Dont let tax-related compliance requirements take your - - PowerPoint PPT Presentation

1 HEALTH CARE ACT TAX OVERVIEW – EMPLOYERS

Don’t let tax-related compliance requirements take your organization by surprise

2

The agenda

• “Play or pay”

provision

• Changes to the

health care coverage credit

• Increased Medicare

tax withholding in 2013

• Other changes

3

Could you be subject to penalties?

“PLAY OR PAY” PROVISION

4

Shared responsibility basics

• The health care act requires “large” employers to offer minimum

value of affordable health coverage to full-time employees

• Business risks a penalty if even one full-time employee receives a

premium tax credit for purchasing individual coverage

– Under the health care act, premium tax credits are available to employees who:

• Meet certain income requirements, and
• Don’t have access to minimum value of affordable

employer-provided insurance

TIP: A large employer is one with at least 50 full-time employees, or a combination of full- and part-time employees equivalent to at least 50 full-time employees.

5

Determining large employer status

• Status is determined in part by calculating FTEs

– Requires totaling hours of service for all part-time employees – Divide that figure by 120

• Hourly employees

– Hours calculated on records of hours worked and hours for which payment is made or due for:

• Vacation
• Holiday
• Illness
• Incapacity
• Layoff
• Jury duty
• Military duty
• Leave of absence

6

Determining large employer status

• Salaried employees

– Three methods of determining hours

• Same method used for hourly employees
• Days-worked equivalency method (each worker is credited with 8 hours for

each day worked), or

• Weeks-worked equivalency method (each worker is credited with 40 hours for

each week worked)

• Apply different methods for different classifications of

nonhourly employees

– Classification must be “reasonable and consistently applied”

7

Determining employee hours

• f service
• Employer must determine annually employees’ hours of service

in order to be considered a “large employer” for next year

• Transitional relief is provided

– You can use any six-consecutive-month period, subject to certain constraints – Consider selecting six months at beginning of year

• Use remainder of 2013 to decide if you should offer coverage in 2014
• Establish a compliant plan

8

Assessing affordability and minimum value

• Large employer could be penalized if
• ne full-time employee receives a

premium tax credit

• If employee’s share of premium costs

more than 9.5% of annual household income, coverage isn’t considered affordable

9

Safe harbors

• Cost of coverage won’t exceed

9.5% of the Form W-2 wages employer pays the employee that year

• Employee’s monthly contribution

amount for self-only premium is equal to or lower than 9.5% of monthly wages

• Employee’s cost for self-only

coverage doesn’t exceed 9.5% of federal poverty line for single individual

10

Minimum value requirement

• Health plan must cover at least

60% of total allowed costs of benefits

• IRS and DHHS will make available

an online minimum value calculator

– Employers can enter certain plan information – Obtain a determination of whether plan provides minimum value

11

Calculating penalties

• Penalty assessed on large employers who:

– Don’t provide 95% of full-time employees health coverage – Have one or more employees who receive premium tax credit

• Annual penalty is $2,000 per full-time employee in excess of

30 full-time employees

TIP: There’s an exception for employers that don’t meet the 95% requirement , but exclude no more than five employees.

12

• Large employers who do provide 95% of their full-time

employees coverage also can be subject to penalties if:

– Coverage isn’t affordable or fails to provide minimum value – Employer has one or more employees who receive a premium tax credit

• Penalty is lesser of $3,000 per employee receiving credit or

$2,000 for each full-time employee beyond first 30 full-timers

TIP: Penalties will increase annually based on premium growth.

Calculating penalties

13

Moving forward

• Employers may opt to pay penalties

due to cost of broader scope of coverage but may incur other costs

– Lost tax benefits – Costs to remain competitive in the labor market

• Other employers may make

adjustments to workforce

– To reduce their FTEs – To avoid being considered a large employer

14 HEALTH CARE COVERAGE CREDIT

Changes take effect in 2014

15

The credit through 2013

• Employers qualify if they:

– Have fewer than 25 FTEs – Have average annual wages of less than $50,000 – Pay at least half the cost of health insurance for employees

