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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. 

Affordability Threshold Set to Rise Slightly in 2021

July 23 - Posted at 1:01 PM Tagged: , , , , , , , , , , ,

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. 

Paycheck Protection Program Business Application is Out

April 01 - Posted at 11:04 AM Tagged: , , , , , , , , , , , ,
The is a time sensitive program, so you may want to consider applying ASAP.

Starting April 3, 2020- small businesses and sole proprietors can apply
Starting April 10, 2020- independent contractors and self-employed individuals can apply
 
The SBA has issued the application for the Paycheck Protection Program.  This is an SBA-administered loan and loan forgiveness program that allows business to borrow up to 2.5 times your average monthly payroll.
 
To apply, you will need to do the following:
  1. Contact your banker and confirm they can process the loan. 
  2. Fill out the application (SBA form 2483) 
  3. Gather the following documentation:
    • 2019 IRS Quarterly 940, 941 or 944 payroll tax reports.
    • 2019 Summary payroll report by person. 
      • Payroll report must show the following for the time period above:
        1. Gross wages for each employee, including the officer(s) if paid W-2 wages.
        2. Family medical leave pay for each employee.
        3. State and Local taxes assessed on the employee’s compensation for each employee.
    • 2019 W-3 and W-2’s filed. 
    • 1099s for 2019 for independent contractors that would otherwise be an employee of your business.
      • Do NOT include 1099s for services.
    • Documentation showing total of all health insurance premiums paid by the Company Owner under a group health plan.
      • Include all employees and the company owners.
    • Document the sum of all retirement plan funding that was paid by the Company Owner (do not include funding that came from the employee’s out of their paycheck deferrals).
      • Include all employees, including company owners

4. Available is also an excel sheet to help organize and calculate the loan amount. Please let us know if you need a copy of this.

 

Overview of the Program

 
Q: How large can my loan be?
Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.
 
Q: How much of my loan will be forgiven?
You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. You will also owe money if you do not maintain your staff and payroll.
  • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount
  • Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019
  • Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020
 
Q: How can I request loan forgiveness?
You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.
 
Q: What can I use these loans for?
You should use the proceeds from these loans on your:
  • Payroll costs, including benefits
  • Interest on mortgage obligations, incurred before February 15, 2020
  • Rent, under lease agreements in force before February 15, 2020
  • Utilities, for which service began before February 15, 2020

Beware of Form W-2 Phishing Scheme, Authorities Warn

January 23 - Posted at 8:39 PM Tagged: , , , , , , , , ,

As tax season begins, the IRS is urging employers to educate their HR and payroll staff about a Form W-2 phishing scam that victimized hundreds of organizations and thousands of employees last year.

“The Form W-2 scam has emerged as one of the most dangerous phishing e-mails in the tax community,” the IRS said in a January 2018 alert. During the last two tax seasons, “cybercriminals tricked payroll personnel or people with access to payroll information into disclosing sensitive information for entire workforces,” the alert noted.

Reports about this scam jumped to approximately 900 in 2017, compared to slightly over 100 in 2016, the IRS said. As a result, hundreds of thousands of employees had their identities compromised.

The IRS described the scam as follows:

  • Cybercriminals posing as executives send e-mails to payroll personnel requesting copies of Forms W-2 for all employees, using a technique known as business e-mail compromise (BEC) or business e-mail spoofing (BES).
  • The Form W-2 contains the employee’s name, address, Social Security number, income and withholdings. Criminals use that information to file fraudulent tax returns, or they post it for sale on the dark net.
  • The initial e-mail may be a friendly, “hi, are you working today?” exchange before the fraudster asks for all Form W-2 information.

The IRS gave these examples of what appear to be e-mails from top executives at the organization:

  • Kindly reply with all W-2s of our company staff for a quick review. I need them in PDF file type, and you can send it as an attachment.
  • Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary)? Kindly prepare the lists for me asap.

The scam affected all types of employers last year, from small and large businesses to public schools and universities, hospitals, tribal governments and charities, the IRS said.
(more…)

Congress Passes 21st Century Cures Act with HRA Provisions

December 15 - Posted at 4:20 PM Tagged: , , , , , , , , , , , , , , , , , ,

Earlier this week, President Obama signed the 21st Century Cures Act (“Act”). This Act contains provisions for “Qualified Small Business Health Reimbursement Arrangements” (“HRA”). This new HRA would allow eligible small employers to offer a health reimbursement arrangement funded solely by the employer that would reimburse employees for qualified medical expenses including health insurance premiums. 


The maximum reimbursement that can be provided under the plan is $4,950 or $10,000 if the HRA provided for family members of the employee.  An employer is eligible to establish a small employer health reimbursement arrangement if that employer (i) is not subject to the employer mandate under the Affordable Care Act (i.e., less than 50 full-time employees) and (ii) does not offer a group health plan to any employees. 


