Employer Mandate Tax and Reporting Requirements under the Affordable Care Act

Transcription

1 Employer Mandate Tax and Reporting Requirements under the Affordable Care Act OSBA School Law for Treasurers Workshop October 16, 2015 Gregory J. Viviani Squire Patton Boggs (US) LLP

2 Overview Employer Mandate tax and Related Reporting requirements Effective in 2015 Delayed until 2016 for certain small employers! Less than 100 Full Time Equivalent Employees in 2014! No workforce reduction in 2014 with the intention of meeting this test! Health coverage offered as of February 9, 2014 must not be eliminated or materially reduced through December 31, 2015! Delay is through 2015 Plan Year if non-calendar year plan as of February 9,

3 Employer Mandate Tax Overview Generally applies in 2015 to employers with 50 or more FTEs (2016 for certain employers with less than 100 FTEs). Two ways to be taxed Tier 1 Employer does not offer a plan that has minimum essential coverage to 95% of Full-Time Employees and their dependents! Annual tax of $2,000 for each Full-Time Employee in excess of 30 Full-Time Employees.! Tier 2 Tier 1 requirement is met - potential annual tax of $3,000, but only for certain Full-Time Employees who elect to buy coverage under an Exchange. Note: Taxes are actually calculated each month. Monthly tax amounts are $ and $

4 Employer Mandate Tax - Applicable Large Employers Applicable Large Employer Test. Determined on a calendar year basis Average of 50 full-time employees on business days in the preceding calendar year.! Controlled Group Rules. Apply solely for purposes of counting to 50 full-time employees. Code Section 414(b), (c), (m) and (o). This aggregates all employees within a controlled group of corporations or trades or businesses under common control.! Employees working outside of the U.S. are not counted. Thus, small U.S. operations of foreign companies may be exempt. 4

5 Employer Mandate Tax- Applicable Large Employers Predecessor Employers. Rules will require counting the employees of predecessor employers. New Employers. If employer not in existence for all of the preceding calendar year, base it on reasonable expectations for the current year. 5

6 Employer Mandate Tax - Applicable Large Employers Calculating 50 Full-Time Employee Equivalents (FTEs) Note: this is the method for determining if the employer has less than 100 employees and is exempt for Count all full-time employees. Then add in part-time employees as FTEs. Part-time employees are credited as fractions of FTEs.! Calculations are done monthly.! An employee is full-time for a month if the employee has 130 or more hours.! For all part-time employees, add their total hours for the month and divide by 120. The result is the FTE equivalent that is to be added in to the full-time employee total for that month.! For employees whose hours are not counted, use 8 hours per day worked or 40 hours per week worked. 6

7 Employer Mandate Tax- Applicable Large Employers Once the FTE total is determined for each month in the prior calendar year, add all months together, and divide by 12.! If the result is 50 or more, the employer is an Applicable Large Employer for the current year.! It If the result is less than 50, the employer is NOT an Applicable Large Employer for the current year. 7

8 Employer Mandate Tax- Applicable Large Employers Seasonal Worker Exception (IRS Proposal). Employer s workforce is over 50 FTEs for not more than 120 days in the preceding calendar year (including seasonal employees)! Can use four calendar months instead of 120 days! Days and months need not be consecutive All employees in excess of 50 during that time were seasonal workers.! Seasonal relates to the nature of the work throughout the year! Holiday retail workers are seasonal! Reasonable good faith interpretations 8

9 Determination and Imposition of the Tax The tax will be applied separately to each member of a controlled group of companies. However, there is no liability of other controlled group members for nonpayment of the tax. The tax will be applied to employers that otherwise are disregarded entities for tax purposes. 9

10 Full-Time Employee Determinations The tax only applies with respect to employees who are fulltime employees. A full-time employee is one who averages 30 hours or more per week. This requirement is separate from the FTE calculation that is done to determine Applicable Large Employer status. 10

