The Internal Revenue Service (IRS) has released Notice 2018-6, extending the deadline for furnishing Forms 1095-B and 1095-C to individuals from January 31, 2018 to March 2, 2018, as well as penalty relief for good-faith reporting errors.
The due date for filing the forms with the IRS was not extended and remains February 28, 2018 (April 2,2018 if filed electronically). Despite the repeal of the “individual mandate” beginning in 2019 as part of the Tax Cuts and Jobs Act, at this time, the ACA’s information reporting requirements remain in effect (the IRS will continue to use the reporting to administer the employer mandate and premium tax credit program).
The instructions to Forms 1094-C and 1095-C allow employers to request a 30-day extension to furnish statements to individuals by sending a letter to the IRS with certain information, including the reason for delay. However, because the Notice’s extension of time to furnish the forms is as generous as the 30-day extension contained in the instructions, the IRS will not formally respond to requests for an extension of time to furnish 2017 Forms 1095-B or 1095-C to individuals.
Employers may still obtain an automatic 30-day extension for filing with the IRS by filing Form 8809 on or before the forms’ due date. An additional 30-day extension is available under certain hardship conditions. The Notice encourages employers who cannot meet the extended due dates to furnish and file as soon as possible, and advises that the IRS will take such furnishing and filing into consideration when determining whether to abate penalties for reasonable cause.
Extension of Good-Faith Relief
As with calendar year 2015 and 2016 reporting, the IRS will not impose penalties on employers that can show that they made good-faith efforts to comply with the requirements for calendar year 2017. In determining good faith, the IRS will consider whether employers have made reasonable attempts to comply with the requirements (e.g., gathering and transmitting the necessary data to an agent or testing its ability to transmit information) and the steps that have been taken to prepare for next year’s reporting.
Note that the relief applies only to furnishing and filing incorrect or incomplete information, and not to a failure to timely furnish or file. However, if an employer is late filing a return, it may be possible to get penalty abatement for failures that are due to reasonable cause and not willful neglect. In general, to establish reasonable cause the employer must demonstrate that it acted in a responsible manner and that the failure was due to significant mitigating factors or events beyond its control.
As in past years, individuals can file their personal income tax return without having to attach the relevant Form 1095. Taxpayers should keep these forms in their personal records. Taxpayers should note that for 2017, the IRS will not consider a return complete and accurate if the taxpayer does not report full-year coverage, claim a coverage exemption, or report a shared responsibility payment.
Employers should note that the IRS does not anticipate extending transition relief – either with respect to the due dates or with respect to good faith relief from penalties – to reporting for 2018.
About the Authors
This alert was prepared for Benefit Advisors Network by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.
This message is a service to our clients and friends. It is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.
Benefit Advisors Network and its smart partners are not attorneys and are not responsible for any legal advice. To fully understand how this or any legal or compliance information affects your unique situation, you should check with a qualified attorney.
Article courtesy of Employee Benefits News, written by Perry Braun.
Predicting what will take place in 2018 with health insurance reform is little like predicting the weather or guessing the correct numbers in the lottery. Often times, you’re more wrong than right.
But given what we have seen so far, there are three trends that will likely influence the health insurance marketplace and healthcare delivery in the coming year, and make a significant difference on employers.
Coming consolidation in the insurance marketplace. Under the current version of the proposal to reform the health insurance marketplace, the Trump administration is looking to make it easier for small employers to build larger pools — even across state lines — to create insurance premium stability. These proposals represent the threat of new, yet not defined, entrants into the consumer marketplace.
Gaining market share is key to maintaining or creating insurance premium stability. We will likely see the consolidation of carriers within the industry through acquisitions. The likely scenario is that one or two carriers will be absorbed by non-insurance businesses creating a larger integrated insurance and medical/pharmaceutical product company.
Pressure on the pharmacy benefits management industry. The pharmacy industry in the United States will look to protect their economic position, particularly… [read more]
Article credited to SHRM.org – December 12, 2017 – Stephen Miller, CEBS
Employees like receiving subsidies from their employers to defray commuting and parking costs, but tax reform—if enacted—could drastically transform these common benefits.
Both tax reform bills passed by the House and Senate—now being reconciled by a joint congressional committee—would eliminate the business deduction for qualified mass transit and parking benefits. Since this provision is in both bills, it is expected to make its way into the final measure that both the House and Senate must pass before President Donald Trump can sign it into law.
Nonprofit employers aren’t spared: Tax-exempt employers would be subject to the tax on unrelated business income for any qualified transportation benefits provided to employees.
These benefits, however, would continue to be tax-exempt to employees, who could pay their own mass transit or workplace parking costs through an employer-sponsored program, using pretax income.