• Credit for businesses is up to 35% of the cost of group health

insurance

• Credit for nonprofits is up to 25% of the cost of group health

insurance

16

The phaseout of the credit

• Qualifying organizations with 10 or fewer FTEs and average

annual wages of less than $25,000 can claim maximum applicable credit

• Organizations that exceed either threshold are entitled to

partial credits on a sliding scale

• Credit is phased out when organization reaches 25 FTEs or

average annual wages of $50,000

17

Calculating the credit

• Number of FTEs determined differently than for play-or-pay

provision purposes

– Calculate total hours of service for which organization pays wages to employees during the year – Divide that number by 2,080

• Only employer’s portion of health insurance premiums counts

in calculating the credit

– Amount is further limited to the amount employer would have paid based on average premium for small group market in employer’s area

18

• Coverage must be purchased

through state (or federal) exchange for employer to be eligible for the credit

• Federal government will

launch and handle exchanges in states that can’t or won’t set

• ne up

– May end up running 50% of exchanges nationwide

2014 and later

19

2014 and later

• Maximum credit increases

– Can be as much as 50% of business’s contributions toward health insurance premiums – For nonprofits, maximum credit becomes 35%

• Credit can be taken for only two years

– No requirement as to which two years must be chosen – Requires planning as to when to claim credit

20 MEDICARE TAX WITHHOLDING

In 2013, increased withholding required

21

Increased Medicare tax withholding

• Wages are subject to a 2.9% Medicare tax

– 1.45% paid by employers – 1.45% withheld from employees’ wages

• Starting in 2013, taxpayers with wages over $200,000/year

must pay additional 0.9% Medicare tax on excess earnings

– $250,000 for joint filers – $125,000 for married filing separately

• Additional Medicare tax doesn’t include a corresponding

employer portion

• Employers must withhold additional tax to extent that

employee’s wages exceed $200,000 in a calendar year

22

Withholding requirements

• Not required to withhold additional Medicare tax until pay period

in which you pay wages over $200,000 to employee

– Applies without regard to employee’s filing status or income from other sources

• May be required to withhold tax from wages paid to employees

who aren’t liable for it

– Employee can’t ask to stop withholding the tax – Employee can recover tax by claiming a credit on income

• May not be required to withhold tax from wages paid to employees

who are liable for it

– Employee can’t ask you to increase Medicare tax withholding – Employee can submit a W-4 requesting you increase income tax withholding to cover additional Medicare tax liability

23

Adjustments and refund claims

• Critical to follow withholding requirements

– Employer that fails to do so is liable for additional Medicare tax and applicable penalties – If employee pays tax, employer is relieved of liability for the tax – Employer may still be subject to penalties

• Consider making interest-free adjustments in cases of

under- or overpayments of additional Medicare tax

– File corrected tax return (for example, Form 941-X) – Reimburse overpaid amounts to employee or collect underpaid amounts from employee’s wages before year end

24

Underpayments

• May be adjusted only if error
• ccurs in same year underlying

wages were paid

• You’re liable for correct amount
• f tax, even if you’re unable to

deduct the underpaid tax from employee’s wages

25

Overpayments

• May be adjusted if you ascertain

error in the year the wages were paid

• Must reimburse employee for overcollected amounts by year end
• If unable to reimburse by year end, don’t make adjustment

– Report amount withheld on employee’s W-2 – Employee can obtain a credit on individual income tax return

• Can claim refund of overpaid additional Medicare tax provided you

didn’t deduct or withhold overpaid amounts from the employee’s wages

26

More to be aware

• f in 2013

OTHER CHANGES

More to be aware

• f in 2013

27

W-2 reporting

• Cost of coverage

– Employers that filed 250+ 2011 W-2 forms must begin reporting cost of employer-provided health coverage beginning with 2012 tax year

• This means the W-2s distributed in

January 2013

• It doesn’t cause excludable benefits to

become taxable or change tax treatment in any way

– If IRS extends reporting requirement to smaller employers for 2013 W-2s it must issue guidance before June 30, 2013

28

FSA compliance

• Employers offering FSAs

– Through 2012, employers were allowed to set employee contribution limits for them – Starting in 2013, a $2,500 limit applies

• Employers can set a lower limit

– New limit applies on a plan year basis

• Non-calendar-year plans must comply for the plan year that starts in 2013
• Employers must amend their plans and SPDs to reflect $2,500 limit (or a

lower one, if they wish) by Dec. 31, 2014

– Institute measures to ensure employees don’t elect contributions that exceed that limit

TIP: There will continue to be no limit on employer contributions to FSAs.