11 Full-Time Employee Determinations Two Options Monthly Measurement Method! Measure in real time each month Look-Back Measurement Method! The employer looks back to a previous Standard Measurement Period to determine hours of service and Full-Time Employee status.! The result (full-time or not full-time) is applied going forward for a Stability Period. Detailed Discussion is provided below. 11

12 Employer Mandate Tax Tier 1 No Plan Offered Potential annual tax is $2,000 for each Full-Time Employee in excess of 30. To avoid the tax, the must offer a medical plan that provides minimum essential coverage (MEC) to all Full-Time Employees and their dependents.! This provision of the law will be satisfied if coverage is offered to 95% of the full-time employees. For 2015, the percentage is reduced to 70%. The 30 employee exemption is split among the members of a controlled group of corporations or other organizations, based on their Full-Time Employee counts. For 2015, the exemption number is raised to be the first 80 employees Grandfathered Plans are subject to the tax. They may avoid the tax only if they have minimum essential coverage. 12

13 Employer Mandate Tax Tier 1 No Plan Offered Dependent Issues The term dependent only includes an employee's children under age 26.! Biological children! Adopted children and children placed for adoption Coverage does not have to be offered to step-children or foster children Coverage does not have to be offered to spouses Special rules apply for children who are not U.S. citizens or U.S. nationals. They must reside in the U.S. or a contiguous country. 13

14 Employer Mandate Tax Tier 1 No Plan Offered Minimum Essential Coverage Generally, a comprehensive set of medical benefits Includes prescription drug coverage Does not include dental or vision coverage 14

15 Employer Mandate Tax Tier 2 No Plan Offered $3,000 annual tax for certain employees who opt out of the employer plan and buy coverage through the Exchange. Calculated monthly - $ per month. The employee must be a Full-Time Employee Based on the employee s household, the employee s household income must be over 100% of the poverty line (now 133% in certain states) and not over 400% of the poverty line It is only the employee s coverage that is examined for the second tier tax. The tax is not triggered if dependents are covered under an Exchange or under a spouse s plan. 15

16 Employer Mandate Tax Tier 2 No Plan Offered 2015 Poverty Line Family Baseline Size Amount 400% Limit 1 $ 11,770 $ 47,080 2 $ 15,930 $ 63,720 3 $ 20,090 $ 80,360 4 $ 24,250 $ 97,000 5 $ 28,410 $113,640 6 $ 32,570 $130,280 7 $ 36,730 $146,920 8 $ 40,890 $163,560 16

17 Employer Mandate Tax Tier 2 Plan Offered 2015 Poverty Line Medicaid Expansion States Family Baseline Expansion Sate Size Amount 133% Limit 1 $ 11,770 $ 15,654 2 $ 15,930 $ 21,186 3 $ 20,090 $ 26,719 4 $ 24,250 $ 32,252 5 $ 28,410 $ 37,785 6 $ 32,570 $ 43,318 7 $ 36,730 $ 48,850 8 $ 40,890 $ 54,383 17

18 Employer Mandate Tax Tier 2 Plan Offered Safe Harbor Plan Design to avoid the tax The Employer plan pays 60% of the plan costs! The minimum value requirement The employee is not charged more than 9.5% of the employee s household income for the coverage.! The affordability requirement. Squire Sanders (US) LLP / 18

19 Employer Mandate Tax Tier 2 Plan Offered Three Safe Harbor methods for Affordability The amount being charged to the employee does not exceed 9.5% based on either: W-2 wages Standard Rate of Pay Poverty Line 19

20 Employer Mandate Tax Tier 2 Plan Offered Affordability Safe Harbor W-2 Wages Cost to the employee per month does not exceed 9.5%, based on the employee's taxable wages in Box 1 of the Form W-2. This determination is made after year end Note: Box 1 of the W-2 is reduced by pre-tax salary reductions (e.g. under a Section 401(k) Plan or Section 125 plan) Examples Annual Salary 9.5% Monthly Amount $20,000 $1,900 $ $30,000 $2,850 $ $50,000 $4,750 $ $100,000 $9,500 $

