Proposed regulations clarify TIN responsibilities, create new questions
Ryan Moulder gives a little clarity on the new TIN regulations in the article below.
On Aug. 2, 2016 the IRS published in the Federal Register proposed regulations which among other things attempt to clarify the confusion regarding Taxpayer Identification Number solicitations. This is the government’s third attempt to clarify the TIN issue since the creation of IRC section 6055. The first attempt was made in the preamble to the final regulations for section 6055. In an attempt to bring greater clarity and to gather further comments on the issue, the government issued Notice 2015-68. Notice 2015-68 states an employer will not be subject to the penalties for the failure to report a TIN if the entity follows the regulations set forth at section 301.6724-1(e) with the additional modifications:
- The initial solicitation is made at an individual’s first enrollment or, if already enrolled on September 17, 2015, the next open enrollment;
- The second solicitation is made at a reasonable time thereafter, and
- The third solicitation is made by December 31 of the year following the initial solicitation.
The Notice is not a model for clarity and this issue has only been exasperated by the number of AIRTN500 error messages employers received when submitting the Form 1095-C. With that as a backdrop, the government is once again trying to clarify an employer’s solicitation obligation through proposed regulations. The proposed regulations only apply to the Form 1095-B and to Part III of the Form 1095-C (the Part that is used for employers that sponsor a self-insured plan). The proposed regulations do not affect Parts I or II of the Form 1095-C. This article focuses on the proposed regulations as they relate to Part III of the Form 1095-C. However, most of the concerns discussed in this article could be applied to the Form 1095-B.
As a refresher to what we have written about in previous publications, an employer submitting a Form 1095-C is subject to the penalty provisions of section 6721 and section 6722 for failure to timely file a correct information return or failure to timely furnish a correct statement to the individual. The penalties under both section 6721 and section 6722 may be waived if the failure to timely file (or furnish) a correct information return (or statement) was due to reasonable cause and not due to willful neglect. An employer may meet this standard by showing it acted in a responsible manner and that the failure was the result of events beyond the employer’s control or there were mitigating factors. An employer in danger of violating section 6721 and section 6722 as the result of a missing TIN or an incorrect TIN can follow the procedures laid out in specific sections of the regulations to fulfill the standard discussed in the preceding sentences.
The proposed regulations did a good job distinguishing between missing TINs (discussed at section 301.6724-1(e)) and incorrect TINs (discussed at section 301.6724-1(f)). Treasury and the IRS agreed with commenters that some modifications needed to be made to the solicitation process for missing TINs. However, the proposed regulations leave unchanged the regulations set out for incorrect TINs.
One of the problems commenters complained about with regard to missing TINs is it did not adequately define the term “opened” which was relevant to determine when the initial solicitation needed to be made to satisfy the regulations. An initial solicitation for a missing TIN must be made at the time an account is “opened.” Prior to the existence of the Form 1095-C, missing TIN solicitations were typically performed for financial accounts. These accounts are generally considered “opened” on the first day the account is available for use by the owner. However, this understanding of the term “opened” does not translate well to health coverage.
To rectify this problem, the proposed regulations provide that for the purposes of the Form 1095-C an account is considered “opened” on the date the filer receives a substantially complete application for new coverage or to add an individual to existing coverage. The proposed regulations indicate the initial solicitation for a missing TIN can be satisfied by requesting the enrolling individual’s TIN as part of the application process.
If the initial solicitation for a missing TIN does not produce a TIN, the first annual solicitation under the proposed regulations must be made no later than 75 days after the date on which the account was “opened” or, if the coverage is retroactive, no later than 75 days after the determination of retroactive coverage is made. The second annual solicitation for a missing TIN remains unchanged from the current regulations and must be made by December 31 of the year following the year the account is opened. It is important to note an employer may continue to rely on the rules discussed in Notice 2015-68 or may follow the proposed regulations until the final regulations are published.
Additional relief is provided by the proposed regulations for a missing TIN. For any individual enrolled in coverage on any day before July 29, 2016, the account will considered to be opened on July 29, 2016. An employer will have satisfied its initial solicitation obligation with respect to an individual who is already enrolled so long as the employer requested the enrolled individual’s TIN as part of the application process for coverage or in any other appropriate fashion before July 29, 2016.