The Senate bill also eliminates the tax exclusion on costs related to biking to work, while the House bill does not.
One-third of recently polled employers (32.9 percent) offer incentives to employees who use mass transportation, carpool, bike or walk to work, according to the Brookfield, Wis.-based International Foundation of Employee Benefit Plans (IFEBP), an association of benefit plan sponsors.
Among employers that offer mass transportation incentives, 56.8 percent have a pretax benefit program in place, enabling their workers to exclude mass transit or carpool costs from their gross taxable income.
On August 1, 2017, Massachusetts Governor Charlie Baker signed H.3822, which increases the existing Employer Medical Assistance Contribution (EMAC) and imposes an additional fee (EMAC Supplement) on employers with employees covered under MassHealth (Medicaid) or who receive subsidized coverage through ConnectorCare (certain plans offered through Massachusetts’ Marketplace). The increased EMAC and the EMAC Supplement are effective for 2018 and 2019 and are intended to sunset after 2019.
On November 6, 2017, the Massachusetts Department of Unemployment Assistance (DUA) released proposed regulations on the EMAC. Also on November 6, Governor Baker signed H.4008, which includes a provision that requires Massachusetts employers to submit a health insurance responsibility disclosure (HIRD) form annually.
The increased EMAC and the EMAC supplement are intended to be offset by a reduction in the increase of unemployment insurance rates in 2018 and 2019. The unemployment insurance relief is estimated to save employers $334 million over the next two years.
The EMAC itself is relatively new, having been created in 2014 after the repeal of Massachusetts’ “fair share” employer contribution. The EMAC applies to employers with six or more employees working in Massachusetts and applies regardless of whether the employer offers health coverage to its employees. Currently, the EMAC is .34% of wages up to $15,000, which caps out at $51 per employee per year. For 2018 and 2019, it will increase to .51%, or $77 per employee per year. In 2018, the EMAC and EMAC Supplement are expected to raise $75 million and $125 million in revenue, respectively.
Proposed Regulations on EMAC Supplement
The EMAC Supplement applies to employers with 6 or more employees in Massachusetts. Under the EMAC Supplement, employers must pay 5% of annual wages up to the annual wage cap of $15,000, or $750 per affected employee per year, for each non-disabled employee who obtains health insurance coverage from MassHealth (excluding the premium assistance program) or ConnectorCare.
An employer becomes subject to the EMAC Supplement beginning with the first calendar quarter of 2018 in which the employer employs six or more employees. The number of employees in a calendar quarter is calculated by dividing the total number of employees employed during the quarter by three. For these purposes, employees are included if they worked or received wages for any part of the pay period that includes the 12th of the month.
Excluded Employees
Employees must be covered under MassHealth or ConnectorCare for a continuous period of at least fourteen days in the quarter for the EMAC Supplement to apply in that quarter. The EMAC Supplement will not apply to any employee who has MassHealth coverage as a secondary payer because such employees are enrolled in employer-sponsored insurance.
Under ConnectorCare rules, only individuals with household incomes that do not exceed 300% of the Federal Poverty Level (FPL) may qualify for ConnectorCare. Therefore, employees with income between 300% – 400% FPL may be able to obtain tax credits for subsidized coverage through the Massachusetts Health Connector; however, they will not be eligible for ConnectorCare and thus cannot trigger an EMAC Supplement. In addition, employees are not eligible for ConnectorCare if they are eligible to enroll in an employer’s affordable, comprehensive health insurance plan.
EMAC Supplement Payments
Any required EMAC Supplement payment owed will be added to an employer’s Unemployment Insurance (UI) liability statement (but is not taken into account for purposes of determining the employer’s Massachusetts UI contribution rate). After the EMAC Supplement has been calculated, the DUA will make information available online so employers can determine if the DUA’s calculation of their EMAC Supplement payment matches their records. However, EMAC Supplement payments are not considered UI contributions for purposes of receiving credit under the Federal Unemployment Insurance Contribution Act (FUTA). Nor are they reported on the Form 940 worksheet as UI contributions for Massachusetts.
Employers will see the increased EMAC and any EMAC Supplement payments on their first quarter statements in April 2018. EMAC Supplement payments are due quarterly, by the last day of the month following the end of the applicable quarter.
Successor employers involved in a change in ownership, including without limitation, changes occurring due to acquisition, consolidation, partial transfer, or whole successorship, during a calendar quarter, are liable for the EMAC Supplement payment for any applicable employee during that quarter and is not allowed credit for any EMAC Supplement paid by the predecessor employer.