21 Employer Mandate Tax Tier 2 Plan Offered Affordability Safe Harbor Standard Rate of Pay Cost to the employee per month does not exceed 9.5%, based on the employee's standard rate of pay for the month.! Salaried employees use the base salary.! Standard rate of pay for an hourly employee is the hourly wage rate x 130 hours. Examples Hourly Rate x % $8.00 $1,040 $98.80 $10.00 $1,300 $ $15.00 $1,950 $ $25.00 $3,250 $

22 Employer Mandate Tax Tier 2 Plan Offered Affordability Safe Harbor Poverty Line 9.5% x 1/12 x the federal poverty line (2014 = $11,670) = $92.38 per month Medicaid Expansion States - 9.5% x 1/12 x the federal poverty line (2014 = $15,521) = $ per month 22

23 Full-Time Employee Determinations A special look back rule is provided for determining Full- Time Employee status The employer looks back to a previous Standard Measurement Period to determine hours of service and Full-Time Employee status. The result (full-time or not full-time) is applied going forward for a Stability Period.! Example: Measure hours from July 1, 2014 to December 31, Employee s status as full-time or not full-time is fixed from January 1, 2015 to June 30, Note: This only applies for purposes of administering the employer mandate tax. It does not affect an employee s entitlement to premium credits or cost-sharing reductions at an Exchange. 23

24 Full-Time Employee Determinations Permitted Employee Categories Salaried and Hourly Bargaining and Non-bargaining Separate collective bargaining agreement groups Primary places of employment in different states 24

25 Full-Time Employee Determinations Monthly Measurement Method Calculate in real time for each month in the year 130 Hours of Service = Full-Time Employee Option to use weeks beginning or ending in a month! 4 weeks 120 Hours = Full-Time Employee! 5 weeks 150 Hours = Full-Time Employee Advantage Simplicity of recordkeeping Disadvantage Might not be able to make Plan eligibility adjustments in advance to solve a problem with the Tier 1 Tax. Until the month is over, the employer may not know if the Plan was offered to 95% or more of the Full-Time Employees. 25

26 Full-Time Employee Determinations Monthly Measurement Method Special Rules for New Hires who are Full-Time employees! Do not have to be counted for purposes of the tax until the first day of the month after being employed for three months. Example: Hired January 15, do not count until May 1 Conditions:! The employee is eligible to participate in the plan, except for satisfying a permissible waiting period. Note: This apparently means that the employee s position of employment is one normally covered by the plan.! The employee is offered coverage with minimum value by the first day of the month after being employed for three months 26

27 Full-Time Employee Determinations Hours Counting Rules Count all hours with all members of the same controlled group Do not count hours rendered outside of the United States Leaves of Absence Paid leaves Credit hours based on paid time Unpaid Special Leave Either ignore the leave time in calculating average hours or give credit for hours during the leave! USERRA (federal law military leave)! FMLA (Family and Medical Leave Act)! Jury duty Other unpaid leaves zero hours 27

28 Full-Time Employee Determinations Salaried Employees - Hours not Counted Choices Use actual hours worked from records of hours worked 8 hours per day worked 40 hours per week worked IRS still considering special rules for various professions. Employers are directed to use reasonable methods. The preamble provides some suggested rules for: Adjunct Faculty 2.25 hours per class + hours for required time outside of class (e.g. required office hours or faculty meetings) Layover hours for airline employees 8 hours per day On-call hours. Must count if paid, required to be on premises of employer or employee s personal time is substantially restricted. 28

29 Full-Time Employee Determinations Monthly Measurement Method Breaks in Employment - Terminations/Rehires General Rule Treat as a new employee if rehired after 13 consecutive weeks with no hours of service Optional Rule for employees with less than 13 weeks of service. Can treat a break of less than 13 consecutive weeks with no hours of service as a termination if:! The break is at least 4 weeks! Number of weeks with no hours is more than number of weeks previously employed This rule is modified to require 26 consecutive weeks for employers that are educational organizations. 29

