Affordable Care Act: Employer Reporting Cadillac Tax. Rose & Kiernan, Inc 1

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1 Affordable Care Act: Employer Reporting Cadillac Tax Rose & Kiernan, Inc 1

2 Section 6055 General Overview Applies to any entity providing minimum essential coverage (insurers and self-funded employers) Requires the reporting of employees and dependents who are covered by the health plan If the employer s health plan is insured, the carrier will be reporting the data If the employer s plan is self-funded, the employer will be reporting the data Rose & Kiernan, Inc 2

3 1095-C Parts I and II Rose & Kiernan, Inc 3

4 Section 6056 General Overview Applies to every Applicable Large Employer(ALE): An ALE is an employer who employed at least 50 Full Time Equivalent Employees in the prior calendar year Employer is to provide all Full Time Employees a form indicating whether they were offered coverage The employer sends copies of those forms to IRS with a transmittal form similar to the W-2 process Rose & Kiernan, Inc 4

5 Applicable IRS Forms 1094-c: Transmittal Form for ALE s to send 1095-c forms to IRS 1095-c: Employee statement to be provided to all Full Time employees Rose & Kiernan, Inc 5

6 Aggregated Companies If there are multiple companies, each with a different EIN# who have full time employees, each company will complete separate 1095-C forms for their respective employees Aggregation rules under IRC Section 414 will determine if there is a common control or common ownership Example: Company A owns 80% of companies B and C which therefore constitute one employer or an aggregated ALE group as referred to in Form 1094-C Companies A, B and C are referred to individually as ALE Members Rose & Kiernan, Inc 6

7 Companies with multiple divisions If there are multiple divisions but one EIN#, each division can complete separate 1095-C forms for their respective employees In completing the 1094-C form, one of the divisions will have to designate themselves as the authoritative transmittal Example: Company E has two divisions, F and G but all three have a common EIN#. They collectively are one ALE Rose & Kiernan, Inc 7

8 1095-C Part III Rose & Kiernan, Inc 8

9 1094-C Part I Rose & Kiernan, Inc 9

10 1094-C Part II Rose & Kiernan, Inc 10

11 1094-C Part III Rose & Kiernan, Inc 11

12 1094-C Part IV Rose & Kiernan, Inc 12

13 Filing deadlines Employee statements due by 1/31 of each year Furnishing employee forms electronically is allowed if employee has consented Filings with IRS due 2/28 if filed on paper, 3/31 if done electronically If the employer files more than C s, filing has to be done electronically Mandatory compliance date is 2016 for 2015 tax year Employers can file voluntarily in 2015 for 2014 tax year Rose & Kiernan, Inc 13

14 Cadillac Tax Cadillac tax goes into effect for all group plans, including self-funded plans for tax year The Cadillac tax is an excise tax paid by the coverage provider ; The insurer for fully insured plans The TPA or person responsible for administering a self-funded plan The employer for contributions to an HSA or MSA The employer is responsible for calculating the tax and notifying the liable entity and IRS. Rose & Kiernan, Inc 14

15 Coverage Provider The question of the coverage provider was posed by the IRS in their recent notice; Who is the person responsible for administering plan benefits since there is no definition in the law? Is it easy to identify the person if there are multiple entities such as a medical administrator and a separate Rx administrator? IRS has proposed two alternatives: 1. The person who does the day to day functions; claims, eligibility, customer service, etc. 2. The person who has ultimate authority and responsibility over administrative matters Rose & Kiernan, Inc 15

16 What is each Coverage Provider s Share of the Tax? Each coverage provider will owe the amount of tax relative to their share of the overall cost of the program For example, if the total Applicable Cost of the program is $14,000 and the health insurance is 80% of that, the health insurer will owe 80% of the Tax Rose & Kiernan, Inc 16

17 Cadillac Tax The amount of the tax is 40% of the aggregate value of a health plan which exceeds thresholds set by the ACA Thresholds are $10,200 for single coverage and $27,500 for other than single coverage Adjustments to the overall thresholds may be made prior to 2018 There will be adjustments to the threshold based on; Age and gender mix of the population Retiree status High risk profession including those engaged in the repair or installation of electrical or telecommunication lines Rose & Kiernan, Inc 17

18 Cadillac Tax Aggregate value of a health plan includes: Health insurance premium; active and retiree (Premium equivalents for self-funded plans) Contributions to health Flexible Spending Accounts Employer contributions to HSA s and MSA s Employee contributions to HSA s and MSA s if done pre-tax Certain on-site medical clinics HRA s (uses the COBRA premium) Rose & Kiernan, Inc 18

19 Age/Gender Adjustment Adjustment is applied to employer s entire covered population Adjustment is based on employer s combined ratio versus FEHBP standard plan Separate calculation for Self and Other than Self Based on the population covered on the first day of the Plan Year Rose & Kiernan, Inc 19

20 Responsibility For Calculating The Tax And Notifying Coverage Providers The employer has the responsibility for all of the calculations and notification to providers Self-funded plans are complicated by how the cost of applicable coverage is determined; prior to the plan year or after with runout Retrospective experience rated plans have a similar issue Rose & Kiernan, Inc 20

