Obama Administration, Treasury Push PPACA Employer Reporting Requirements and Penalties to 2015
By Lindsey E. Surratt, Compliance Officer, and Katharine E. Marshall, Compliance Officer, HCW Employee Benefit Services, L.L.C., Durham, North Carolina
On July 2, 2013, two early evening blog posts from the White House1 and the U.S. Department of the Treasury2 provided a one year reprieve for many applicable large employers from the employer health insurance reporting and shared responsibility requirements. In the Treasury Department blog post, Mark J. Mazur, Assistant Secretary for Tax Policy, first announced the Obama Administration’s decision to postpone the healthcare reform requirements that “applicable large employers” (a) report details regarding employer sponsored group health plans, and (b) pay employer shared responsibility payments if health insurance meeting certain minimum standards is not offered to substantially all of the employer’s full time employees.
Internal Revenue Code (“IRC”) § 4980H, created by the Patient Protection and Affordable Care Act (“PPACA”) and amended by the Health Care and Education Reconciliation Act (“HCERA”), imposes a shared responsibility requirement for certain large employers regarding health coverage. “Applicable large employers,” defined as employers with fifty or more full-time equivalent employees, must offer group health plan coverage to substantially all full-time employees (and their dependents) or pay a tax penalty. To avoid all penalties, the health plan offered must (a) be affordable and (b) provide minimum value. A health plan is considered affordable if the cost for employee-only coverage paid by the employee does not exceed nine and one half percent of the employee’s household income. A plan provides minimum value if the plan’s share of the total cost of benefits is at least sixty percent. The minimum value requirement does not refer to the proportion of the total premium paid by the employer. Rather, it is an actuarial value that reflects the percentage of the overall claims that the plan pays in comparison to what an individual might pay out of pocket.
PPACA also requires applicable large employers to report certain information to the Internal Revenue Service (“IRS”) under Code § 6056. This information return will allow the IRS to determine whether an employer’s group health plan meets the requirements described above, and to calculate the amount of any tax penalties owed by an employer for failure to meet the requirements.
Under PPACA, applicable large employers are required to report to the Treasury Department the healthcare coverage offered to their full-time employees.3 This information return requires employers to report certain information about the employer-sponsored group health plan, including, but not limited to:
- A certification as to whether the employer offers its full-time employees (and their dependents) an opportunity to enroll in minimum essential coverage:4
- The employee’s share of the lowest cost monthly premium (self-only) for coverage providing minimum value;5
- The number of full-time employees during each month of the calendar year;6 and
- The name, address, and tax identification number of each full-time employee during the calendar year and the months each full-time employee, and dependents if applicable, were covered under the employer’s group health plan.7
EMPLOYER REPORTING REQUIREMENTS AND TAX PENALTIES DELAYED
Technically, the Obama Administration postponed the new employer reporting requirements under IRS Code § 6055 and § 6056, not the requirement to offer coverage. Mr. Mazur acknowledged that the delay of these reporting requirements would make it “impractical” for the IRS and the Treasury Department to determine which applicable large employers would owe employer shared responsibility payments for 2014. As a result, the Obama Administration and the Treasury Department extended the delay to the assessment of employer shared responsibility payments under Code § 4980H.
Employers with more than fifty full-time equivalent employees are deemed applicable large employers and may be subject to tax penalties if health insurance meeting certain minimum requirements is not offered to full-time employees.8 PPACA defines a full-time employee as an employee who averages at least thirty hours of service per week in a calendar month.9 Under Code § 4980H(a), applicable large employers who do not offer minimum essential coverage to substantially all full-time employees (and their dependents) may be subject to a $2,000 annual penalty per full-time employee, minus the first thirty employees, if just one full-time employee receives a premium tax credit for health insurance purchased through a health insurance exchange or marketplace. Applicable large employers that offer health insurance to substantially all full-time employees (and their dependents) may be subject to a different penalty if the coverage offered is either unaffordable for the employee or does not meet PPACA’s minimum value requirements.10 This penalty is set at $3,000 annually for each individual full-time employee that receives a premium tax credit for coverage purchased through a health insurance exchange or marketplace. With the delay, these penalties do not begin before January 1, 2015.
The assessments of employer shared responsibility payments for not offering coverage to full-time employees (and their dependents) were set to begin on January 1, 2014, or later in 2014 for some non-calendar year group health plans.11 This announcement pushed the collection of penalties out another year to 2015. The Treasury Department blog post cites the complexity of the new PPACA reporting requirements and the need for more time to “simplify the new reporting requirements consistent with the law” as reasons for the decision to postpone the requirements.
IRS Notice 2013-45
On July 9, 2013, the IRS supplemented the initial blog post from the Treasury Department by publishing Notice 2013-45, implementing the transition relief described above.12 In Notice 2013-45, the IRS indicated that it expected to publish proposed regulations regarding the reporting requirements later this summer. Once proposed regulations are issued, employers are “strongly encouraged” to voluntarily comply with the information reporting requirements in 2014. The blog post from the Treasury Department also encouraged employers to maintain or expand health insurance coverage during 2014.