30 Full-Time Employee Determinations Breaks in Employment - Terminations/Rehires International Transfers Expats - Can treat as terminated if the transfer is outside of the U.S. and is anticipated to be indefinite or for at least 12 months. No Hours are counted for services rendered outside of the U.S. Inpats May treat as a new hire, depending on the number of week abroad treated as weeks with no hours. 30

31 Full-Time Employee Determinations Look-Back Measurement Period Measure a past period of employment to determine Full-Time Employee status presently (the Look-Back Period) Apply the result to a following period of time (the Stability Period). The result does not change in the Stability Period no matter how many hours the employee works. Advantage Allows an employer to always have certainty as to who its Full-Time Employees are. Avoid an inadvertent violation of the Tier 1 Tax that might occur by not covering 95% or more of the Employees who for a month actually average 30 or more hours of service. Disadvantage - Very complicated rules that require extensive recordkeeping and hours tracking. Might only do for hourly employees and not salaried employees. 31

32 Full-Time Employee Determinations Look-Back Measurement Period Standard Measurement Period Minimum 3 months Maximum 12 months Note: Looking at calendar year 2014 for purposes of Stability Period Minimum 6 months Maximum 12 months Not shorter than Standard Measurement Period Administrative Period Not longer than 90 days Between Standard Measurement Period and Stability Period. Use to enroll or dis-enroll employees. 32

33 Full-Time Employee Determinations Look-Back Measurement Period Example 1 Assume Calendar Year Plan Year Standard Measurement Period December 1, 2013 to November 30, Administrative Period December 1, 2014 to December 31, Stability Period January 1, 2015 to December 31, 2015 Example 2 Assume October 1 Plan Year Standard Measurement Period September 1, 2013 to August 31, 2014 Administrative Period September 1, 2014 to September 30, Stability Period October 1, 2014 to September 30, Note: The mandate tax is determined on a monthly basis and is reported and paid on a calendar year basis, irrespective of the timing of the Stability Period. 33

34 Full-Time Employee Determinations Look-Back Measurement Period New Hires - Categories of employees: Seasonal Customary annual employment is six months or less Full-Time Employee Employee is not seasonal and a reasonable determination is that the employee will average 30 hours per week. The expected length of employment is not considered. All facts and circumstances. Treat as Full-Time Employee immediately. Variable Hour Employee (Part-Time) Not seasonal and cannot reasonably be determined to be a Full- Time Employee. 34

35 Full-Time Employee Determinations Look-Back Measurement Period New Hires Full-Time Employee Determinations After Full-Time Employee is employed through a full Standard Measurement Period, use the Plan s regular Stability Period rules. Do not have to be counted for purposes of the tax until the first day of the month after being employed for three months. Example: Hired January 15, do not count until May 1 Conditions:! The employee is eligible to participate in the plan, except for satisfying a permissible waiting period. Note: This apparently means that the employee s position of employment is one normally covered by the plan.! The employee is offered coverage with minimum value by the first day of the month after being employed for three months 35

36 Full-Time Employee Determinations Look-Back Measurement Period Special Rules for New Hires If not Full-Time Employees Initial Measurement Period 3 months to 12 months. Do not have to be calendar months. Measure from start date or following month. Average hours worked over the entire period to determine 30 hours per week average. Administrative Period maximum 90 days. However, cannot end later than last day of first month that begins after one-year anniversary of date of hire (not longer than 13 months after date of hire). Stability Period! 6 month minimum! Not shorter than Initial Measurement Period Note: A longer Initial Measurement Period (e.g. 12 months) may effectively work to exclude limited duration employees and seasonal employees who are not hired next season. 36

37 Full-Time Employee Determinations Look-Back Measurement Period Special Rules for New Hires Not Full-Time Employees Transition onto rules for Ongoing Employees If a full-time employee during Initial Measurement Period:! Keep full-time classification during entire following Initial Stability Period.! Test under regular rules for first Standard Measurement Period fully employed in. If not full-time, do not change until end of the initial Stability Period. If not a full-time employee during Initial Measurement Period:! Must test in the first Standard Measurement Period fully employed. If full-time, immediately switch over to the ongoing employee rules 37