Appeal Process
If an employer disagrees with the DUA’s determination that the employer is liable for the EMAC Supplement, it may request a hearing with the DUA if it files a request within ten days after receiving notice of the determination. After the hearing, the DUA will issue a written decision affirming, modifying, or revoking the initial determination. Further appeal to Superior Court is available.
As part of the appeal process, the DUA may provide an employer with access to information pertaining to MassHealth and ConnectorCare beneficiaries, which is required to be kept confidential by the employer.
Interest and Penalties
Interest and penalties will apply to any EMAC Supplement obligation not remitted to the DUA and will be charged in the same fashion as for delinquent UI contributions.
Additional penalties, including fines and imprisonment, could apply to any employer who:
Willfully attempts to evade or defeat any contribution, interest, or penalty payment;
Knowingly makes any false statement or misrepresentation to avoid or reduce any financial liabilities;
Knowingly fails or refuses to pay any such contribution, interest charge, or penalty; or
Attempts to coerce any employee to misrepresent his or her circumstances so that the employer may evade payment of an EMAC Supplement.
Unemployment Experience Rate Schedule Changes
To offset the EMAC increase and EMAC Supplement, Massachusetts has modified the unemployment insurance schedule, effectively reducing scheduled increases to employer contributions for 2018 and 2019. The previously scheduled automatic jump from Schedule C to Schedule F will be replaced with an increase to Schedule D for 2018 and Schedule E for 2019.
Non-profit organizations that choose to self-insure their unemployment benefits will not benefit from the reduction in scheduled premium increases but remain subject to the EMAC Supplement nonetheless.
Employer HIRD Form
The new HIRD requirement differs from the prior version that was repealed in 2013, under which employers collected forms from employees who waived coverage. The new HIRD form requires employers with 6 or more employees in Massachusetts to annually complete and submit a form indicating whether the employer has offered to pay or arrange for the purchase of health insurance and information about that insurance, such as the premium cost, benefits offered, cost sharing details, eligibility criteria and other information deemed necessary by the DUA. The law directs the DUA to create a form for this purpose. Employers that knowingly falsify or fail to file the form may be subject to a penalty of $1,000 – $5,000 for each violation. It’s likely that employers will first file the form toward the end of 2018 (or perhaps after the end of the year); more guidance on the form and when/how to file will be forthcoming.
Next Steps
Based on the proposed regulations, employers have several avenues for reducing exposure to an EMAC Supplement payment. In general, employees earning in excess of 138% of the FPL ($16,642 for an individual in 2017) are not eligible for MassHealth, and those earning over 300% of the FPL ($36,180 for an individual in 2017) are not eligible for ConnectorCare. Employees eligible for affordable, comprehensive health insurance from their employer also are not eligible for ConnectorCare, and employees who receive MassHealth premium assistance toward their employer’s group health plan do not trigger an EMAC Supplement.
Now that proposed regulations have been released, employers can better assess their exposure to an EMAC Supplement and begin to budget for it or make other eligibility or contribution changes.
About the Authors
This alert was prepared for Benefit Advisors Network by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.
This alert was prepared by Stacy Barrow. Mr. Barrow is a nationally recognized expert on the Affordable Care Act and BAN’s Compliance Director. His firm, Marathas Barrow Weatherhead Lent LLP, is a premier employee benefits, executive compensation and employment law firm. He can be reached at sbarrow@marbarlaw.com.
This message is a service to our clients and friends. It is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.
Benefit Advisors Network and its smart partners are not attorneys and are not responsible for any legal advice. To fully understand how this or any legal or compliance information affects your unique situation, you should check with a qualified attorney.
This is an update of our November 7, 2017 Alert to include issuance of Form Letter 226J.
The Internal Revenue Service (IRS) has updated its list of frequently asked questions (FAQs) on the Affordable Care Act’s employer shared responsibility provisions – also known as the “pay or play” mandate. In particular, questions 55 through 58 provide guidance for employers who may be subject to shared responsibility payments. The FAQs indicate that the IRS will begin sending penalty letters to applicable large employers (ALEs) that owe penalties for the calendar year 2015 “in late 2017.” Around this time last year, the IRS had indicated that penalty letters for 2015 would be coming “in early 2017;” however, those letters never materialized. Based on the latest update to its FAQs, it appears that the IRS has worked out the kinks in its systems and is prepared to begin sending penalty letters.
The general procedures the IRS will use to propose and assess the employer shared responsibility payment are described in Letter 226J, which is the initial proposal of the penalty that may be owed. The IRS recently published Understanding your Letter 226J for ALEs to understand what they need to do and what they may want to do if they receive Letter 226J.