To be a qualified small employer HRA, the arrangement must be provided on the same terms to all eligible employees, although the Act allows benefits under the HRA to vary based on age and family-size variations in the price of an insurance policy in the relevant individual health insurance market.


Employers must report contributions to a reimbursement arrangement on their employees’ W-2 each year and notify each participant of the amount of benefit provided under the HRA each year at least 90 days before the beginning of each year.


This new provision also provides that employees that are covered by this HRA will not be eligible for subsidies for health insurance purchased under an exchange during the months that they are covered by the employer’s HRA. 

Such HRAs are not considered “group health plans” for most purposes under the Code, ERISA and the Public Health Service Act and are not subject to COBRA.


This new provision also overturns guidance issued by the Internal Revenue Service and the Department of Labor that stated that these arrangements violated the Affordable Care Act insurance market reforms and were subject to a penalty for providing such arrangements.  


The previous IRS and DOL guidance would still prohibit these arrangements for larger employers. The provision is effective for plan years beginning after December 31, 2016.  (There was transition relief for plans offering these benefits that ends December 31, 2016 and extends the relief given in IRS Notice 2015-17.)

In July 2015, President Obama signed into law the Trade Preferences Extension Act of 2015. Included in the bill was an important provision that affects welfare and retirement benefit plans. The Act sizably increases filing penalties for information return and statement failures under the Internal Revenue Code, effective for filings after December 31,2015. Employers now face significantly larger penalties for failing to correctly file and furnish the ACA forms 1094 and 1095 (shared responsibility reporting requirements) as well as Forms W-2 and 1099-R. 

Background

Sections 6721 and 6722 of the IRC impose penalties associated with failures to file- or to file correct- information returns and statements. Section 6721 applies to the returns required to be filed with the IRS, and Section 6722 applies to statements required to be provided generally to employees.These penalty provisions apply to the ACA shared responsibility reporting Forms 1094-B, 1094-C, 1095-B, and 1095-C (Sections 6055 & 6056) failures as well as other information returns and statement failures, like those on Forms W-2 and 1099.


For ACA:

  • Section 6055 reporting supports IRS enforcement of the individual mandate
  • Section 6056 reporting supports IRS enforcement of the employer mandate and low-income subsidies for coverage purchased in the public marketplace.


The Sections 6055 & 6056 reporting requirements are effective for medical coverage provided on or after January 1, 2015, with the first information returns to be filed with the IRS by February 29, 2016 (or March 31,2016 if filing electronically) and provided to individuals by February 1, 2016. 


Increase in Penalties

The Trade Preferences Extension Act of 2015 (Act) contains several tax provisions in addition to the trade measures that were the focus of the bill. Provided as a revenue offset provision, the law significantly increases the penalty amounts under Sections 6721 and 6722. A failure includes failing to file or furnish information returns or statements by the due date, failing to provide all required information, as well as failing to provide correct information. 


The law increases the penalty for:

  • General failures- from $100 to $250 per return and increases the annual cap on penalties from $1.5 million to $3 million. 
  • Intentional failures- from $250 to $500 per return with no annual cap on penalties


Other penalty increase also apply, including those associated with timely filing a corrected return. Penalties could also provide a one-two punch under the ACA for employers and other responsible entities. For example, under Sec 6056, applicable large employers (ALE) must file information returns to the IRS (the 1094-B and 1094-C) as well as furnish statements to employees (the 1095-B and 1095-C). So incorrect information shared on those forms could result in a double penalty- one associated with the information return to the IRS and the other associated with individual statements to employees. 


Final regulations on the ACA reporting requirements provide short-term relief from these penalties. For reports files in 2016 (for 2015 calendar year info), the IRS will not impose penalties on ALE members that can show they made a “good-faith effort” to comply with the information reporting requirements. Specifically, relief is provided for incorrect or incomplete info reported on the return or statement, including Social Security numbers, but not for failing to file timely.

IRS Form 1095-A for Consumer Enrolled in a Marketplace Plan in 2014

January 23 - Posted at 3:00 PM Tagged: , , , , , , , , , , , , ,

Form 1095-A is a tax form that will be sent to consumers who have  been enrolled in health insurance through the Marketplace in the past year. Just like employees receive a W-2 from their employer, consumer who had a plans on the Marketplace will also receive form 1095-A from the Marketplace, which they will need for taxes. Similar to how households receive multiple W-2s if individuals have multiple jobs, some households will get multiple Form 1095-As if they were covered under different plans or changed plans during the year. The 1095-A forms will be mailed direct to consumer’s last known home address provided to the Marketplace and will be postmarked by February 2, 2015.

 

Form 1095-A provides information to consumers that is needed to complete Form 8962, Premium Tax Credit (PTC). The Marketplace has also reporting this information to the IRS. Consumers will file Form 8962 with their tax returns if they want to claim the premium tax credit or if they received premium assistance through advance credit payments made to their insurance provider.