38 Full-Time Employee Determinations Look-Back Measurement Period Example - Variable Hour Employee hired September 1, 2014 Calendar year plan Standard Measurement Period - 12 months Stability Period 12 months New Hire Initial Measurement Period - 12 months New Hire Stability Period - 12 months Measure hours September 1, 2014 to August 31, 2015.! If not full-time: " Determination is good through December 31, " Measure hours from January 1, 2015 to December 31, Apply results from January 1, 2016 to December 31, 2016.! If full-time: " Determination applies through August 31, " Measure hours from January 1, 2015 to December 31, 2015 " Apply results on from September 1, 2016 to December 31,

39 Full-Time Employee Determinations Look-Back Measurement Period Payroll Period Rules If payroll periods are weekly, bi-weekly or semi-monthly Options to either: Include all payroll periods ending in the measurement period Include all payroll periods beginning in the measurement period Calculating the 30 Hour Per Week Average Regulations are not clear If payroll is weekly and payroll periods ending or beginning in the determination period are to be used, use the number of weeks for the payroll periods included in the calculation If payroll is semi-monthly, or the determination period is simply stated in months, it appears that an average of 130 hours per month (1,560 per year) will be considered to be an average of 30 hours per week. 39

40 Full-Time Employee Determinations Look-Back Measurement Period Special Unpaid Leave Rules Family and Medical Leave Act (FMLA) Uniformed Services Employment and Reemployment Rights Act (USERAA) Jury duty When calculating average hours, exclude these periods or credit hours based on the average hours. Special Rules for Educational Organizations 40

41 Full-Time Employee Determinations Look-Back Measurement Period Special Rules for Educational Organizations Apply if: An Employee has an Employment Break Period (i.e. 4 consecutive weeks with no hours of service or special unpaid leave), and The Employee is not treated as a new employee when rehired unless the employee had no hours of service for 26 consecutive weeks When calculating average hours, exclude an employee s Employment Break Period unless the employee is treated as a new employee when rehired. Example: A teacher leaves on June 6 and returns to work August 5. The period between June 6 and August 5 is an Employment Break Period that is excluded when calculating average hours. 41

42 Employer Mandate Tax IRS Reporting Requirements for Employers Applies for calendar year 2015 (delayed until 2016 for certain small employers under 100 FTEs) Applies to Applicable Large Employers who may be subject to the mandate tax 42

43 Employer Mandate Tax IRS Reporting Requirements for Employers Reporting to the IRS will include: A certification as to whether an employer plan that has minimum essential health benefits is offered to all full-time employees and their dependents If so, certify to the following:! The months such coverage was provided! The monthly premium for the lowest cost option! The employer s share of the total plan costs! The duration of any waiting period in the plan 43

44 Employer Mandate Tax IRS Reporting Requirements for Employers Report the following: The number of full-time employees for each month in the year For each full-time employee:! Name, address and social security number (or other taxpayer ID number)! Number of months the employee was covered under the plan. 44

45 Employer Mandate Tax IRS Reporting Requirements for Employers Report by the following January 31, to each employee that is to be included in the IRS report: The name and address of the employer Contact information at the employer The information regarding plan coverage that is required to be reported to the IRS 45

46 IRS FORMS FOR REPORTING IF THE PLAN IS INSURED The Insurer Completes Form 1095-B to report to the employee the insurance coverage provided! Issue the Form to the employee by January 31! File all Form 1095-Bs with the IRS (using Form 1094-B) The Employer - Must complete Form 1094-C and Form 1095-C! File it with the IRS by February 28 (March 31 if filing electronically) The Employer - Must complete Part II of Form 1095-C! Issue the Form to the employee by January 31! File it with the IRS by February 28 (March 31 if filing electronically) using Form 1094-C to do so 46

47 IRS FORMS FOR REPORTING IF THE PLAN IS SELF-INSURED AND THE EMPLOYER IS A SMALL EMPLOYER EXEMPT FROM THE TAX The Employer Completes Form 1095-B to report to the employee the insurance coverage provided! Issue the Form to the employee by January 31! File all Form 1095-Bs with the IRS (using Form 1094-B) 47

