Source: http://freedombenefits.org/blog/page/9/
Timestamp: 2019-12-12 16:02:42
Document Index: 482086514

Matched Legal Cases: ['§106', '§2510', '§125', '§ 125', '§ 125', '§ 36', '§1', '§1', '§ 1301', '§125', '§ 125', '§125', '§125', '§125', '§ 125', '§54', '§2590', '§147', '§ 125', '§ 132']

Blog – Page 9 – Freedom Benefits
Five Strategies to Avoid Shared Responsibility Payments under the Affordable Care Act
If your business is worried about the potential cost of shared responsibility payments in 2015, you are not alone. Perhaps your company does not offer group health insurance now or your employee health plan does not meet the minimum essential coverage requirements under the Affordable Care Act (ACA). Now with only 90 days until the new tax penalty becomes effective, mid-sized employers are scrambling to find an affordable strategy. Transitional relief provisions help businesses in 2015, especially those with 50-99 employees. Employers in low margin industries like retail and food service have already begun testing these defensive cost control strategies so we now have a limited amount of experience to make these suggestions.
The basic underlying requirement is that beginning January 1, 2015 an employer with 100 or more full time employer’s must offer health insurance to avoid the shared responsibility payment. That health coverage must: a) be available to 70% of full time employees, b) meet minimum value rules, and c) cost less than 9.5% of an employees total household income. The rules get much tougher in 2016, encompassing employers with 50 or more employees and requiring coverage for 95% of employees and dependents. The penalty calculation formula also changes in 2016 resulting in a hike in the employer’s penalty.
The employer shared responsibility penalty is large enough to scare any small business owner. The minimum employer shared responsibility penalty for an employer who provides no health coverage in 2015 is $40,000 for a company with 100 employees. The penalty rises by $2,000 for each employee above that. In 2016 the penalty increases sharply due to the expiration of transition rules that are not discussed in this article. An alternate penalty is available if the employer provides some health coverage but this coverage fails one or more of the requirements of the law. In most cases the alternate penalty is lower than the regular employer shared responsibility payment.
This checklist below assumes that your goal is to reduce the maximum cost of ACA compliance to dollar amount that is less than the amount of the penalty1 and that you have already determined that your firm is large enough to trigger the shared responsibility payment requirement. It also assumes that the price of minimum value group health insurance is greater than the calculated tax penalty; that providing the plan as proposed by ACA would be the highest cost approach and is not practical for the employer.
Offer employee health coverage at the maximum price of 9.5% of an employee’s total household income.2 Employers can stipulate and control the price of employee health coverage by combining insurance with a Health Reimbursement Arrangement (HRA) or Health Savings Account (HSA), or both. Early experience indicates that few employees will enroll in coverage at that highest price allowed under the law, especially in lower wage industries. The business is not penalized on the employees who are offered coverage but decline to enroll.
Change to part time employees so that insurance is not required. Many firms have already adopted this approach by reducing work schedules below 30 hours per week.
Use independent contractors to outsource tasks formerly handled by employees.
Turn employees into their own self-employed business segments.
Offer mini-med insurance. This is still allowed in most states until 2015 and is less expensive than Obamacare plans. It covers basic health expenses but not catastrophic or chronic treatment claims. This strategy preserves the employees’ rights to obtain primary coverage through the exchange. In this case the alternate penalty is $3,000 for each employee who receives a subsidy on the exchange. In most cases this will be substantially less than the regular shared responsibility payment.3
Business managers may conclude that none of the options are really attractive. We understand that implementation of the Affordable Care Act will take a toll on almost everyone except for those who receive subsidized coverage.
Finally, If you use any of these cost-saving approaches, it makes sense to pair your strategy with an employee health benefits consulting service. Make sure it is an independent service, not affiliated with the provider of your health insurance. find an independent adviser whose only interest is advising your employees on the best coverage options and how to pay for it. Remember that ACA implementation is challenging for everyone and it makes sense to provide someone who can bear the bulk of employee concerns with their changing coverage. This service costs less than 10% of the penalty (because not all of the employees actually use it) but goes a long way toward rebuilding employee financial confidence.