Consistent with Notice 2015-68, the first annual solicitation would need to be made within a reasonable time after July 29, 2016 if the initial solicitation did not produce a TIN. An employer who performs the first annual solicitation within 75 days (before Oct. 11, 2016) will be treated as having made the first annual solicitation within a reasonable time. In this situation, if the first two solicitations (the initial solicitation and the first annual solicitation) do not produce a TIN, the second annual solicitation would need to be made by December 31, 2017.
The proposed regulations do not change the solicitation process for incorrect TINs. Therefore, for an incorrect TIN, the first annual solicitation must be made on or before December 31 of the year in which the employer was notified of the incorrect TIN unless the employer was notified of the incorrect TIN in December in which case the employer’s solicitation must be made by January 31 of the following year (see section 301.6724-1(f)(1)(ii)). Similarly, the rules for the second annual solicitation for an incorrect TIN remain unchanged. Therefore, if the employer is notified in any following year after the first annual solicitation that an employee’s (or other dependents’) TIN is incorrect, a second annual solicitation must be made on or before December 31 of the year in which the employer was notified of the incorrect TIN unless the employer was notified of the incorrect TIN in December in which case the employer’s solicitation must be made by January 31 of the following year (see section 301.6724-1(f)(1)(iii)).
The current regulations state that an employer may be notified of an incorrect TIN by the IRS or by a penalty notice issued by the IRS under section 6721 (see section 301.6724-1(f)(1)(ii)). Employers are being notified of an incorrect TIN on Part III of the Form 1095-C with an AIRTN500 error message. We were under the assumption that this would trigger the TIN solicitation obligation. However, footnote 2 of the proposed regulations appears to call this into question. Footnote 2 states:
A filer of the information return required under section 1.6055-1 may receive an error message from the IRS indicating that a TIN and name provided on the return do not match IRS records. An error message is neither a Notice 972CG, Notice of Proposed Civil Penalty, nor a requirement that the filer must solicit a TIN in response to the error message.
This footnote could be interpreted several ways. One possible reading would result in an employer having no solicitation obligation despite the fact an employee’s Form 1095-C triggered an AIRTN500 error message. Alternatively, this footnote could be read to mean an employer who received an AIRTN500 error message would not in all cases be required to make a solicitation. This would be the case if the employer had already fulfilled an initial solicitation as well as two additional annual solicitations at a prior time
However, we think the instructions to the Form 1095-C require an employer receiving an AIRTN500 error message to make some sort of effort to identify a correct TIN for a covered individual. Among other items, an employer is responsible for filing a corrected Form 1095-C if there was an error in the TIN in Part I or Part III related to covered individuals. The source of the error identification may be an IRS error message when submitting the Form 1095-C. The AIRTN500 error message is telling an employer there is an error in a TIN in either Part I or Part III of the Form 1095-C.
However, and to murky the water even further, the instructions for the Form 1094-C/1095-C state “Regulations section 301.6724-1 (relating to information return penalties) does not require you to file corrected returns for missing or incorrect TINs if you meet the reasonable cause criteria.” The confusion with this statement begins with the statement appearing to be at odds with the Form 1094-C/1095-C instructions requirement that a corrected return be filed for an incorrect TIN in Part I or Part III. However, this could conceivably be reconciled with the current regulations. The current regulations require an employer to include the updated TIN with any information return that has an original due date which is after the date that the employer receives the updated TIN (see section 301.6724-1(f)(1)(iv)). Therefore, these statements could be reconciled by viewing the current regulations standard of only updating forms after the correct TIN has been received (as stated in section 301.6724-1(f)(1)(iv)) as trumping the Form 1094-C/1095-C instructions need to correct a return for an incorrect TIN in Part I or Part III.
What is more difficult to reconcile is footnote 2 and the statement in the Form 1094-C/1095-C instructions. As discussed above, footnote 2 could be read to mean no solicitation effort is needed in the event of an AINTN500 error message. Seemingly to the contrary, the Form 1094-C/1095-C instructions state an employer does not need to file a corrected return for a missing or incorrect TIN if the employer meets the reasonable cause criteria of section 301.6724-1. This is inconsistent because, to meet the reasonable cause criteria of section 301.6724-1, an employer must follow the solicitation procedures for missing and incorrect TINs discussed in section 301.6724-1(e) and section 301.6724-1(f) respectively.