48 IRS FORMS FOR REPORTING IF THE PLAN IS SELF-INSURED AND THE EMPLOYER IS A LARGE EMPLOYER THAT IS SUBJECT TO THE TAX The Employer Form 1095-C - Completes all Parts of the Form to report to the employee the insurance coverage provided! For all full-time employees and any part-time employees who enrolled for the coverage! Issue the Form to the employee by January 31! File all Form 1095-Cs with the IRS (using Form 1094-C) The Employer - Must complete all Parts of Form 1094-C! File it with the IRS by February 28 (March 31 if filing electronically) 48

49 FORM 1095-C Part II, Line 14 The Offer of Coverage Code 1A - An offer of affordable coverage Monthly cost for single coverage is not more than $92.38 Code 1E - An offer of coverage - Monthly cost for single coverage exceeds $92.38 Code 1G Employee was NOT a full-time employee for the entire year 49

50 FORM 1095-C Part II, Line 16 Section 4980H Safe Harbor Codes Code 2A - Not Employed in a month Code 2B! Not a full-time employee and not enrolled! Full-time employee, terminated employment and lost coverage before the end of the month Code 2C Employee is enrolled for the coverage for the whole month. Always use this Code if it applies. 50

51 FORM 1095-C Part II, Line 16 Section 4980H Safe Harbor Codes Code 2D! Employee is a new full-time employee in a waiting period of not more than 90 days, and will be covered after the waiting period! Use for the month an employee is hired, if the employee is hired after the first day of a calendar month! The employee is not full-time when hired and is in an Initial Measurement Period Examples are new subs or other new part-time employees 51

52 FORM 1095-C Part II, Line 16 Section 4980H Safe Harbor Codes Codes 2F and 2G These Codes are only used if the Employee is a full-time employee for a month and is not enrolled for coverage.! 2G Use this code if employee single coverage does not cost more then $92.38 per month! 2H - If 2G does not apply, use 2H to determine if the offer of coverage was affordable based on the employee s rate of pay. See Slides for examples of rate of pay calculations: Hourly Rate x 130 x 9.5% Monthly Base Salary x 9.5% 52

53 FORM 1094-C Lines 18 and 20 These should be the same number for a school district. Simply the total 1095-Cs that are being filed. Line 19 Authoritative Transmittal Check yes. Line 21 ALE Aggregated Groups A school district would check no 53

54 FORM 1094-C Lines 22 and (Part III of the Form 1094-C) These lines are used by an employer to certify to the IRS whether it has avoided the Tier 1 Tax by making an offer of minimum essential coverage to 95% or more of its full-time employees (70% ormore in 2015).! Line 23 is the standard method of certifying compliance for the entire year. Most schools should be able to use this line.! Line 22 has several special rules and transitional rules. Most schools will not need to worry about them. 54

55 FORM 1094-C Lines (Part III of the Form 1094-C) This is the standard way of certifying compliance for the entire year.! Column (a) - Most schools should be able to Check Yes in the All 12 months box on Line 23! Column (b) has to be filled out for each month Use lines to report the total number of full-time employees in each month. These will be employees classified as full-time from a lookback period and any new hires who are full-time employees (after any waiting period).! Column (c) has to be filled out for each month Use lines to report the total number of employees in each month, counting all employees, whether or not they are full-time.! Column (d) A school can leave this blank. 55

56 FORM 1094-C Lines (Part III of the Form 1094-C) Column (e)! Code A use this is the employer is relying the exemption for 2015 that applies for employer that have 50, but not more than 99 full-time employee equivalents.! Code B Use Code B to indicate if the employer is relying on other exemptions. Code B should be checked if the offer of coverage was not made to 95% or more of the full-time employees in 2015, and the employer is relying on the 70% rules for

57 Employer Mandate Tax and Reporting Requirements under the Affordable Care Act OSBA School Law for Treasurers Workshop October 16, 2015 Gregory J. Viviani Squire Patton Boggs (US) LLP