1When most employees earn less than 400% of federal poverty level, as is common in retail, food service, agriculture and other industries, it still makes sense to just pay the penalty. You’ll be doing your employees a huge financial favor because they will qualify for larger subsidies and, as a result, enjoy lower cost coverage through the exchange than the employer could ever offer. Many of the nation’s major employees have already selected this option and more are likely to follow.
2Since employers generally do not know an employees total household income, most employers will rely on a safe harbor provision where the calculation uses the employee’s income only. However, there is no prohibition on using the employee’s total household income as stated in the law. This is best accomplished by adopting a health care planning service as described in the past paragraph of the article.
3This cost savings concept is well illustrated in graphical format in an Employer Mandate Fact Sheet by Cigna.
HRAs in the new health insurance marketplace
Summary: The individual mandate provision of the Affordable Care Act is likely to trigger more small business owners to offer financial help to employees with the cost of required health insurance, but this reaction may not be simple. Coverage will be available through insurance exchanges. Traditional employer funding approaches like Health Reimbursement Arrangements (HRA) and Flexible Spending Accounts (FSA) are both limited by the Affordable Care Act. A combination of health plans possibly including a HRA, FSA, Health Savings Account (HSA) and Medical Spending Reimbursement Plan (MERP) may be used in combination to provide best results. Freedom Benefits offers these individually or in combination for free or at little cost to small businesses through the payroll system. Administration and tax treatment regulations do not change substantially for employers in 2014 but employees may see some or all their employer-paid health insurance benefits become taxable in 2014.
9/13/2013 – Small business owners typically wish to enable their employees to access the best value in health insurance that is available in their local market and then often wish to help cover part of the cost of that insurance. In the past, this goal was accomplished with a two-step strategy:
The first step is to arrange for the employees to have access to a well-qualified professional enroller for personal assistance in finding the best plans on the online health insurance marketplace.
The second step to set up a tax-qualified Health Reimbursement Arrangement (HRA) to allow the employer to pay for part of the coverage. This is a tax-qualified employee benefit plan that, if designed and administered properly, allows employer contributions to be deductible by the employer without becoming taxable wages to the employee.
Beginning in 2014 HRAs may no longer be used to integrate with essential health benefit plans offered through the insurance exchanges. HRAs will likely grow in popularity as the preferred method of providing excepted benefits to employees like limited medical insurance. The insurance and employee benefit market is making adjustments to ensure that products and services for small business may continue to enjoy tax-favored status. Most HRA plans will be modified to comply with the new laws and other plans will provide health benefits that are taxable to employees. Best results may be obtained by combining a HRA with other plans like a Flexible Spending Account (FSA) and Health Savings Account (HSA).
Freedom Benefits offers these plans individually or in combination without charge to small businesses that use affiliated insurance services.
This page is an annotated version of U.S. Department of Labor Technical Release No. 2013-03 released September 13, 2013. The author’s annotations highlighted in yellow below are meant to emphasize provisions that commonly trigger questions from small business owners and clients of Freedom Benefits who plan to have employees use the individual health insurance exchanges offered by the federal government, state governments as well as private commercial health insurance companies, and then help employees pay for the cost of that health insurance with employer funds. The comments envision the situation where the employees enroll individually on an exchange rather than in a group insurance plan.
Freedom Benefits offers free HRA, HSA, FSA, MERP and other health plan setup, payroll integration and claim administration for small businesses that take this approach and use the Members’ Insurance Exchange (or their soon-to-be-announced new private insurance exchange service) for insurance coverage in 2014. Details of this offer have not been announced but will be posted on this site as soon as possible shortly after the new health insurance exchange system launches. In the meanwhile, please email tonynovakcpa@gmail.com for more information.
This Technical Release provides guidance on the application of certain provisions of the Affordable Care Act(1) to the following types of arrangements: (1) health reimbursement arrangements (HRAs), including HRAs integrated with a group health plan; (2) group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, such as a reimbursement arrangement described in Revenue Ruling 61-146, 1961-2 CB 25, or arrangements under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee (collectively, an employer payment plan); and (3) certain health flexible spending arrangements (health FSAs). This Technical Release also provides guidance on section 125(f)(3) of the Internal Revenue Code (Code) and on employee assistance programs or EAPs.
