Affordable Care Act: Preparing for the 2015 Tax Provisions
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Affordable Care Act: Preparing for the 2015 Tax Provisions

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This presentation discusses issues that employers who will be subject to the Affordable Care Act must prepare for, including: ...

This presentation discusses issues that employers who will be subject to the Affordable Care Act must prepare for, including:

1. Determining which employees must be offered coverage
2. Analyzing payroll to determine the amount that can be charged to employees
3. Creating a record to respond to potential IRS assessments of excise tax

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    Affordable Care Act: Preparing for the 2015 Tax Provisions Affordable Care Act: Preparing for the 2015 Tax Provisions Presentation Transcript

    • Affordable Care Act Preparing for the 2015 Tax Provisions Ted Ginsburg, CPA, JD February 28, 2014
    • TODAY’S DISCUSSION • What we won‟t discuss today • The status of the ACA today, as it affects employers • What employers need to think about  Should I offer insurance at all?  How much can I charge?  Which employees should receive insurance? • Other issues relating to welfare plans • The real due date 2
    • WHAT WE WON’T DISCUSS TODAY • Are you subject to ACA? • Provisions that don‟t take effect until after 2015 (for example, the “Cadillac tax”) • Provisions that an employer can‟t do anything about (for example, the operation of the exchanges) • Provisions that aren‟t based on the employeremployee relationship (for example, the additional tax on medical device manufacturers) 3
    • STATUS OF THE ACA TODAY • February 10, 2014 postponement in effective dates/coverage levels for employer mandate to provide health insurance coverage:  If employer has less than 100 FTEs in 2014, employer mandate is effective on January 1, 2016; if a fiscal year plan was in effect on December 27, 2012, first day of the 2016 plan year  If employer has 100 or more FTEs in 2014, employer mandate provides that coverage must be offered to 70% of full time employee workforce on January 1, 2015 (prior rule was 95%); if a fiscal year plan was in effect on December 27, 2012, first day of the 2015 plan year 4
    • STATUS OF THE ACA TODAY • February 10, 2014 final regulations covered a wide range of issues, primarily relating to the calculation of FTEs and the determination of the class of full time employees who should be offered healthcare  More regulations are coming on certain topics (such as coverage for employees of temporary help services)  IRS is still designing compliance formats • Legislative/administrative updates  There are numerous bills before Congress that would modify portions of the ACA; none appear to be generating sufficient support  Postponement of employer mandate until after mid-term Congressional elections may result in delay of voting on amendments until the new Congress is seated 5
    • THE TWO-PART TEST If an employer is subject to ACA, potential liability for the greater of the following two tests might apply: • Part One: Do I offer health coverage to at least 95% (70% for 2015) of my full-time employees? • Part Two: If I do offer health coverage to my full time employees—  Is that coverage affordable, and  Does that coverage provide minimum coverage to the full-time employees and their dependents? 6
    • THE TWO-PART TEST • Two different, non-deductible, excise taxes exist depending on which part is not satisfied  If both parts are not satisfied, employer pays only the greater of the two excise taxes 7
    • WHAT HAPPENS? What happens if I fail to comply with Part One of the two-part test? • If an employer:  Fails to offer 95% (70% for 2015) of its full-time employees (or dependents) coverage; and,  One employee receives a subsidy (either a tax credit or cost-sharing reduction) through the exchange/marketplace for purchasing health insurance; then,  The employer might be liable for a non-deductible $2,000 penalty per year for the total number of fulltime employees (reduced by 30) 8
    • IMPORTANT COMPLIANCE DEFINITIONS A full-time employee for this purpose is an employee who is employed an average of at least 30 hours of work per week or 130 hours of work per month • • • • Full-time equivalent, also known as FTEs, employees (discussed in the large employer test) are not relevant to this discussion Look at this monthly to determine classification and when coverage should begin. Can use current year expectations or prior year results. Special rules apply to educational institutions, breaks in employment, new hires and employees who work variable schedules. 9