21 Deductibility of the Excise Tax The law stipulates that the tax is not a deductible expense If the coverage provider is reimbursed by the employer, that reimbursement, therefore, becomes taxable income to the coverage provider The coverage provider will then gross up the tax bill to the employer to cover the additional income tax they will have to pay This is less of an issue for tax-exempt organizations such as the not for profit carriers IRS is asking whether some or all of the income tax should be deductible from the cost of applicable coverage Rose & Kiernan, Inc 21

22 HRA s and HSA s Employer contributions will probably be pro-rated over the 12 months of the year even if all the money is available on the first day of the plan year This avoids having any one particular month exceed the dollar limit Rose & Kiernan, Inc 22

23 FSA s Employee contributions to an FSA will be counted as the greater of the salary election or the amount of total reimbursements Any amount that rolls over into the next year would not count towards that year s Applicable Cost Employer contributions to FSA s will be handled somewhat differently. The amount considered will be the total of the employee election plus any of the employer contribution which is used Example; employee contributes $1000, employer contributes $500 but employee uses $1300. $1300 is counted towards the Applicable Cost Rose & Kiernan, Inc 23

24 Multi-employer plans In a multi-employer plan, the plan sponsor, such as a Labor Union, is responsible for making the required calculations and providing the notices to the coverage providers Rose & Kiernan, Inc 24

25 1095 & 1094 Reporting Solutions Rose & Kiernan, Inc 25

26 1094 & 1095 Scope of Services Print & mail IRS Form 1095-C to employees (fully insured) Print & mail IRS Form 1095-B to employees (self-funded) E-File IRS Form 1094-C or 1094-B for employers Note: RKXchange will generate the 1095 s for all employees who were eligible for an offer of coverage in an employer sponsored health plan during the calendar year, regardless of whether an offer was actually made. This includes all ACA full-time employees and all Variable Hour employees who have completed their measurement period and were determined to be FT eligible status, as well as retirees and COBRA participants. We will also collect the data for Part III of the 1095-C form for self-insured companies. Rose & Kiernan, Inc 26

27 2015 Service Fees Service Federal E-File & Print/Mail $4.75 $3.95 $3.15 $2.50 $1.80 $1.40 Federal E-File & Print/Mail (Peak)* *Peak pricing one day only occurs on the print deadline (February 1, 2016) $5.75 $4.95 $4.15 $3.50 $2.80 $2.40 No Deadline and no commitment required by companies While many payroll firms and ACA compliance services providing 1095 filing are no longer taking additional customers, RKXchange has no deadline. Since our tool is self-service, companies do not need to commit now to using RKXchange; however, it is prudent to begin the data collection process as soon as possible and we recommend filing by January 20 th, NOTE: Submissions to file the 1095 may be completed up until 8:00 PM EST on February 1, Rose & Kiernan, Inc 27

28 1095 Reporting Start to Finish HR Classify Employees Add Medical Plans Establish ACA Periods Import Hours Import carrier enrollment <1095> User Override (optional) ACA Codes Added Complete Company Information Nelco API Data validation Review IRS forms Pay with credit card Authorize e-file Rose & Kiernan, Inc 28 a. E-file with IRS b. Mailed to Employees E-file acceptance status

29 1094 & 1095 Solution Key Filing requirements For the most part, filing the 1095 and 1094 is a data collection exercise; however, the items below represent the more difficult components that must be completed and will most likely pose challenges for companies: 1095-C Line 14: One of 9 codes is entered to track the offer to health insurance for each employee: (no offer, affordable offer, employee only offer, etc.) C Line 16: If applicable, one of 9 codes is entered for each month providing an explanation why penalty isn t applicable (not employed, in waiting/assessment period, enrolled, qualified for an affordability safe harbor, etc.) C: This form acts as a cover sheet for all the 1095-C filed, provides the employer an opportunity to certify eligibility for transition relief from assessment, and contains the count of 1095-C s file and the number of ALE employees employed each month. Rose & Kiernan, Inc 29

30 1094 & 1095 Solution What is involved in generating a 1095 and 1094 with RKXchange 1. Importing & categorizing employees including the ACA classification of Full-Time Eligible, Part-Time Ineligible, and Variable Hour. 2. Create the medical plans (This data is used to determine the correct code for Line 14 and Line 16). 3. Establish the measurement and administrative periods to allow the software to determine the codes for Line 14 and Line Importing the hours to determine which employees are full-time. 5. Import actual enrollment from the health insurance carriers (This data is used to determine the code for Line 16 and Part III for self-funded plans). 6. Complete the company information. This step includes the collection of the company information printed in the form such as the address, control group information and transition relief. ACA Software Training RKXchange will be conducting HR training webinars designed to help HR managers learn how to use RKXchange s software. Training will include managing variable hour eligibility, importing employees, classifying employees, importing hours, importing current enrollment, and managing ACA measurement periods. Rose & Kiernan, Inc 30

31 Questions Rose & Kiernan, Inc 31