Novak: Internal Revenue Code section 105 is the provision of the tax code that allows a tax deduction for the employer’s payment of a health insurance premium as an ordinary business expense. This is not changed by the Affordable Care Act. Because of this, some reference to the term “Section 105 medical reimbursement plan” or “MERP” may become popular in the small business market. This simply means a plan that makes tax-deductible employer payments for employee health expenses. Unless otherwise qualified, the amount of the benefits paid under a Section 105 plan are taxable to the employees.
Revenue Ruling 61-146 holds that if an employer reimburses an employee’s substantiated premiums for non-employer sponsored hospital and medical insurance, the payments are excluded from the employee’s gross income under Code §106.
Novak: Most of the following changes in tax treatment discussed in this regulation pertain to IRC section 106, the tax treatment of the payment with regard to the employee.
This exclusion also applies if the employer pays the premiums directly to the insurance company. An employer payment plan, as the term is used in this Technical Release, does not include an employer-sponsored arrangement under which an employee may choose either cash or an after-tax amount to be applied toward health coverage. Individual employers may establish payroll practices of forwarding post-tax employee wages to a health insurance issuer at the direction of an employee without establishing a group health plan, if the standards of the DOL’s regulation at 29 C.F.R. §2510.3-1(j) are met.
Novak: It is always possible to set up an after-tax employee health plan without the restrictions imposed by this body of tax and labor law. Non-adherence to the federal requirements does not destroy the employee health plan, it only takes away it’s tax benefits. The more challenging goal, however, is usually to have a successful pre-tax employee health plan that meets the employer’s and employees’ requirements.
Novak: Flexible Spending Accounts (FSAs) are still a viable option for small firms, but employees are limited to contributions of $2,500 per year. Also, the use it or lose it” provision remains, detracting from the usefulness of these plans. FSAs must be voluntary salary reduction plans and do not allow contributions from the employer.
Novak: Most of the innovation in insurance and non-insured employee health plans for small businesses over the coming years is expected to be in “excepted benefits”, meaning that most of these Affordable Care Act provisions will not apply.
Novak: This dollar limitation provision is the key that makes most traditional HRAs ineffective in 2014.
On January 24, 2013, the Departments issued FAQs that address the application of the annual dollar limit prohibition to certain HRA arrangements (HRA FAQs).(6) In the HRA FAQs, the Departments state that an HRA is not integrated with primary health coverage offered by an employer unless, under the terms of the HRA, the HRA is available only to employees who are covered by primary group health plan coverage that is provided by the employer and that meets the annual dollar limit prohibition.
Novak: This describes an HRA that runs alongside an employer-sponsored group insurance plan. This strategy is popular today but will remain viable only in local markets where a competitive small group insurance market remains after 2014. We have no way of predicting this in advance.
Further, the HRA FAQs indicate that the Departments intend to issue guidance providing that:
Answer 8: No. The Departments intended for this exemption from the annual dollar limit prohibition to apply only to a health FSA that is offered through a Code §125 plan and thus subject to a separate annual limitation under Code § 125(i). There is no similar limitation on a health FSA that is not part of a Code § 125 plan, and thus no basis to imply that it is not subject to the annual dollar limit prohibition.
