts for employers with gross receipts of $5 million or less in the last three years will have the same penalty amounts per return with lower annual maximums, except in the case of intentional disregard. For more information on the penalty schedules for failing to meet the IRS deadlines click here

As if the penalties for failing to meet the filing and furnishing deadlines weren’t enough, the IRS is also issuing penalties to employers that fail to comply with the ACA’s Employer Mandate. As a reminder to employers in conjunction with the Employer Shared Responsibility Payment (ESRP), the ACA’s Employer Mandate, Applicable Large Employers (ALEs), organizations with 50 or more full-time employees and full-time equivalent employees, are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is affordable for the employee, or be subject to Internal Revenue Code (IRC) 4980H penalties. These penalties are being issued through IRS Letter 226J.

 

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