Beginning January 1, 2015, employers have new reporting obligations for health plan coverage, to allow the government to administer the “pay or play” penalties to be assessed against employers that do not offer compliant coverage to their full-time employees. 

 

    • Pay or play penalties apply to employers with 100 or more full-time equivalent (FTE) employees in 2015, and 50 or more FTE employees in 2016 and beyond.

 

    • For these employers, pay or play penalties are assessed if the employer does not offer compliant coverage to 70% of full-time employees in 2015 and 95% of full-time employees thereafter. 

 

Even though the penalties only apply if there are 100 or more employees for 2015, employers with 50 or more full-time equivalent employees are required to report for 2015.  Also, note this reporting is required even if the employer does not maintain any health plan.

 

Employers that provide self-funded group health coverage also have reporting obligations, to allow the government to administer the “individual mandate” which results in a tax on individuals who do not maintain health coverage.

These reporting obligations will be difficult for most employers to implement.  Penalties for non-compliance are high, so employers need to begin now with developing a plan on how they will track and file the required information.

 

Pay or Play Reporting.   Applicable large employers (ALEs) must report health coverage offered to employees for each month of 2015 in an annual information return due early in 2016.  ALEs are employers with 50 or more full-time equivalent (FTE) employees.  Employees who average 30 hours are counted as one, and those who average less than 30 hours are combined into an equivalent number of 30 hour employees to determine if there are 50 or more FTE employees.  All employees of controlled group, or 80%  commonly owned employers, are also combined to determine if the 50 FTE threshold is met.

 

Individual Mandate Reporting.  Self-funded employers, including both ALEs and small employers that are not ALEs, must report each individual covered for each month of the calendar year.  For fully-insured coverage, the insurance carrier must report individual month by month coverage.   The individual mandate reporting is due early in 2016 for each month of 2015. 

 

Which Form?   ALE employers have one set of forms to report both the pay or play and the individual mandate information – Forms 1094C and 1095C.  Insurers and self-insured employers that are not ALEs use Forms 1094B and 1095B to report the individual mandate information.  Information about employee and individual coverage provided on these forms must also be reported by the employer to its employees as well as to COBRA and retiree participants.  Forms 1095B and 1095C can be used to provide this information, or employers can provide the information in a different format.

 

The following chart summaries which returns are filed by employers:

 

Who Reports?  While ALE status is determined on a controlled group basis, each ALE must file separate reports.  Employers will need to provide insurance carriers, and third party administrators who process claims for self-funded coverage (if they will assist the employer with reporting), accurate data on the employer for whom each covered employee works.  If an employee works for more than one ALE in a controlled group, the employer for whom the highest number of hours is worked does the reporting for that employee. 

 

Due Date for Filing.  The due date of the forms matches the due dates of Forms W-2, and employers may provide the required employee statements along with the W-2.  Employee reporting is due January 31st and reporting to the IRS is due each February 28th, although the date is extended until March 31st if the forms are filed electronically.  If the employer files 250 or more returns, the returns must be filed electronically.   Reporting to employees can only be made electronically if the employee has specifically consented to receiving these reports electronically. 

 

Penalties.    Failure to file penalties can total $200 per individual for whom information must be reported, subject to a maximum of $3 million per year.  Penalties will not be assessed for employers who make a good faith effort to file correct returns for 2015.

 

What Information is Required?  For the pay or play reporting, each ALE must file a Form 1094C reporting the number of its full-time employees (averaging 30 hours) and total employees for each calendar month, whether the ALE is in a “aggregated” (controlled) group, a listing of the name and EIN of the top 30 other entities in the controlled group (ranked by number of full-time employees), and any special transition rules being used for pay or play penalties.  ALE’s must also file a 1095C for each employee who was a full-time employee during any calendar month of the year.  The 1095C includes the employee’s name, address and SSN, and month by month reporting of whether coverage was offered to the employee, spouse and dependents, the lowest premium for employee only coverage, and identification of the safe-harbor used to determine affordability.  This information is used to determine pay or play penalty taxes and to verify the individuals’ eligibility for subsidies toward coverage costs on the Federal and state exchanges.

 

If the ALE provides self-funded coverage, the ALE must also report on the 1095C the name and SSN of each individual provided coverage for each calendar month.  If an employer is not an ALE, but is self-funded, the name and SSN of each covered individual is reported on the 1095B and the 1094B is used to transmit the forms 1095B to the IRS.

 

A chart is available that sets out what data must be reported on each form, to help employers determine what information they need to track. Click here to access the chart. 

 

Next Steps.  Employers will need to determine how much help their insurance carrier or TPA can provide with the reporting, and then the employer’s HR, payroll and IT functions will need to work together to be sure the necessary information is being tracked and can be produced for reporting in January 2016.  

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