Answer 11: An individual is not eligible for individual coverage subsidized by the Code § 36B premium tax credit if the individual is eligible for employer-sponsored coverage that is affordable (premiums for self-only coverage do not exceed 9.5 percent of household income) and that provides minimum value (the plan’s share of costs is at least 60 percent). If an employer offers an employee both a primary eligible employer-sponsored plan and an HRA that would be integrated with the primary plan if the employee enrolled in the plan, amounts newly made available for the current plan year under the HRA may be considered in determining whether the arrangement satisfies either the affordability requirement or the minimum value requirement, but not both. Amounts newly made available for the current plan year under the HRA that an employee may use only to reduce cost-sharing for covered medical expenses under the primary employer-sponsored plan count only toward the minimum value requirement. See Minimum Value of Eligible Employer-Sponsored Plans and Other Rules Regarding the Health Insurance Premium Tax Credit, 78 Fed. Reg. 25909, 25916 (May 3, 2013) (proposed regulations, to be codified, in part, once final, at 26 C.F.R.§1.36B-6(c)(4), (c)(5)). Amounts newly made available for the current plan year under the HRA that an employee may use to pay premiums or to pay both premiums and cost-sharing under the primary employer-sponsored plan count only toward the affordability requirement. See Minimum Value of Eligible Employer-Sponsored Plans and Other Rules Regarding the Health Insurance Premium Tax Credit, 78 Fed. Reg. 25909, 25914 (May 3, 2013) (proposed regulations; to be codified, in part, once final, at 26 C.F.R. §1.36B-2(c)(3)(v)(A)(5)).
Question 12: Section 125(f)(3) of the Code, effective for taxable years beginning after December 31, 2013, provides that the term “qualified benefit” does not include any QHP (as defined in ACA § 1301(a)) offered through an Exchange.(11) This prohibits an employer from providing a QHP offered through an Exchange as a benefit under the employer’s Code §125 plan. Some states have already established Exchanges and employers in those states may have Code § 125 plan provisions that allow employees to enroll in health coverage through the Exchange as a benefit under a Code §125 plan. If the employer’s Code §125 plan operates on a plan year other than a calendar year, may the employer continue to provide the Exchange coverage through a Code §125 plan after December 31, 2013?
The Departments have coordinated on the guidance and other information contained in this Technical Release. The guidance in this Technical Release is being issued in substantially identical form by the Treasury Department, and guidance is being issued by HHS to reflect that HHS concurs in the application of the laws under its jurisdiction as set forth in this Technical Release. Questions concerning the information contained in this Technical Release may be directed to the IRS at 202-927-9639 begin_of_the_skype_highlighting 202-927-9639 FREE end_of_the_skype_highlighting, the DOL’s Office of Health Plan Standards and Compliance Assistance at 202-693-8335 begin_of_the_skype_highlighting 202-693-8335 FREE end_of_the_skype_highlighting, or HHS at 410-786-1565 begin_of_the_skype_highlighting 410-786-1565 FREE end_of_the_skype_highlighting. Additional information for employers regarding the Affordable Care Act is available at www.healthcare.gov, www.dol.gov/ebsa/healthreform, and at www.business.usa.gov.
↑ An HRA is paid for solely by the employer and not provided pursuant to salary reduction election or otherwise under a Code § 125 plan. IRS Notice 2002-45, 2002-02 CB 93.
↑ Under the interim final rules implementing the annual dollar limit prohibition, a health FSA is not subject to the annual dollar limit prohibition, regardless of whether the health FSA is considered to provide only excepted benefits. See 26 C.F.R. §54.9815-2711T(a)(2)(ii), 29 C.F.R. §2590.715-2711(a)(2)(ii), and 45 C.F.R. §147.126(a)(2)(ii). See Q&A 8 of this Technical Release regarding the restriction of the exemption from the annual dollar limit prohibition to a health FSA that is offered through a Code § 125 plan.
↑ See the preamble to the Interim Final Rules for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient Protection and Affordable Care Act, 75 Fed. 34538, 34539 (June 17, 2010).
The following is reprint of a press release from the New Jersey Society of Certified Public Accountants:
NJSCPA Invites Reporters to a FREE Webinar
ROSELAND, N.J. – Clearly, there is much confusion regarding changes to health care as a result of the Patient Protection and Affordable Care Act (aka Obamacare), particularly for small businesses:
Do small business owners receive a penalty for uninsured workers?
Is it cheaper to take the penalty than offer employees coverage?
What are the tax implications to small businesses?
To help editors and business reporters cover the issues important to their readers, as well as uncover some unusual slants for articles, the New Jersey Society of Certified Public Accountants (NJSCPA) is holding a free webinar on Monday, November 4, from 11:15am to noon. Interested journalists can register for free at https://cc.readytalk.com/cc/s/registrations/new?cid=eywxjklzve6t.
