A C A U p d a t e Including How to Avoid Receiving an IRS Penalty - - PowerPoint PPT Presentation

A C A U p d a t e

Including How to Avoid Receiving an IRS Penalty Notice

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J E N N I F E R R E E D

Considered one of the foremost experts on the Affordable Care Act and the complexities of ACA Reporting. Prior to joining GUS BATES Jennifer contracted with multiple Broker Partners, HR Consultants, and HR Technology Consultants in all regions of the US.

Benefits Compliance/ACA Reporting

Experience consulting with employers ranging in size from 20-16,000+ Employees in the key areas of HRIS, Integrated HRIS & payroll, Time & Attendance, Benefits Enrollment, and ACA.

HR Technology Consulting

Why ACA Still is Here Stay…for a while…

3 ACA was originally estimated in 2010 by Obama to cost $940 billion (FY 2010- FY 2019), CBO updated their estimate in March 2012 that it would likely cost closer to $2 trillion over 11 years… The Original estimate came from five cost areas:

• Expanding Medicaid and CHIP - $434 billion. (2012 Update - $931 billion)
• Tax credits to small businesses who provide insurance - $40 billion. (2012

Update- $23 billion)

• Setting up the health insurance exchanges - $358 billion.
• Tax credits for those who can't afford insurance - $106 billion. (2012 - $808

billion for setting up exchanges and tax credits)

Source: https://www.thebalance.com/cost-of-obamacare-3306050 and https://www.forbes.com/sites/theapothecary/2016/09/18/obamacare- medicaid-expansion-a-lot-of-spending-of-little-value/#2b3d839c7a32

Current Status of State Medicaid Expansion

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Source: https://kaiserfamilyfoundation.files.wordpress.com/2018/05/current-status-of-the-medicaid-expansion-decisions- healthreform.png

5 Medicaid Expansion?

 Yes (In November, 2017 but it was No when she voted)  Yes  Yes  Yes No  Yes  Yes No  Yes No No, but a ballot on Medicare expansion will appear on November 2018 ballot No  Yes

Source: https://www.nytimes.com/interactive/2017/07/25/us/politics/senate-votes-repeal-obamacare.html

Remember the $106 billion budgeted for Tax Credits? (FY 2010-2019)

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• In a Letter to Congress, IRS Commissioner said $29.2 Billion in tax credits were paid out

in 2014 and 2015. 2016 Cost for tax credits was $32.8 Billion.

• $4.6 billion Individual penalties were owed for 2014/15; however, 77% reported being
• wed a net refund which leaves roughly $1.01 Billion coming in from Individual Mandate.
• Washington Times reported that the IRS overpaid “Nearly $3.5 billion in 2017 that it

cannot recoup because of constraints…”

December 22, 2017 – H.R. 1, Tax Reform Legislation

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Eliminated the ACA individual mandate beginning in 2019 Did not Affect the Employer mandate or ACA reporting Did not affect the Employer Exclusion. Extended the “Good Faith Effort” for 2017 Extended the due date for distribution of the 2017 1095-C’s (and B’s) to the individuals from January 31st to March 2nd.

President Trump State of Union Address – January 30, 2018

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 Highlighted Tax Reform Provisions that “We Repealed the Core of Disastrous Obama care – the individual mandate is now gone.“  “One of my greatest priorities is to reduce the price of prescription Drugs.”  Opioid crisis

Setting the Stage….

Continuing Resolution (CR) Delays ACA Taxes – January 22, 2018

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Health Insurance Tax (HIT)

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What is HIT Anyway? Do I have to write a check like PCORI?

• HIT is a fixed-dollar amount distributed across health insurance

providers, so no, you do not “directly” write a check.

• Self-Insured Employers are exempt
• These fees are “passed through” to the fully insured market and adds

more than $500 annually in cost to a typical family policy

• 2018 - These fees are in effect.
• 2019 - Suspended (moratorium).
• H.R. 246 (Gov Track 9% Chance) Reps Kristi Noem (R-SD) and Kyrsten

Sinema (D-AZ) proposed in January 2017 eliminating the HIT

Budget Reconciliation Process

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• Republican’s have the majority;

but need a minimum of 9 Democratic votes on nearly all votes.

• Budget Reconciliation process

is the exception – Just need a simple majority.

• Only 1 Reconciliation “Vehicle”

is permitted per fiscal year.

