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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:
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.
The 2021 open enrollment season is quickly approaching. This week the IRS released Rev. Proc. 2020-36 which, among other items, set the affordability threshold for employers in 2021. In order to avoid a potential section 4980H(b) penalty, an employer must make sure one of its plans provides minimum value and is offered at an affordable price.
A plan is considered affordable under the ACA if the employee’s contribution level for self-only coverage does not exceed 9.5 percent of the employee’s household income. This 9.5 percent threshold is indexed for years after 2014. In 2021 the affordability threshold will be 9.83 percent which is up slightly from the 2020 affordability threshold of 9.78 percent.
An employer wishing to use one of the affordability safe harbors will use the 2021 affordability threshold of 9.83 percent when determining if the safe harbor has been satisfied. The first affordability safe harbor an employer may utilize is referred to as the form w-2 safe harbor. Under the form w-2 safe harbor, an employer’s offer will be deemed affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.83 percent of that employee’s form w-2 wages (box 1 of the form w-2) from the employer for the calendar year.
The second affordability safe harbor is the rate of pay safe harbor. The rate of pay safe harbor can be broken into two tests, one test for hourly employees and another test for salaried employees. For hourly employees an employer’s offer will be deemed affordable if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.83 percent of the product of the employee’s hourly rate of pay and 130 hours. For salaried employees an employer’s offer will be deemed affordable if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.83 percent of the employee’s monthly salary.
The final affordability safe harbor is the federal poverty line safe harbor. Under the federal poverty line safe harbor, an employer’s offer will be deemed affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.83 percent of the monthly Federal Poverty Line (FPL) for a single individual. The annual federal poverty line amount to use for the United States mainland in 2021 is $12,760. Therefore, an employee’s monthly cost for self-only coverage cannot exceed $104.52 in order to satisfy the federal poverty line safe harbor.
Obviously employers are dealing with a lot of issues as the COVID-19 crisis continues to impact almost every employer in the country. However, it is important for employers to remain compliant with the always evolving ACA rules and regulations. When planning for the 2021 plan year, every employer should check to make sure at least one of its plans that provides minimum value meets one of the affordability safe harbors discussed above for each of its full-time employees. It would not be surprising if individuals were more scrupulous with their healthcare choices in 2021 which could leave noncompliant employers exposed to section 4980H(b) penalties.
The Departments of the Treasury, Labor, and Health and Human Services (the Departments) released information regarding the individual coverage HRA (ICHRA) notice requirements earlier this year.
The notice, which must be sent to all eligible employees 90 days before the benefit is offered, is primarily intended to inform eligible employees of how the ICHRA affects premium tax credits. This information will help employees make an informed decision on whether to participate in the ICHRA or opt out. It also notifies employees that a benefit is being offered and what they can expect from the ICHRA.
This highlights everything your ICHRA notice needs to include so that you’re offering the benefit in a compliant way.
When offering an ICHRA an employer must provide a notice including the following:
Note: Per the Departments, for ERISA-covered plans, other disclosure requirements may require participants to be provided with a reasonable opportunity to become informed of their rights and obligations under the ICHRA.
For new ICHRAs, including those starting January 1, 2020, businesses must adhere to a 90-day notice requirement. That means that 90 days before the ICHRA’s start date, they must send employees a notice including each of the components above and notifying them of their eligibility for the benefit. For a plan starting on January 1, 2020, businesses must provide notice to employees on or before October 3, 2019.
The 90-day notice must provided every year your business chooses to offer the ICHRA.
For newly eligible employees (newly hired employees or employees who gain eligibility after the initial start of the plan year), the timing is different. Your business can provide the notice up until the first day the employee’s ICHRA coverage begins. It’s best to provide notice as soon as possible, so the employee has ample time to review coverage options and enroll in a plan.
The Departments have provided a model notice that employers can use as a template for their notice. It’s not required that you use the model, but the Departments have advised use of the model is sufficient for good faith compliance of the requirements as long as it’s provided within the correct time frame. Whether you use the model or not, be sure to include each of the requirements listed above and send the notice within the 90-day notice period.
On July 22, 2019, the IRS announced that the ACA affordability percentage for the 2020 calendar year will decrease to 9.78%. The current rate for the 2019 calendar year is 9.86%.
As a reminder, under the Affordable Care Act’s employer mandate, an applicable large employer is generally required to offer at least one health plan that provides affordable, minimum value coverage to its full-time employees (and minimum essential coverage to their dependents) or pay a penalty. For this purpose, “affordable” means the premium for self-only coverage cannot be greater than a specified percentage of the employee’s household income. Based on this recent guidance, that percentage will be 9.78% for the 2020 calendar year.
Employers now have the tools to evaluate the affordability of their plans for 2020. Unfortunately, for some employers, a reduction in the affordability percentage will mean that they will have to reduce what employees pay for employee only coverage, if they want their plans to be affordable in 2020.
For example, in 2019 an employer using the hourly rate of pay safe harbor to determine affordability can charge an employee earning $12 per hour up to $153.81 ($12 X 130= 1560 X 9.86%) per month for employee-only coverage. However in 2020, that same employer can only charge an employee earning $12 per hour $152.56 ($12 X 130= 1560 X 9.78%) per month for employee-only coverage, and still use that safe harbor. A reduction in the affordability percentage presents challenges especially for plans with non-calendar year renewals, as those employers that are subject to the ACA employer mandate may need to change their contribution percentage in the middle of their benefit plan year to meet the new affordability percentage. For this reason, we recommend that employers re-evaluate what changes, if any, they should make to their employee contributions to ensure their plans remain affordable under the ACA.