    • COUNTING EMPLOYEES Safe harbors exist that allow an employer to determine which full-time employees must be offered coverage • • Ongoing employees—look back at a „standard measurement period‟ of between 3-12 months; effective for next 6-12 months („stability period‟); can use a three month „administrative period‟ to make determinations Seasonal employees—can exclude if employer can say that the customary annual employment period for that type of a worker is six months or less 10
    • IMPORTANT COMPLIANCE DEFINITIONS A subsidy occurs when an employee acquires insurance through the Exchange/Marketplace and qualifies for a reduction in his/her cost for insurance coverage because of his/her financial situation. • Subsidies are of two types:  An employee is eligible for a cost reduction subsidy if the employee‟s household income is less than 250% of the federal poverty line (2014 maximum income of $29,125 for a single individual and $59,625 for a family of four).  An employee is eligible for a premium tax credit subsidy if the employee‟s household income ranges between 100% and 400% of the federal poverty line (2013 maximum income of $46,680 for single individuals, $95,400 for a family of four); an employee who is eligible for Medicaid can not receive the subsidy. 11
    • WHAT HAPPENS? What happens if I fail to comply with Part Two of the two-part test? • If an employer offers 95% (70% for 2015) of its full-time employees (and dependents) coverage but the coverage is either:   • Unaffordable Does not provide minimum coverage The employer will be liable for a nondeductible penalty of $3,000 per year, times the number of full-time employees who obtain insurance through the exchange/marketplace and receive a subsidy The employer is only labile for the greater of the Part One or Part Two excise tax. 12
    • IMPORTANT COMPLIANCE DEFINITIONS How do we determine if the coverage is „affordable” for full time employees? Three-part “Safe Harbor” test—allows employer to choose how affordability is determined. • Form W-2: An employee‟s monthly contribution for self-only coverage is affordable if it does not exceed 9.5% of their W-2 wages for that calendar year. • Rate of pay: An employee‟s monthly contribution for self-only coverage is affordable if it is no more than 9.5% of their monthly wages (hourly rate of pay 130 hours, or, for salaried employees, their monthly salary figure). • Federal Poverty Line (FPL): An employee‟s monthly contribution for self-only coverage is affordable if it does not exceed 9.5% of the FPL for a single individual ($29,125) or $ 230 per month. 13
    • DEFINITION OF MINIMUM COVERAGE Minimum coverage means the insurance plan must cover 60% of the essential health benefits • • The essential health benefits include emergency services, ambulatory services, hospitalization, lab services, prescription drug coverage and maternity and newborn care, among others Among the items not included are vision, dental, disability, and long-term care 14
    • HOW IS THE EXCISE TAX ASSESSED A multi-step process • • • • Employer informs the IRS that it is providing coverage An employee who acquires coverage through an exchange informs the IRS of family income and the employer‟s identifying information IRS receives data from the exchanges and assesses the excise tax, sending the employer a bill Employer has a limited amount of time (2 months) to contest the assessment 15
    • WHAT EMPLOYERS SHOULD THINK ABOUT Determine if you should “play or pay” • • • Review payroll records to determine which employees must be offered coverage; assure that 70% of full-time employees are offered coverage in 2015 and 95% in 2016 Determine if the plan provides “minimum essential coverage”, by working with your insurance broker to obtain the costs for bringing the program up to that level Compare the amount that is charged to employees for coverage to the ACA affordability guidelines; if it is too expensive, determine the appropriate cost 16
    • WHAT EMPLOYERS SHOULD THINK ABOUT Determine if you should “play or pay” • Compare the potential cost of “pay” vs. “play”  “Pay”—cost of not offering health benefits or offering inadequate/ expensive benefits increased by excise taxes ‒ Human Resource issues—retention and recruiting ‒ Do you increase pay so that employees can go to the Exchange/Marketplace? ‒ Comparing Exchange/Marketplace offerings to what is currently offered  “Play”—cost of offering more expensive benefits and/or charging employees less than currently imposed ‒ Redesigning plan terms to minimize cost—human resource issues ‒ Do you reduce pay to make up for increased employer cost of insurance? 17