• 2017 - Expired in failure on

September 30th 2017

• 2018 - Used for Tax Reform

CMS Final Rule – April 9, 2018

12 Final Rule allows states to define Essential Health Benefits in 2020 Option 1) States can chose from 50 EHB plans used by other states Option 2) Insurers can replace one or more EHB categories used In other states 2017 health plan. Option 3) State may build their own EHB benchmark plan subject to certain scope of benefits requirements. The goal is to give insurers more flexibility in designing plans to provide lower cost options.

CMS Final Rule – April 9, 2018

13 CMS Expanded Hardship Exemptions

• People Living in counties with one or no exchange will be exempt from

paying the ACA penalty for not having coverage in 2018.

• Hardship obtaining coverage, because all affordable plans offered cover

abortion, and it is contrary to one’s beliefs.

• When specialty care is needed by an individual, but the affordable plans
• ffered do not provide access to such specialty care

States Considering Individual Mandates

14 2 of the 9 States with Individual Mandate Proposals signed state individual mandate into law

• 1. California
• 2. Connecticut
• 3. Hawaii
• 4. Maryland
• 5. Minnesota
• 6. New Jersey - Signed into law in May 2018, Effective 2019
• 7. Rhode Island
• 8. Vermont - Signed into law in May 2018, Effective 2020
• 9. Washington
• 10. District of Columbia

Massachusetts was the first state which was signed into law in 2006. ** All states above also chose to Expand Medicaid.

Employer Reporting

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Establish a new voluntary reporting system that reduces administrative burden on the employer.

• H.R. 3919 (Per Gov Track 11% Chance)
• Reps Diane Black (R-TN) and Mike Thompson (D-CA) introduced on 10/3/2017

as the “Commonsense Reporting Act of 2017”

• S. 1908 (Per Gov Track only 2% Chance)
• Sens Mark Warner (D-VA) and Rob Portman (R-OH) – Identical to H.R. 3919

Bills would simplify the information that would need to be reported and eliminate the requirement to collect dependent social security numbers.

Full Time Definition

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ACA FT Definition: Employee that works 30 hours a week or 130 hours a month (or Average during Measurement Period)

• H.R. 3798 (Per Gov Track only 4% Chance)
• Reps Jackie Walorski (R-IN) and Dan Lipinski (D-IL) reintroduced "Save

American Workers Act” in September 2017.

• S. 1782 (Per Gov Track only 2% Chance)
• Sens Susan Collins (R-ME) and Joe Donnelly (D-IN) reintroduced a similar bill

named ““Forty Hours Is Full Time Act of 2017”

Both Bills (if passed) would change the definition to 40 hours/week (174/month).

May 2017– Executive Order Contraceptive Mandate

17 President Donald Trump signed an executive order directing federal agencies to look into exempting religious employers from the Affordable Care Act’s contraceptive mandate.

• Under ACA Regulations, Birth Control is covered under preventative

care at 100%. Trump’s proposed rule would allow employers to opt out

• f covering birth control for religious and moral reasons.
• In December 2017, Federal judges in California and Pennsylvania

temporarily blocked the rules. Opposers include Planned Parenthood and groups of medical associations.

• According to Law360 the EBSA hopes to have a ruling on this in July

2018.

October 2017 – Executive Order Association Health Plans (AHPs)

18 President Trump signed executive order directing federal agencies to reinterpret ERISA to expand the availability of association health plans (AHPs).

• Modified the definition of an Employer to include Employer

Associations.

• Self-Employed or sole proprietors are permitted to take part or even

form an association.

• The association can be created solely for the purpose of Insurance

purposes (Final reg. modified this to say the AHP must have a “substantial business purpose”)

• Final Rules released by the DOL on Tuesday June 19, 2018

May 31, 2018 – IRS Released Proposed Electronic Filing Mandate

19 IRS released proposed regulations to expand electronic filing requirement.

• Employers today are required to file electronically if they file over 250

“information returns” or pay a penalty per return of $260

• Each type of return is currently counted separately meaning if an

employer files 200 Form W-2’s and 200 1095-C’s they would not be required to file electronically.