Background
Starting in 2015, the ACA requires ALEs to either “play” by offering affordable health coverage to their full-time employees, or “pay” a penalty if the employer fails to provide affordable health coverage and at least one full-time employee receives a premium tax credit to help purchase coverage through the Health Insurance Marketplace. ALEs are generally those with 50 or more full-time employees, including full-time equivalent employees. Transitional relief was available for 2015 (and, for non-calendar year plans, any portion of the 2015 plan year that fell in 2016) for ALEs with fewer than 100 full-time employees that satisfied the conditions of such transitional relief.
In general, there are two potential penalties (both non-deductible for tax purposes) that could be imposed on an ALE for failure to satisfy the mandate. The first penalty, known as the “no coverage” penalty, is based on whether an ALE fails to offer group health plan coverage to at least 95% (70% during 2015 plus, for non-calendar year plans, any calendar months of 2016 that fell within the 2015 plan year) of its full-time employees. In this case, the annual penalty is $2,000 per full-time employee minus 30 (minus 80 for 2015, plus any calendar months of 2016 that fell within the 2015 plan year) full-time employees if at least one employee receives a premium tax credit for Marketplace coverage. The second penalty, known as the “unaffordability” penalty, applies when an employer offers coverage that fails to meet certain affordability and minimum value requirements. In that case, the annual penalty is $3,000 for each full-time employee who receives a premium tax credit for Marketplace coverage, but no more than what the “no coverage” penalty would be if it applied. As noted above, several types of transition relief applied for 2015 (for non-calendar-year plans, some aspects of the relief continued for months of the 2015 plan year that fell in the 2016 calendar year). This transition relief delayed application of the penalties for certain ALE members and reduced the penalty amount for others. This transition relief has now expired.
The annual penalties are prorated on a monthly basis and are indexed each year for inflation, as shown in the following table:
The IRS’ Penalty Process
The FAQs indicate that the IRS will use Letter 226J to propose and assess penalties. Letter 226J will be issued if the IRS determines that, for at least one month in the year, at least one of the ALE’s full-time employees was enrolled in subsidized coverage through the Marketplace and the ALE did not qualify for an affordability safe harbor (or other relief for the employee). The letter will include, among other things, the following:
a brief explanation of the pay-or-play provisions;
a table itemizing the proposed penalty by month and whether the liability is under the “no coverage” provision, the “unaffordability” provision or neither;
an employer shared responsibility response form (Form 14764 – ESRP Response);
a list of full-time employees who received subsidized Marketplace coverage each month (Form 14765 – Employee Premium Tax Credit List) and for whom the ALE did not qualify for an affordability safe harbor or other relief;
a description of the actions the ALE should take if it agrees or disagrees with the proposed payment amount in Letter 226J; and
a description of the actions the IRS will take if the ALE does not respond timely.
The response to Letter 226J will be due by the response date shown on that letter, which generally will be 30 days from the date of Letter 226J. The letter will contain the name and contact information of a specific IRS employee that the ALE should contact if it has questions about the letter. At this time, a copy of Letter 226J is not available on the IRS website.
ALEs will have an opportunity to contest any proposed penalty notices. ALEs that receive a Letter 226J may respond to the IRS about the proposed payment, including requesting a pre-assessment conference with the IRS Office of Appeals. The letter will provide instructions for how the ALE should respond in writing, either agreeing with the proposed penalty amount or disagreeing with all or a portion of it. ALEs may allow someone to contact the IRS on their behalf so long as they send the IRS a Form 2848 (Power of Attorney and Declaration of Representative) that states specifically the year and that it is for the Section 4980H Shared Responsibility Payment.
If an ALE agrees with the penalty determination, it must complete and return a Form 14764, ESRP Response, that is enclosed with the letter, and include full payment by check or money order for the penalty amount assessed (or, if enrolled in the Electronic Federal Tax Payment System (EFTPS), pay electronically).
If an ALE disagrees with the penalty determination, the enclosed Form 14764, ESRP Response, will also include a Form 14764 to send to the IRS and it will need to include a signed statement explaining the basis for the disagreement. The ALE may include any documentation (e.g., offer of coverage records) with the supporting statement. The statement must also include what changes the ALE would like to make to the Forms 1094-C and/or 1095-C on the enclosed “Employee PTC Listing.” However, the instructions state that an ALE should not file a corrected Form 1094-C or 1095-C. The Letter 226J includes additional, specific instructions on making changes to the Employee PTC Listing.