As we have written about previously, employers will sometimes use the Federal Poverty Level (FPL) safe harbor to determine affordability. While we won’t know the 2020 FPL until sometime in early 2020, employers are allowed to use the FPL in effect at least six months before the beginning of their plan year. This means employers can use the 2019 FPL number as a benchmark for determining affordability for 2020 now that they know what the affordability percentage is for 2020.
On June 19, 2018, the Trump administration took the first step in a three-part effort to expand affordable health plan options for consumers when the U.S. Department of Labor (DOL) finalized a proposed rule designed to make it easier for a group of employers to form and offer association health plans (AHP). A final rule relaxing rules around short-term, limited duration insurance and a proposed rule addressing health reimbursement arrangements are expected in the upcoming months. In cementing proposed changes to its January 2018 proposed rule, “Definition of ‘Employer’ Under Section 3(5) of ERISA — Association Health Plans,” the administration seeks to broaden health options for individuals who are self-employed or employed by smaller businesses. The final rule will be applicable in three phases starting on September 1, 2018.
Under the rule, it will be substantially easier for a group of employers tied by a “commonality of interest” to form a bona fide association capable of offering a single multi-employer benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA). The rule outlines two primary bases for establishing this “commonality of interest”: (1) having a principal place of business in the same region (e.g., a state or metropolitan area), or (2) operating in the same industry, trade, line of business or profession. An association also may establish additional membership criteria enabling entities with a sufficient “commonality of interest” to participate in the AHP, such as being minority-owned or sharing a common moral or religious conviction, so long as the criteria are not a subterfuge for discrimination based on a health factor. Further, the final rule clarifies how the association must be governed and controlled by its employer-members in order to be considered a bona fide association capable of offering a single-employer health benefit plan.
Meeting the criteria for a bona fide group or association of employers in the final rule allows the AHP to be treated as a single-employer ERISA plan. Thus, assuming the association is comprised of employer-members with more than 50 total full-time employees, it will be considered a large group and exempt from key Affordable Care Act (ACA) market reforms, such as the essential health benefits requirements and modified community rating rules, that would otherwise apply to a health plan offered by any of its individual employer-members with less than 50 full-time employees. This is important because the ACA applies certain requirements only to small group (and individual) health insurance products and not to large group plans.
Late last week, the IRS released Rev. Proc. 2018-34 which, among other items, set the affordability threshold for employers in 2019. In order to avoid a potential section 4980H(b) penalty (aka Pay or Play penalty), an employer must make sure one of its plans provides minimum value and is offered at an affordable price. An actuary will determine whether the minimum value threshold has been satisfied and this is generally not an issue for employers. However, an employer is in control as to whether the plan it is offering meets the affordability threshold.
A plan is considered affordable under the ACA if the employee’s contribution level for self-only coverage does not exceed 9.5 percent of the employee’s household income. This 9.5 percent threshold is indexed for years after 2014. In 2018 the affordability threshold decreased from 9.69 percent to 9.56 percent. However, similar to every other year, the affordability threshold is scheduled to increase in 2019. In 2019 the affordability threshold will be 9.86 percent. The significant increase compared to 2018 provides an employer who is toeing the line of the affordability threshold an opportunity to increase the price of its health insurance while continuing to provide affordable coverage.
An employer wishing to use one of the affordability safe harbors will use the 2019 affordability threshold of 9.86 percent when determining if the safe harbor has been satisfied. The first affordability safe harbor an employer may utilize is referred to as the form w-2 safe harbor. Under the form w-2 safe harbor, an employer’s offer will be deemed affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.86 percent of that employee’s form w-2 wages (box 1 of the form w-2) from the employer for the calendar year.
The second affordability safe harbor is the rate of pay safe harbor. The rate of pay safe harbor can be broken into two tests, one test for hourly employees and another test for salaried employees. For hourly employee, an employer’s offer will be deemed affordable if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.86 percent of the product of the employee’s hourly rate of pay and 130 hours. For salaried employees, an employer’s offer will be deemed affordable if the employee’s required contribution for the month for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.86 percent of the employee’s monthly salary.
The final affordability safe harbor is the federal poverty line safe harbor. Under the federal poverty line safe harbor, an employer’s offer will be deemed affordable if the employee’s required contribution for the employer’s lowest cost self-only coverage that provides minimum value does not exceed 9.86 percent of the monthly Federal Poverty Line (FPL) for a single individual. The annual federal poverty line amount to use for the United States mainland in 2019 is $12,140. Therefore, an employee’s monthly cost for self-only coverage cannot exceed $99.75 in order to satisfy the federal poverty line safe harbor.
When planning for the 2019 plan year, every employer should check to make sure at least one of its plans that provides minimum value meets one of the affordability safe harbors discussed above for each of its full-time employees. Should you have any questions on determining the affordability of a plan or any other questions related to the Forms 1094-C and 1095-C, please don’t hesitate to contact us.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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.
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.
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.
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.
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.
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.