PREPARE FOR AFFORDABLE CARE ACT NOW & AVOID PENALTIES!

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1 PREPARE FOR AFFORDABLE CARE ACT NOW & AVOID PENALTIES!

2 Ken Laks, Tax Specialist Eric Dielmann, Employee Benefit Specialist PRESENTED BY

3 WHY WORRY? Employer Mandate has Been Postponed until 2015! Guaranteed issue Marketplaces & Tax Subsidies still a go for 2014!

4 QUICK RECAP W-2 Reporting New Medicare Tax FSAs Employee Notice of Exchange

5 TIMELINE OF HEALTH CARE REFORM Changes taking place in 2013 : Increased Medicare tax for high-earning workers and self-employed taxpayers For tax years beginning after December 31, 2012, an additional 0.9% of Medicare tax applies to wages received with respect to employment in excess of: $250,000 for joint returns; $125,000 married taxpayers filing a separate return; and $200,000 in all other cases. The additional 0.9% also applies to self employment income in excess of the above figures. Employer s only responsible for withholding on employee wages. Example: Mr. and Mrs. Jones have wages of $300,000 and $275,000 respectively. The Medicare withholding was $4,800 and $4,213 respectively and calculated as follows: 1. $300,000 X 1.45% + $50,000($300,000-$250,000 Joint threshold) X 0.9% = $4, $275,000 X 1.45% + $25,000($275,000-$250,000 Joint threshold) X 0.9% = $4,213

6 TIMELINE OF HEALTH CARE REFORM Changes taking place in 2013 (continued) : On the joint return total wages are $575,000 which when multiplied by 0.9% create an additional tax of $2,925 less $675 already withheld makes an additional amount of Medicare tax due of $2,250. Should also be noted that the additional 0.9% is just employee tax, no employer contribution and in relation to self employment income tax the allowable above the line deduction does not include any portion of the 0.9% increase.

7 TIMELINE OF HEALTH CARE REFORM Changes taking place in 2013 (continued): Surtax on unearned income of higher income individuals For tax years beginning after December 31, 2012, an unearned income Medicare contribution tax is imposed on individuals, estates and trusts. For an individual, the tax is 3.8% of the lesser of either (1) net investment income or (2) the excess of modified adjusted gross income (MAGI) over the threshold amount which are the same thresholds as described under the Medicare wage tax increase on prior slide. MAGI does not include tax exempt bonds, veteran benefits and excluded gain from the sale of a residence. Example: For 2013, a single taxpayer has net investment income of $100,000 and MAGI of $220,000. The taxpayer would pay a Medicare contribution tax only on the $20,000 amount by which his MAGI exceeds his threshold amount of $200,000 since that is less than his net investment income of $100,000. Medicare contribution would be $20,000 X 3.8% = $760. Potentially taxpayers could get hit with Medicare tax on excess wages as well as investment income.

8 TIMELINE OF HEALTH CARE REFORM Changes taking place in 2013 (continued): Net investment income is defined as the sum of gross income from interest, dividends, annuities, royalties and rents (unless derived from active trade or business which taxpayer is active participant in and not passive). Higher threshold for deducting medical expenses For tax years beginning after December 31, 2012, unreimbursed medical expenses will be deductible by taxpayers under age 65 only to the extent they exceed 10% of adjusted gross income (AGI). For taxpayers reaching the age of 65 before the close of tax year, a 7.5% floor applies through Starting with tax years ending after December 31, % threshold applies to all.

9 PCORI FEE PATIENT-CENTERED OUTCOMES RESEARCH INSTITUTE FEE EFFECTIVE DATE Applies to policy and plan years ending after October 1, 2012 and before October 1, 2019 For calendar-year policies/plans, the fees would apply for calendar policy/plan years 2012 through 2018

10 PCORI FEE PATIENT-CENTERED OUTCOMES RESEARCH INSTITUTE FEE WHO HAS TO PAY Fully insured plans: most insurance carriers will pay this fee for its insured plans and a load will be included in their premium. An associated HRA and/or qualifying FSA are considered self-insured plans, which therefore must be paid by the employer /plan sponsor Self-funded plans: Self-funded plans must report on and pay this fee

11 PCORI FEE PATIENT-CENTERED OUTCOMES RESEARCH INSTITUTE FEE HOW MUCH IS THE FEE? Year 1 - $1 x number of covered individuals Year 2 - $2 x number of covered individuals Year 3 through Year 7 the applicable dollar amount is indexed based on increases in the projected per capita amount of the National Health Expenditures

12 PCORI FEE PATIENT-CENTERED OUTCOMES RESEARCH INSTITUTE FEE HOW DO YOU FILE?

13 WHAT ABOUT 2015? You can t simply wait. The employer mandate has been deferred not repealed!

14 EMPLOYER SIZE Less than or more

15 EMPLOYER MANDATE Must offer medical coverage that is affordable and provides minimum value to full time employees Subject to penalties Mandate is effect January 1, 2015 regardless of grandfathered status

16 PREPARE FOR 2015 EMPLOYER MANDATE Transitional relief for employersponsored plans that currently begin on a date other than January 1, if they comply upon the first day of their 2014 plan year. Provided their existing plan was: Offered to at least one third of the employer s employees during the most recent open enrollment, OR The current plan covers at least one quarter of the employer s employees

17 REMEMBER! FULL TIME : Employees who work an average of 30 hours per week

18 DETERMINING FULL-TIME EMPLOYEES Determine the full time status of current and new employees who work variable hours Methods for calculating full time status Full time equivalent (FTE) is the method of calculating the impact your part time employees have on determining large group status

19 REMEMBER! AFFORDABILITY For an individual who earns within the Federal Poverty Level, an Employee s single premium contribution has to be equal to or less than 9.5% of either: An employee s Federal taxable wages (Box 1 on W2), or An employee s monthly wages (hourly rate x 130 hours per month)

20 PLAN AFFORDABILITY

21 REMEMBER! Minimum Value: A plan must pay 60% of the actuarial value of covered health services

22 REMEMBER! Waiting Period: Employers cannot have more than a 90 day waiting period after an employee becomes eligible for coverage

23 EMPLOYER MANDATE PENALTIES Penalties for not offering any coverage: $2000 per FTE (minus first 30) Non-Tax Deductible!

24 EMPLOYER MANDATE PENALTIES Penalty for employers offering a plan that is not affordable or does not provide minimum value is the lesser of: $3,000 per FTE receiving the tax credit for exchange coverage, or $2,000 per FTE (minus the first 30) Non-Tax Deductible!

25 EMPLOYER MANDATE PENALTIES There are no tax penalties for employers with less than 50 full-time employees, or full time equivalents Employers with a non January 1st plan renewal will not incur any penalties if they comply upon the first day of their 2014 plan year. Employers cannot change a January 1 effective date to take advantage of this relief

26 ROLLING REQUIREMENTS Keep these requirements on your radar. They impact plans annually or as new plan years begin throughout year: Medical Loss Ratio Summary of Benefits and Coverage & Glossary of Health Coverage and Medical Terms IRS Reporting