The webinar will be presented by NJSCPA member Tony Novak. Mr. Novak is an accountant and adviser serving individual and small business clients. He has taught financial planning at Delaware Valley College; hosted a radio show covering various financial planning topics; and written the Employer’s Guide to Health Reimbursement Arrangements and the Small Business Owner’s Guide to Employee Benefit Plans. Mr. Novak is a member of the NJSCPA Health Care and Personal Financial Planning interest groups. He has an M.B.A. from Temple University and a Master’s In Taxation from Villanova University.
Small Business Health Plan Compliance Toolkit
A simple packaged solution to help small business owners and advisers comply with 2015 tax law changes for employer-provided health plans and mitigate potentially severe tax penalties.
Pricing and Adviser Support
This toolkit is designed to help small businesses avoid or minimize the tax penalties included in the 2015 market reform requirements of the Affordable Care Act. Specifically, the kit helps firms end non-compliant practices and convert their offending health plan arrangements to a permitted format when employers have paid or reimbursed the cost of:
Individual health insurance (a Section 105 plan)
Uninsured expenses outside of an integrated group health insurance (a Medical Expense Reimbursement Plan (MERP) or Health Reimbursement Arrangement (HRA)
Health Savings Account (HSA) in addition to a Flexible Spending Account (FSA) with carry-over benefits from the prior year.
The kit helps employers minimize the tax and legal risks of using the strategies outlined in IRS notices 2013-54 and 2015-17. NOTE THAT NO ASURANCE IS OFFERED THAT SMALL BUSINSSES WILL AVOID ANY TAX PENALTY. The approach incorporated by the Toolkit materials is suggested as a good faith compliance measure.
Without corrective action, small businesses run the risk of penalties for improper wage tax informational filings as well as the severe $100 per employee per day penalty under IRC 4980D.
The compliance and tax mitigation strategy is to address the offending health plan as soon as possible by amending or terminating the plan (or converting it from an employee benefit plan to a payroll system accommodation and then addressing penalty relief provisions built into IRC 4980D.
Sample document explaining termination of prior health plan and new option available
The tools are drafted in the Office 2016 (Office 365) version of Microsoft Word.
The toolkit is available to directly to small businesses without charge. The kit is not available to accountants, advisers or agents at this time but is expected to be available to all soon.
For background information see “Novak’s 2015 small business health plan tax article bibliography”. The bibliography is meant as a free public resource and the toolkit is meant as a solicitation of commercial service.
Tax free fringe benefits for employees
Federal tax law allows certain small or fringe benefits to made available to employees. The term “fringe benefits” refers to the list of qualified benefits not specifically covered by other sections of the tax code. For example, employee health benefits are a qualified employee benefit covered by other sections of the tax code and therefore not typically considered to be a fringe benefit. The cost of a qualified fringe benefit is tax deductible to the employer but is not taxable income to the employee.
Freedom Benefits regularly includes both qualified and non-qualified employee fringe benefits in plans designed for small businesses. The benefits are typically customized based on the details of each sponsoring employer.
Fringe benefits are addressed by Section 132 of the Internal Revenue Code. This section of the code as it existed on the date of publication, April 2, 2012, is reproduced in its entirely below.
26 USC § 132 – Certain fringe benefits
(1)no-additional-cost service,
(2)qualified employee discount,
(3)working condition fringe,
(4)de minimis fringe,
(5)qualified transportation fringe,
(6)qualified moving expense reimbursement,
(7)qualified retirement planning services, or
(8)qualified military base realignment and closure fringe.
(1)such service is offered for sale to customers in the ordinary course of the line of business of the employer in which the employee is performing services, and
(2)the employer incurs no substantial additional cost (including forgone revenue) in providing such service to the employee (determined without regard to any amount paid by the employee for such service).
(A)in the case of property, the gross profit percentage of the price at which the property is being offered by the employer to customers, or
(B)in the case of services, 20 percent of the price at which the services are being offered by the employer to customers.
(i)the excess of the aggregate sales price of property sold by the employer to customers over the aggregate cost of such property to the employer, is of
(ii)the aggregate sale price of such property.