If the ALE responds to Letter 226J, the IRS will acknowledge the ALE’s response with one of five versions of Letter 227 (which, in general, acknowledge the ALE’s response and describe further actions the ALE may need to take). If, after receipt of Letter 227, the ALE disagrees with the proposed or revised employer shared responsibility payment amount, it may request a pre-assessment conference with the IRS Office of Appeals. The ALE should follow the instructions provided in Letter 227 and Publication 5 for requesting a conference with the IRS Office of Appeals. A conference should be requested in writing by the response date shown on Letter 227, which generally will be 30 days from the date of Letter 227.
If the ALE does not respond to either Letter 226J or Letter 227, the IRS will assess the amount of the proposed penalty and issue a notice and demand for payment (Notice CP 220J). Notice CP 220J will include a summary of the ALE’s payment responsibility and will reflect payments made, credits applied, and the balance due, if any. The notice will instruct the ALE how to make payment, if any. ALEs will not be required to include the employer shared responsibility payment on any tax return that they file or to make payment before notice and demand for payment. ALEs may have the ability to make installment payments, as described in Publication 594.
Next Steps
There were numerous legislative efforts by the Trump administration earlier this year to repeal and replace the ACA, including retroactively eliminating the individual and employer shared responsibility mandates. Recently, there have been discussions that Republicans may again try to repeal those mandates as part of their tax reform bill. However, to date, no such repeal bills have passed, and the most recent proposed tax reform bill does not include a repeal of the mandates. In the absence of a repeal, employers should be prepared to respond to any IRS penalty letters and continue to prepare for 2017 reporting (in 2018).
The IRS will be determining penalty responsibility based on an employer’s ACA reporting (Forms 1094-C and 1095-C), along with information regarding an individual’s receipt of a premium tax credit. ALEs who have been offering affordable, minimum value coverage to full-time employees should ensure that they have all information necessary to appeal any proposed penalty assessments, including payroll records and documentation regarding how offers of coverage are made. While the IRS FAQs indicate that the IRS plans to issue Letter 226J for the 2015 calendar year (which generally applied to ALEs with 100 or more full-time employees), it is a good time for ALEs in later years to start reviewing and gathering information that they may need to respond to Letter 226J as well.
Employers that receive Letter 226J should review it carefully and consider whether there is a basis to pursue an appeal, including whether the employee was full-time for ACA purposes in each month for which a penalty is assessed. For example, employers may need to demonstrate to the IRS that they were using permissible measurement and stability periods and that the employee in question qualified as a “variable hour employee,” if the employer is claiming that an employee who worked 130 hours in a particular month was not full-time for ACA purposes. Employers who receive Letter 226J should be mindful of the response deadline, which will generally be 30 days from the issuance date appearing on the letter, and should consider taking steps now (such as working with human resources, legal, benefits, payroll, and finance departments as well as outside vendors housing your ACA data) to set up a process to ensure timely review and response to any Letter 226J. Depending on mailing delays and internal routing, an employer may have a very short timeframe before the due date to respond, so advanced planning is critical.
Employers that receive subsidy notification letters from the Marketplace during the year should consider appealing them when there is a basis to do so. In many cases, employers receive Marketplace subsidy letters for individuals who are not full-time for ACA purposes, and thus there is no basis for an appeal. In other words, an employer would not appeal a premium subsidy notice for a part-time employee to whom the employer did not offer coverage (that person would be a prime candidate for subsidized coverage).
Employers should also be reminded that the ACA Section 1558 prohibits retaliation against employees who receive premium tax credits. Among other things, employers are prohibited from discharging or discriminating against an employee because the employee received a premium tax credit. Employers violating Section 1558 may be required to reinstate the employee to his or her former position (and provide back pay) and may be subject to compensatory damages, costs and expenses (including attorneys’ fees) incurred by the employee in connection with the bringing of a complaint.
Employers that have questions regarding Letter 226J or IRS response letters should consult with qualified benefits counsel so that the relevant facts and circumstances can be reviewed.
About the Authors
This alert was prepared for Benefit Advisors Network by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Peter Marathas or Stacy Barrow at pmarathas@marbarlaw.com or sbarrow@marbarlaw.com.
Stacy Barrow, Esq. Compliance Director
This alert was prepared by Stacy Barrow. Mr. Barrow is a nationally recognized expert on the Affordable Care Act and BAN’s Compliance Director. His firm, Marathas Barrow Weatherhead Lent LLP, is a premier employee benefits, executive compensation and employment law firm. He can be reached at sbarrow@marbarlaw.com.
This message is a service to our clients and friends. It is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.
Benefit Advisors Network and its smart partners are not attorneys and are not responsible for any legal advice. To fully understand how this or any legal or compliance information affects your unique situation, you should check with a qualified attorney.
