During 2014, we saw a variety of additional guidance issued by the Department of the Treasury and Internal Revenue Service (“IRS”) as well as the U.S. Department of Labor (“DOL”) regarding the Affordable Care Act (“ACA”) or Obamacare, impacting businesses both large and small. Some of the guidance included transition relief for Applicable Large Employers (“ALEs”) (that is, employers with 50 or more full-time or full-time-equivalent employees (“FTEs”)), including a delay of the employer shared responsibility provisions for ALEs with 50 to 99 full-time employees or FTEs, additional guidance regarding ALE reporting requirements, as well as clarification of previously released guidance regarding the prohibition against certain employer plans that provide payments for employee individual health coverage.
While much of the ACA continues as before, going into 2015 the penalties under the individual mandate increase, the SHOP Exchanges have now come online for small businesses, and employers continue to be required to provide certain notices to newly hired employees.
Prohibition of Employer Plans That Pay for Individual Coverage
One of the more timely issues affecting employers of all sizes (and perhaps affecting more small businesses than large businesses) is the IRS and DOL’s crackdown on employer payments for employee individual coverage. Beginning with guidance released by the IRS in May 2014, and then later a follow-up by the DOL in early November 2014, the Departments provided clarification of previously released guidance in the form of FAQs regarding payments by employers for employees’ individual coverage, including payments for coverage in the Marketplace or exchanges. Both Departments have made it clear that they are taking a hard-line position against such arrangements with the failure to comply resulting in hefty penalties of up to $100 per employee, per day (which could result in annual totals of $36,500 per employee for noncompliance).
To learn more, see the article here.
Concerning application specific to S corporation shareholder-employees, see the article here.
Employer Reporting Requirements
In March 2014, the Treasury issued final regulations regarding reporting requirements for employers and insurance carriers. The reporting requirements are found in Sections 6055 and 6056 of the Internal Revenue Code (the “Code”). Section 6055 applies to insurance carriers as well as employers, including governmental employers, who are part of a self-funded plan and is meant to assist the IRS in determining whether or not an individual is enrolled in minimum essential coverage for the individual mandate.
Section 6056 applies to Applicable Large Employers and is meant to assist the IRS in determining whether an employer is subject to the employer shared responsibility provisions or employer mandate.
With respect to what will be required to be reported by an employer, Section 6056 generally requires that the employer provide the terms and conditions of employer-sponsored health coverage during the applicable year for each full-time employee. In addition, the employer will also be required to furnish an employee statement. It is important to keep in mind that all ALEs that have full-time employees (even those not subject to the shared-responsibility provisions in 2015), must report under Section 6056 for 2015 in 2016.
With respect to the filing deadlines, the forms must be filed with the IRS annually, no later than Feb. 28 (March 31, if filed electronically) of the year immediately following the calendar year to which the return relates. The first returns required to be filed for the 2015 calendar year must be filed no later than Feb. 29, 2016 (due to February 28, 2016, being a Sunday), or March 31, 2016, if filed electronically.
Furthermore, each reporting entity will also be required to furnish statements annually to individuals who are provided minimum essential coverage (for ALEs, this includes only full-time employees) on or before Jan. 31 of the year immediately following the calendar year to which the statements relate. As a result, the first statements for 2015 must be furnished no later than Feb. 1, 2016 (due to January 31, 2016, being a Sunday). Extensions may be available in certain circumstances.
Notice of Coverage Options Required for New Hires
Continuing into 2015 is the requirement that employers covered by the Fair Labor Standards Act provide notices to new hires informing them of the availability of health insurance coverage through the Marketplace or exchange, as well as of any employer-offered health coverage. The notices will be deemed timely delivered if provided to new employees within 14 days of hire.
Click here for more information about the Notice requirements, content and model form notices.
The Small Business Health Options Program (“SHOP”) Exchange or Marketplace is part of the Health Insurance Marketplace where employers can purchase employee health insurance.
Currently, SHOP is open to employers with 50 or fewer full-time equivalent (“FTE”) employees. Generally, a full-time employee is an employee who works 30 or more hours per week.
To determine the amount of FTEs for eligibility in SHOP, during the most recent year, count the number of people who worked an average of 30 or more hours a week. Add to this amount the number of hours worked per week by non-full-time employees divided by 30. This number should be rounded down to the nearest whole number. Seasonal employees who work fewer than 120 days per year are to be excluded.
In order for an employer to qualify for coverage under SHOP, coverage must be provided to all full-time employees (generally those who work on average 30 hours or more per week). Furthermore, in many states, including Missouri, 70 percent of full-time employees must actually enroll in SHOP. However, from Nov. 15 to Dec. 15 each year, an employer may obtain coverage through the SHOP Marketplace without having to meet this minimum participation requirement.
Furthermore, a tax credit may be available to employers who obtain coverage for their employees through SHOP (see below).
Small Business Health Care Tax Credit
An employer who has fewer than 25 full-time-equivalent employees making an average of $50,000 a year or less may qualify for the Small Business Health Care Tax Credit (the “Tax Credit”).