(i)all property offered to customers in the ordinary course of the line of business of the employer in which the employee is performing services (or a reasonable classification of property selected by the employer), and
(ii)the employer’s experience during a representative period.
(A)the price at which the property or services are provided by the employer to an employee for use by such employee, is less than
(B)the price at which such property or services are being offered by the employer to customers.
The term “qualified property or services” means any property (other than real property and other than personal property of a kind held for investment) or services which are offered for sale to customers in the ordinary course of the line of business of the employer in which the employee is performing [1] services.
(A)such facility is located on or near the business premises of the employer, and
(B)revenue derived from such facility normally equals or exceeds the direct operating costs of such facility.
(A)Transportation in a commuter highway vehicle if such transportation is in connection with travel between the employee’s residence and place of employment.
(B)Any transit pass.
(C)Qualified parking.
(D)Any qualified bicycle commuting reimbursement.
(A)$100 per month in the case of the aggregate of the benefits described in subparagraphs (A) and (B) of paragraph (1),
(B)$175 per month in the case of qualified parking, and
(C)the applicable annual limitation in the case of any qualified bicycle commuting reimbursement.
(i)on mass transit facilities (whether or not publicly owned), or
(ii)provided by any person in the business of transporting persons for compensation or hire if such transportation is provided in a vehicle meeting the requirements of subparagraph (B)(i).
(i)the seating capacity of which is at least 6 adults (not including the driver), and
(ii)at least 80 percent of the mileage use of which can reasonably be expected to be—
(I)for purposes of transporting employees in connection with travel between their residences and their place of employment, and
(II)on trips during which the number of employees transported for such purposes is at least 1/2 of the adult seating capacity of such vehicle (not including the driver).
(i)Qualified bicycle commuting reimbursement The term “qualified bicycle commuting reimbursement” means, with respect to any calendar year, any employer reimbursement during the 15-month period beginning with the first day of such calendar year for reasonable expenses incurred by the employee during such calendar year for the purchase of a bicycle and bicycle improvements, repair, and storage, if such bicycle is regularly used for travel between the employee’s residence and place of employment.
(ii)Applicable annual limitation The term “applicable annual limitation” means, with respect to any employee for any calendar year, the product of $20 multiplied by the number of qualified bicycle commuting months during such year.
(iii)Qualified bicycle commuting month The term “qualified bicycle commuting month” means, with respect to any employee, any month during which such employee—
(I)regularly uses the bicycle for a substantial portion of the travel between the employee’s residence and place of employment, and
(II)does not receive any benefit described in subparagraph (A), (B), or (C) of paragraph (1).
(ii)the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting “calendar year 1998” for “calendar year 1992”.
(A)any individual who was formerly employed by such employer in such line of business and who separated from service with such employer in such line of business by reason of retirement or disability, and
(B)any widow or widower of any individual who died while employed by such employer in such line of business or while an employee within the meaning of subparagraph (A).
(i)who is a dependent of the employee, or
(ii)both of whose parents are deceased and who has not attained age 25.
(1)such service is provided pursuant to a written agreement between such employers, and
(2)neither of such employers incurs any substantial additional costs (including foregone revenue) in providing such service or pursuant to such agreement.
(i)such section shall be treated as part of the line of business of the person operating the department store, and
(ii)employees in the leased section shall be treated as employees of the person operating the department store.
(i)such use is provided primarily to facilitate the salesman’s performance of services for the employer, and
(ii)there are substantial restrictions on the personal use of such automobile by such salesman.
(i)which is located on the premises of the employer,
(ii)which is operated by the employer, and
(iii)substantially all the use of which is by employees of the employer, their spouses, and their dependent children (within the meaning of subsection (h)).
(i)a qualified affiliate is a member of an affiliated group another member of which operates an airline, and
(ii)employees of the qualified affiliate who are directly engaged in providing airline-related services are entitled to no-additional-cost service with respect to air transportation provided by such other member,
(i)Catering.
(ii)Baggage handling.
(iii)Ticketing and reservations.
(iv)Flight planning and weather analysis.
(v)Restaurants and gift shops located at an airport.
(vi)Such other similar services provided to the airline as the Secretary may prescribe.