Getting into tax compliance with ACA

Despite a one-year delay in the effective date of the shared-responsibility provisions of the Affordable Care Act to Jan. 1, 2015, employers should begin planning now.
Employers providing group health coverage for employees should begin to assess their existing policies now to determine whether they comply with current ACA regulations and those to be enacted in 2015. If the policies do not comply, organizations must decide whether – and how – to redesign their plans to comply or formulate a plan of action if they choose not to comply.
Here’s an overview of the major areas to explore.
The employer shared-responsibility provision – commonly referred to as “play or pay” – applies to “large” employers and provides a choice to play and provide group health insurance meeting certain minimum standards or pay a tax. To avoid the tax, large employers must offer health insurance to “full-time employees” that will provide “minimum essential coverage” that is “affordable” at a “minimum value.” Employers failing to meet these new requirements, either intentionally or unintentionally, face stiff tax penalties if at least one full-time employee buys coverage through the newly created insurance exchange.
A “large” employer is one with at least 50 full-time employees. A “full-time employee” is an individual working an average of 30 or more hours a week. Working 130 hours in a calendar month is considered the monthly equivalent of 30 hours per week.
Where actual hours are not tracked, an employer may apply a days-worked equivalency, crediting an employee with eight hours for each day worked or, a weeks-work equivalency, crediting an employee with 40 hours for each week worked. Different methods for different classifications of employees may be applied as long as the classifications are reasonable and consistently applied. Note that employers with flexible workforces – including part-time workers, contract workers and adjunct faculty – may have additional concerns when determining employer status.
Once an employer has determined that they are a large employer and full-time employees have been identified, the employer must determine if they meet the shared-responsibility provisions. This determination can only be made by starting with compliance testing.
Employers must offer coverage to at least 95 percent of full-time employees that is “affordable” and provides “minimum value.”
In general, an employee’s share of the insurance premium is considered affordable provided the cost is no more than 9.5 percent of the employee’s annual household income.
However, there are three safe harbors so employers may meet the affordability standard:
• The cost of insurance coverage does not exceed 9.5 percent of the W-2 wages the employer pays the employee that year.
• The employee’s monthly contribution for the self-only premium is equal to or less than 9.5 percent of his or her computed monthly wages, or the employee’s cost for self-only coverage does not exceed 9.5 percent of the federal poverty line for a single individual.
The minimum-value requirement is met as long as a health plan covers at least 60 percent of the total allowed costs of benefits provided under the plan. The IRS and U.S. Department of Health and Human Services will soon offer an online calculator to assist employers in determining minimum value.
An employer is subject to tax penalties if it fails to meet any one of the shared-responsibility requirements and at least one full-time employee purchases insurance through the exchange and qualifies for the premium tax credit. The premium tax credit is available for individuals and families with incomes up to 400 percent of the federal poverty level (currently $45,960 for individuals and $94,200 for families). An employer is subject to an annual penalty of $2,000 per full-time employee in excess of 30 full-time employees if an employer fails to cover at least 95 percent of their full-time employees and at least one full-time employee purchases insurance through the exchange and receives a premium tax credit.
Employers that meet the minimum essential coverage but fail to provide affordable coverage or coverage of minimum value must pay an annual tax equal to the lesser of $3,000 for each employee receiving the premium tax credit or $2,000 for each full-time employee in excess of 30 full-time employees.
Although the shared-responsibility provisions don’t take effect until Jan. 1, 2015, employers will use information about the workers they employ in 2014 to determine whether their organization is subject to play-or-pay provisions going forward. Penalties for noncompliance will be assessed beginning with the year 2015. Organizations that do offer health-insurance coverage may think they are in compliance, but may not meet the shared-responsibility requirements of ACA, thus triggering unforeseen penalties.
Preliminary compliance testing should be performed now. If not in compliance, employers must decide if they should play and bring their plans into compliance or if they should pay the penalty tax. •


Bernard E. Kaplan is a managing director at CBIZ Tofias. He can be reached at bkaplan@cbiztofias.com.

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