In order to qualify for the Tax Credit, the employer must pay for at least 50 percent of the employee premiums and provide coverage through a SHOP plan obtained in the SHOP Marketplace. For tax years beginning in 2014, the Tax Credit may be worth up to 50 percent of the employer’s contribution toward employee premiums.
The Tax Credit is provided on a sliding scale, with the Tax Credit beginning to be phased out for employers with more than 10 full-time-equivalent employees and average wages over $25,000. Therefore, the smaller the business, the bigger the Tax Credit the employer will receive.
Click here for more information about how to calculate the Small Business Health Care Tax Credit.
Employer Mandate and Transition Relief
The employer shared responsibility provisions under the ACA, or employer mandate, provide that applicable large employers (that is, employers with 50 or more full-time employees or FTEs)who do not offer health coverage to their full-time employees (and dependent children) that is affordable and provides minimum value will be subject to certain penalties if any full-time employee receives a government subsidy for health coverage in an exchange.
On Feb. 10, 2014, the Treasury and IRS issued final regulations regarding the employer shared responsibility provisions, including certain transition relief for ALEs beginning in 2015. Pursuant to the final regulations, the employer shared-responsibility penalties will begin to apply in 2015 to employers with 100 or more full-time employees or FTEs. The provisions will not apply to employers with 50 to 99 full-time employees or FTEs until 2016 if certain requirements are met (see below).
Determining Status as an Applicable Large Employer
To determine status as an ALE, employers are to count the number of full-time employees or FTEs for each business day during the preceding calendar year. That is, employers will determine each year, based on their current number of employees, whether they will be considered an ALE for the following year. Under special transition rules for ALE status in 2015, an employer may select a period of at least six (6) consecutive calendar months during 2014 to count its full-time employees and FTEs.
See our earlier article regarding determining ALE status and counting full-time employees and FTEs.
Delay for ALEs with 50 to 99 Full-Time Employees or FTEs
ALEs with fewer than 100 full-time employees or FTEs have until 2016 to comply with the employer shared responsibility provisions. The delay applies for 2015 plus any calendar months of 2016 that fall within the 2015 plan year. However, ALEs that change their plan years after Feb. 9, 2014, to begin on a later calendar date are not eligible for the delay.
To qualify for the delay, the ALE must meet the following requirements:
- Limited Workforce Size. The ALE must employ on average at least 50 full-time employees and FTEs but fewer than 100 full-time employees and FTEs on business days during 2014.
- Maintenance of Workforce and Aggregate Hours of Service. During the period beginning Feb. 9, 2014, and ending on Dec. 31, 2014, the employer does not reduce the overall size of its workforce or hours of service to satisfy the workforce size requirement.
- Maintenance of Previously Offered Health Coverage. The employer may not eliminate or materially alter health coverage that it offered on Feb. 9, 2014, during the coverage maintenance period (which ends Dec. 31, 2015, or the last day of the plan year that begins in 2015).
- Certification of Eligibility for Transition Relief. An employer must certify that it meets the above requirements for transition relief. This certification will be made part of the transmittal form sent by the employer to the IRS, Form 1094-C, that is required to be sent pursuant to Section 6056 (see above). ALEs eligible for the additional one-year delay will still be required to report under Section 6056 for 2015. Further information about the certifications is to be provided in the instructions for Form 1094-C.
Transition Relief for Non-Calendar-Year Plans
The final regulations also include transition relief for non-calendar-year plans. That is, employers sponsoring these non-calendar-year plans will be required to begin complying with the employer shared responsibility provisions at the start of their 2015 plan year, rather than on Jan. 1, 2015. This transition relief applies to employers that maintained non-calendar-year plans as of Dec. 27, 2012, if the plan year was not modified after Dec. 27, 2012, to begin at a later date.
Other Transition Relief
In 2015, employers will need to cover at least 70 percent of their full-time employees to be in compliance. However, in 2016, employers will need to cover at least 95 percent of their full-time employees to avoid the penalty.
With respect to dependent coverage, the requirement that employers offer coverage to the employees’ dependents will not apply in 2015 to employers that are taking steps to arrange for such coverage to begin in 2016.
The individual mandate or individual shared responsibility provision, as part of the ACA, requires an individual, his or her children, and anyone else who is considered a dependent of that individual to have health insurance in 2014 and beyond, or pay a penalty.
The health insurance coverage may be provided by an employer, Medicare or Medicaid, or consist of individual coverage obtained directly through an insurer or in the Marketplace or exchange run by the state or federal government.
The penalty for failure to obtain coverage in 2015 is the higher of either: 1) 2 percent of yearly household income (with the max being the national average for a bronze plan), or 2) $325 per person for the year ($162.50 per child under 18) (with the max penalty per family being $975).
The amount owed will be pro-rated based upon the number of months without coverage. A taxpayer will be required to report liability for the penalty on the taxpayer’s federal income tax return for the taxable year that includes the month in which the individual or his or her dependents did not have coverage (e.g., a calendar-year taxpayer would report liability for March 2015 on his or her 2015 income tax return filed in 2016). Certain exemptions also apply.