    • WHAT EMPLOYERS SHOULD THINK ABOUT “Pay or Play” decision tree • Pay  First test: ‒ Determine the number of full-time employees ‒ Take that number, subtract 30, and multiply by $2,000; that is your maximum exposure to excise tax if you offer no insurance  Second test: ‒ Determine the number of full-time employees whose income is below the subsidy line $29,250 for 2014 ‒ Multiply that number by $3,000; that is your maximum exposure to the excise tax if you offer unaffordable or sub-minimum coverage insurance 18
    • WHAT EMPLOYERS SHOULD THINK ABOUT “Pay or Play” decision tree • Pay  Analysis: ‒ Compare larger of result of first or second test to the after-tax cost to the employer of providing current coverage. ‒ If first test is significantly larger than second test, consider the cost of offering some coverage to all full time employees (to no longer be subject to the first test) and add the cost of the second test—if the total is less than the first test result, then perhaps insurance should be offered 19
    • WHAT EMPLOYERS SHOULD THINK ABOUT “Pay or Play” decision tree • Play  First step: “Minimum Coverage”. Work with your insurance broker to select plans that meet the ACA criteria ‒ Obtain coverage quotes  Second step: “Affordable” ‒ Select a Safe Harbor to use for determining employee pay ‒ Using the pay number, divide it by the number of payrolls and multiply it by 9.5%—that becomes the maximum amount that can be charged to an employee for individual coverage ‒ Subtract that number from the premium assessed by the insurer to determine the employer‟s share 20
    • WHAT EMPLOYERS SHOULD THINK ABOUT “Pay or Play” decision tree • Play  Third step: Participants. Select 70% of employees to be covered, compute the after tax employer cost  Analysis: ‒ Compare the answer to the third step to the answer to the second test. If the second test is larger, „guestimate” the number of people who may go to the exchange and recompute the second test ‒ If the third step is smaller, provide insurance; if it is larger take other factors into consideration 21
    • WHAT EMPLOYERS SHOULD THINK ABOUT • Minimizing potential ACA excise taxes if we “play”  Offering coverage that isn‟t affordable or adequate may be preferable to not offering coverage  Use of the 30% (for 2015)/5% rule  Convincing employees who might be eligible for a subsidy not to go to the exchange/marketplace • Minimizing program costs if we “play”  Self-insurance may be an option for smaller employers—but be concerned about non-discrimination rules  Use the proper „Safe Harbor‟ compensation to set employee contribution rates 22
    • WHAT EMPLOYERS SHOULD THINK ABOUT Recordkeeping systems • Systems needed to collect and monitor data  Large employer status is an annual determination, which must be monitored monthly  Which employees are eligible for insurance is an annual determination  The amount that employees can be charged for insurance is an annual determination • Building your file if you “play”  How can you quickly prove to the IRS that you are meeting the two tests  How can you quickly prove to the IRS that you offered benefits to a sufficient number of employees 23
    • OTHER ISSUES Program documentation • Many employers have no or inadequate plan documents relating to their welfare plans  Insurance policies do not satisfy ERISA requirements as summary plan descriptions  Additional notices will be needed due to ACA  Potential legal (participant) and regulatory (IRS, DOL) exposure • Use of “wrap plans” can reduce the number of annual IRS Form 5500 filings that are required  A “wrap plan” is different from a summary plan description 24
    • OTHER ISSUES DOL increases scrutiny of welfare plan compliance • DOL is increasing audit activity in the welfare plan area  New audit guidelines include ACA compliance issues, which includes documents, and detailed analyses of how coverage was offered (differs from the IRS assessment initiative)  Audit documentation requests give employers 10 days to comply; rarely extended  DOL investigate staff has significantly increased in size over the last two years  Over 70% of audits result in the plan sponsor paying some type of penalty • This will only be heightened as ACA becomes effective 25
    • WHEN IS THE REAL DUE DATE At least one month before open enrollment for 2015 for employers with over 100 FTEs • • • Even though benefits must be offered to only 70% of employees (as opposed to 95% for 2016), benefits still need to be offered Do you have 100 FTEs The big decisions—  Who should you offer it to  How much should you charge  What programs should you offer At least one month before open enrollment for 2016 for employers with between 50 and 100 FTEs 26
    • QUESTIONS? If you have any questions or need additional information please contact: Ted Ginsburg, CPA, JD Principal tginsburg@skodaminotti.com (440) 449-6800 www.skodaminotti.com 27