• Proposed Regulations would aggregate most forms to reach this

threshold including Forms 1095-C (and B), Forms 1099, Forms 1099-R, and Forms W-2

• Would become effective for any returns filed in 2019

June 7, 2018– “Trump Admin Backs GOP Anti-ACA Suit”

20 Background - a 20-State coalition filed suit in Texas Federal court in Feb, 2018 against the federal government stating that the individual mandate is now unconstitutional with the individual mandate being eliminated in December 2017.

• On June 7th - Trump administration said that it “agreed that the mandate

is no longer constitutional.”

• Guaranteed Issue (meaning the preexisting conditions requirement)

and Community Rating (uniform pricing) “have to be scrapped”

• Texas et al. v. United States of America et al., case number 4:18-cv-

00167

How to Avoid Receiving an IRS Penalty Notice

Do I need to worry about ACA Reporting Penalties?

Definition of an ALE:

 Any employer who has an average of 50 Full Time Employees (Including FTE’s) during 2017 needs to report in 2018.  Full Time Equivalent (FTE) calculation includes Part Time Hours.  Total FT employees for each month (in 2016) + Total FTE’s (All PT hours/120) for each month (in 2016) = Total  Divide Total by 12 - If that number > 50 you are an ALE. More Information: https://www.brainshark.com/gusbates/ALE_Definition 22

What about the Employer Penalties?

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• An article written by the National Law Review in Sept 2016 noted that the IRS

expected to generate $228 billion in revenue from the Employer Mandate between 2017-2026. *No employer shared responsibility penalties were assessed for 2014.

**No Employer Penalties for Reporting errors have been assessed yet due to “Good Faith Effort.” **If you file 250 or more returns, you may be subject to the $260 per return penalty for failure to file electronically unless you establish reasonable cause prior to filing due date. Source: https://www.irs.gov/pub/irs-drop/rp-16-11.pdf

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Reporting Penalties

Before Receiving a 226J Letter

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These actions should have already occurred prior to receiving a 226J Letter…

1) You had an employee enroll in Health insurance on the public exchange and they were approved for a PTC (Subsidy).

• This could have been a terminated EE
• This also could have been a PT EE
• This could have been triggered by a SP

2) You should have received a notice from the Health Insurance Marketplace (Department of Health and Human Services with a chance to appeal.

IRS 2015 Penalty Assessment

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IRS 2015 Penalty Assessment –Example 1

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IRS 2015 Penalty Assessment –Example 1

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Penalties are only assessed for months that at least one EE received Subsidy. 2015 IRS Penalty = $2080/12 x FT Count FT Count = Column (b) on 1094-C

How Accurate was your 1094-C?

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Letter 227J – Penalty Overturned! 30

IRS 2015 Penalty Assessment –Example 2

31 1H/2B – PT (No Penalty) 1H/2A- Not an Employee (No Penalty) 1H/Blank – FT Employee not

• ffered benefits

(Yes – Penalty)

1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2A 1H/2A 1H/2A 1H/2A 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B 1H/2B

IRS 2015 Penalty Assessment –Example 2

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2015 IRS Penalty = $2080/12 x FT Count FT Count = Column (b) on 1094-C

IRS 2015 Penalty Assessment –Example 2

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Issues to be aware of regarding the 226J Appeal Process

34 1) Short time to Respond

• Have you switched your payroll provider since 2015?
• How about your broker/enrollment system?
• How fast can you prove that you offered insurance in 2015?

2) Reducing a Penalty is harder than a complete Repeal. 3) Letter 226J Specifically states to not re-file at this time 4) If you receive a 226J for 2015 then it is very likely that 2016 and 2017 are incorrect and may need to be re-filed (quickly).

How do you Avoid Receiving a Dreaded 226J Letters?

35 1) Ignore the “Good Faith Effort” if at all possible and get your ACA reporting correct. 2) Spend extra time to make sure your 1094-C is correct. 3) If you outsource ACA do not Assume that the provider doing your forms is correct and that they know ACA.

• Do not use the cheapest ACA vendor you found by googling.
• Do not assume that big payroll companies are doing ACA correctly.

4) Do not assume that if someone has a law degree they know how to do ACA reporting. This is a very specific field. 5) Do not assume that one of your employee’s would not apply for a subsidy on the federal exchange.

• Employers that pay 100% EE only rate are receiving these.
• Terminated EE’s and Spouses can trigger these as well.

T H A N K Y O U !

Jennifer Reed

Compliance and HR Technology Consultant Jennifer@gusbates.com Direct: (817) 529-5309