The document provides an update on the Affordable Care Act (ACA), highlighting compliance requirements for employers with 50 or more full-time equivalent employees, mandatory IRS reporting, and potential penalties for non-compliance. It discusses the employer mandate to provide affordable health coverage and details about excise taxes that may arise if coverage is inadequate. Additionally, it outlines strategies for managing workforce levels to avoid ACA obligations and key definitions relevant to compliance.

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Affordable Care Act Update
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2. Affordable Care Act Update
Ted Ginsburg, CPA, JD
October 27, 2015

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• The status of the ACA today
• IRS reporting issues
• What employers need to be thinking about
 What is the ACA penalty?
 Should I offer insurance at all?
 Strategies to avoid the penalty
• Other issues relating to welfare plans
TODAY’S DISCUSSION

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• The Affordable Care Act (“ACA”) is currently effective for
employers who had 100 or more full time equivalent
employees (FTEs) in 2014. Employers who have 50 or more
FTEs in 2015 will be subject to the ACA on January 1, 2016
• Compliance with the ACA’s reporting requirements for 2015 is
mandatory for any employer who had more than 50 FTEs in
2014.
• Several bills are currently before Congress to repeal or change
certain portions of the ACA; it is doubtful that it will be entered
into law during the Obama administration
• The ACA has withstood numerous court challenges, although
more cases are pending, including one at the Supreme Court
• This is a regulatory work in process
STATUS OF THE ACA TODAY

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• Through the employer mandate, the ACA wants to compel
private employers to provide health program benefits to full
time employees that:
 Are affordable
 Provide basic types of coverage
• If individual employees purchase insurance through a
government exchange and receive a subsidy from the
government, employers could be subject to an excise tax
which (in effect) reimburses the government for the subsidy
• The IRS and DOL are jointly enforcing this effort, and are
implementing programs to bill employers for the excise tax
THE PURPOSE OF THE ACA

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IRS reporting is due for all employers who have 50 or
more FTEs in 2015
• Impacts employers who aren’t currently subject to ACA
• Employers who provide fully insured benefits are still
subject to the reporting requirements
• Employers of any size who are self-insured are subject
to the reporting requirements
• Reporting follows the same timeframe as W-2s
 Employees receive statements by February 1, 2016
 Employer return due February 28 (March 31 if electronically
filed)
REPORTING ISSUES

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Based on 2014 payroll, comprised of two parts:
• Full time employees—work an average of 30 hours
week/130 hours a month; and
• Part time or seasonal employees— Add total hours of work
by these people on a monthly basis and divide by 120
• Employees subject to a CBA count
• Calculation is made monthly, average FTE level is used
FTE–WHAT IS IT?

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For all plans (insured and self insured) Parts I and II of
IRS Form 1095-C have to be completed, and employee
specific forms need to be distributed.
Employee specific data needed:
• Employee identification data (name,
address, SSN)
• For each calendar month
 When was coverage offered to the employee?
 What was the cost of the lowest cost plan offered to
the employee?
 Did the employee take it
 What “safe harbors” were used?
REPORTING ISSUES

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For self-insured plans, additional employee-specific
data is needed:
• Participant identification data (name, address,
SSN/DOB for employee, spouse and children)
• Which calendar months during the year was each
participant covered?
REPORTING ISSUES

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FORM 1095 - C

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For all plans (insured and self-insured), other
information will be needed for Form 1094-C, including:
• What types of coverage were offered to what
percentage of full time employees
• The safe harbors which were available to the employer
• Number of full time and total employees
• Controlled group status for benefit plan purposes
REPORTING ISSUES

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FORM 1094 - C

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If an employer has a certain number of FTEs based on
the prior calendar year, and:
• Doesn’t offer minimum value insurance to a certain
percentage of full time employees, or
• Offers insurance but it isn’t affordable and/or it isn’t
adequate and
• In either case, one employee purchases insurance through
an exchange and receives a subsidy, then
An excise tax may result
EXCISE TAX BASICS

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How does IRS Form 1095 impact employer taxes related
to the ACA?
• $250 penalty per form not provided to an employee
• Provides information to the IRS as to whether the
employer should be liable for excise tax for a particular
employee
FORM 1095 AND
THE EXCISE TAX

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IRS receives data from multiple sources
• The exchange informs the IRS of individuals who get a
subsidy
• Employee’s 1040s can claim a tax credit for health
coverage
• Employers inform the IRS of employees coverage on IRS
Forms 1094/1095
IRS bills the employer
• Employer has a limited amount of time (2 months) to
contest the assessment
HOW IS THE
EXCISE TAX ASSESSED?

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Part one: Do I offer health coverage to at least
70% (95% for 2016) 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?
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
THE TWO-PART TEST
If an employer is subject to ACA, potential liability for the greater
of the following two tests:

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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 full-time employees
(reduced by 80 in 2015, 30 in 2016)
WHAT HAPPENS?

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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
• FTEs 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
IMPORTANT
COMPLIANCE DEFINITIONS

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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
IMPORTANT
COMPLIANCE DEFINITIONS

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• If an employer offers 95% (70% for 2015) of
its full-time employees coverage but the
coverage is unaffordable or does not provide
minimum coverage
• The employer is liable for a non-deductible
penalty of $3,000 per year for each full-time
employee who obtains insurance through the
exchange and receives a subsidy
WHAT HAPPENS?
The employer is only liable for the greater of
the Part One or Part Two excise tax.
What happens if I fail to comply with Part Two of the two-part test?

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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 (approximately $93 per month)
IMPORTANT
COMPLIANCE DEFINITIONS

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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
DEFINITION OF
MINIMUM COVERAGE

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Managing workforce levels to avoid ACA
If you keep your total FTEs under 50, you are not subject to
the ACA:
• Working current employees longer hours
• Use of subcontractors
• Timing jobs to avoid spikes in employment
• Turning down jobs that might cause FTE count to exceed 50
WHAT SHOULD EMPLOYERS
THINK ABOUT?

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If you are subject to ACA, you want to limit the number
of full-time employees
• Keep current employees under 30 hours a week if you
can do it without disrupting your operations
• Make current full-time employees work more hours
• Use part time employees—no coverage needed for
employees under 30 hours a week
• Use seasonal employees or subcontractors
WHAT SHOULD EMPLOYERS
THINK ABOUT?

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Can I merely give my employees some money and let
them buy their own insurance?
• The government doesn’t like this approach at all
• A pay raise will work, but is inefficient
• Formalized employee reimbursement program (IRC 105)
might work for employers with over 50 employees, but it
is not clear that it will
WHAT SHOULD EMPLOYERS
THINK ABOUT?

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Determine if you should “play or pay”
• Compare the potential cost of “play” vs. “pay”
 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?
 Pay: face potential excise tax liability
WHAT SHOULD EMPLOYERS
THINK ABOUT?

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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 5% rule
 Convincing employees who might
be eligible for a subsidy not to go to the
exchange/marketplace
WHAT SHOULD EMPLOYERS
THINK ABOUT?

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BUILDING YOUR FILE
Systems needed to collect and monitor data
• Large employer status is an annual determination, which must be
monitored monthly
• Which employees are eligible and the amount that you charge for
insurance is an annual determination?
Building your file
• 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?
• IRS Form 1094/5 compliance

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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
 DOL and IRS are aggressively pursuing this issue
• Use of “wrap plans” can reduce the number of annual
IRS Form 5500 filings that are required
OTHER ISSUES

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Ted Ginsburg, CPA, JD
(440) 449-6800
tginsburg@skodaminotti.com
QUESTIONS?