Importantly, the delay of the reporting requirements and the assessment of employer shared responsibility payments do not impact an employee’s ability to access premium tax credits or cost-sharing subsidies through a health insurance exchange or marketplace. Generally, individuals with household incomes within a specified range who are not eligible for health insurance coverage elsewhere will be eligible for premium tax credits to help offset the cost of monthly health insurance premiums. Eligibility for an employer sponsored group health plan may impact an employee’s ability to qualify for a premium tax credit.13 Additionally, Notice 2013-45 and Mr. Mazur’s blog post each conclude by noting that this transition relief for applicable large employers does not forestall “any other provision of the ACA,” including the individual shared responsibility requirements, better known as the individual mandate. Beginning in 2014, individual taxpayers may be assessed a tax penalty for themselves and their dependents if they do not maintain health insurance meeting certain minimum standards.14 This tax penalty amounts to $95 per individual ($47.50 for dependents under age 18), or one percent of household income, whichever is greater.15 The tax penalties increase each year after 2014.
RECENT REGULATORY CHANGES
On September 9, 2013, the IRS and Treasury released a Notice of Proposed Rulemaking and proposed regulations implementing the information reporting requirements for employers under Code § 6056.16 The proposed regulations clarify the information to be reported to the IRS, the time for filing information returns and providing the associated statements to employees, and the possible use of indicator codes or other currently existing reporting mechanisms to streamline the reporting process for employers. For example, the IRS and Treasury are considering whether the use of codes on an employee’s Form W-2 may provide a more efficient method for employers to comply with the employee statement portion of this reporting requirement.17 The comment period for this Notice of Proposed Rulemaking ends November 8, 2013.
While this news resulted in a collective sigh of relief by applicable large employers struggling to figure out how to comply with the employer shared responsibility provisions of PPACA, it raises a host of questions about its effect on other requirements, including certain parts of the employer shared responsibility proposed regulations, published January 2, 2013 in the Federal Register.18 For example, the employer shared responsibility proposed regulations provided limited transition relief for employer sponsored group health plans that did not operate on a calendar year. With the delay, it is unknown whether employers with non-calendar year plans that are not currently in compliance may be assessed tax penalties under Code § 4980H beginning on January 1, 2015, or if penalties will begin on the first day of the plan year starting in 2015. IRS and Treasury attorneys have informally commented to the American Bar Association Joint Committee on Employee Benefits that the agencies are trying to determine if such transition relief is still relevant.19
The employer shared responsibility proposed regulations generated hundreds of public comments and many questions at the public hearing held April 23, 2013. Additional guidance from the IRS and Treasury on the application of these proposed regulations to short-term and temporary employees, adjunct faculty members, variable hour employees, and the application of the proposed affordability safe harbors has been requested. However, the government shutdown and lack of appropriations have impacted the IRS and Treasury and may cause a delay of the release of these highly anticipated regulations.
The IRS and Treasury, as well as the Obama Administration, are hopeful that this delay will allow employers additional time to comply with the employer shared responsibility provisions under Code § 4980H and the information return reporting requirements under Code § 6056, in addition to providing the Agencies with more time to simplify and streamline the new employer requirements. Nevertheless, the absence of a similar delay of the tax penalties applicable to individuals who do not carry qualifying health insurance in 2014 has troubled some opponents of PPACA. Now the delay of the employer reporting requirements and shared responsibility tax penalties has become one of many setbacks plaguing a smooth implementation of PPACA. It is anticipated that additional guidance on the employer shared responsibility provisions under Code § 4980H addressing stakeholder concerns may be released prior to the end of 2013.
|1||Valerie Jarrett, We’re Listening to Businesses About the Health Care Law, http://www.whitehouse.gov/blog/2013/07/02/we-re-listening-businesses-about-health-care-law (last visited August 18, 2013).|
|2||Mark J. Mazur, Continuing to Implement the ACA in a Careful, Thoughtful Manner, http://www.treasury.gov/connect/blog/Pages/Continuing-to-Implement-the-ACA-in-a-Careful-Thoughtful-Manner-.aspx (last visited August 18, 2013).|
|3||26 U.S.C. § 6055; 26 U.S.C. § 6056. These new reporting requirements were created by PPACA to assist the IRS in enforcing the employer shared responsibility provisions of Code §4980H.|
|4||26 U.S.C. § 5000A(f)(2).|
|5||26 U.S.C. § 6056(b)(2)(C)(iii).|
|6||26 U.S.C. § 6056(b)(2)(D).|
|7||26 U.S.C. § 6056(b)(2)(E).|
|8||26 U.S.C. § 4980H(c)(2)(A).|
|9||26 U.S.C. § 4980H(c)(4).|
|10||26 U.S.C. § 4980H(b).|
|11||78 Fed. Reg. 218, 236 (proposed Dec. 28, 2012) (to be codified at 26 C.F.R. pts. 54, 301).|
|12||IRS Notice 2013-45 2013-31 I.R.B. 116, available at http://www.irs.gov/pub/irs-drop/n-13-45.PDF.|
|13||26 U.S.C. § 36B.|
|14||26 U.S.C. § 5000A.|
|15||26 U.S.C. § 5000A(c)(2).|
|16||78 Fed. Reg. 54996 (proposed Sept. 9. 2013) (to be codified at 26 C.F.R. pt. 301).|
|17||See supra note 16, at 78 Fed. Reg. 55002.|
|18||See supra note 10.|
|19||American Bar Association Joint Committee on Employee Benefits Health and Welfare Plans National Institute, September 26-27, 2013; Informal Comments of Alan Tawshunsky, Senior Counsel, Office of Benefits Tax Counsel, U.S. Department of the Treasury; Informal Comments of W. Thomas Reeder, Health Care Counsel, Internal Revenue Service.|
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