One possible reading of all of these statements would give employers two potential paths. If the footnote 2 path is followed, no formal solicitation would need to be made. However, if the footnote 2 path is followed and an informal solicitation produces a correct TIN, the employer would need to file a corrected Form 1095-C and typically would need to furnish the employee a corrected statement. This path is unsatisfying to a conservative legal mind. Alternatively, the second path would not require a corrected return but the formal solicitation procedures discussed in section 301.6724-1 would need to be followed. The uncomfortable aspect of this option is no corrected return would be filed after the employer is made aware that either a TIN in Part I or Part III of the Form 1095-C is incorrect. Again, this path is unsatisfying to a conservative legal mind.
Given the uncertainty created by footnote 2 and the statement in the Form 1094-C/1095-C instructions, we still view the formal solicitation as the best practice if an informal inquiry does not solve the TIN issue. Additionally, we view filing a corrected return as the safest practice. It is important to note that correcting errors is a requirement to use the good faith efforts standard to file accurate and complete information returns in 2015. Therefore, an employer must at least make some sort of effort to figure out what is causing the AIRTN500 error message.
Ideally, the IRS would release a simple overriding statement. The statement would begin “In the event one of your Form 1095-Cs triggers an AIRTN500 error message…” This would be followed by a simple statement or two as to what type of solicitation needs to be performed and whether a corrected Form 1095-C needs to be completed. We urge the IRS to take such action as the AIRTN500 error message was received for millions, if not tens of millions, of Form 1095-Cs.
We understand that the AIRTN500 error message has been the source of immense frustration for many employers. The proposed regulations appear to be another small step in the right direction towards an amicable solution. However, footnote 2 and the Form 1094-C/1095-C instructions cast uncertainty as to when the formal solicitation procedures need to be followed. Employers need to continue to monitor the government’s guidance on this important issue. And, until we get official word from the IRS, we view the formal solicitation procedures along with a corrected return when the solicitation is successful as the safest way to ensure compliance.
See the original article posted on EmployeeBenefitAdvisor.com on August 11, 2016 Here.
Source:
Moulder, R. (2016, August 11). Proposed regulations clarify TIN responsibilities, create new questions. Retrieved from https://www.employeebenefitadviser.com/opinion/proposed-regulations-clarify-tin-responsibilities-create-new-questions
Feds reveal how to handle tax treatment of wellness rewards
Did you get the Wellness Program notice from the IRS? Jared Bilski outlines how the new memorandum may impact your wellness benefits in the article below.
Original Post from HRMorning.com on June 10, 2016
Most HR pros are focused on ensuring their wellness rewards meet the strict requirements of the ACA and the ADA. But the IRS just reminded employers there are other considerations as well.
Via its Office of Chief Counsel, the agency just released a memorandum on its views of the tax treatment of rewards under employer wellness plans.
Note: IRS memoranda don’t constitute formal advice. However, they do give employers a good understanding of how the agency views compliance topics.
Cash, cash-equivalent rewards
The memorandum confirms that certain tax rules apply to employer-sponsored wellness program. Coverage — including health screenings and other medical care — provided by an employer-sponsored wellness program is generally excluded from an employee’s income under specific sections of The Tax Code. But cash rewards or cash-equivalent rewards earned as a result of a wellness program are a different story.
According to the IRS, if an employee earns a cash reward under the program, that reward must be included in the employee’s gross income under Code Section 61 and is a payment of wages subject to employment taxes.
In addition, if an employee earns a cash-equivalent reward that isn’t excludible from his or her income — e.g., the payment of gym membership fees — the fair market value of that reward will be included in the employee’s gross income and is a payment of wages subject to employment taxes.
Additional clarifications
A few additional clarifications in the IRS memorandum:
- If employers reimburse all or a portion of the premiums paid by the employee through a cafeteria plan for the company’s wellness plan, those reimbursements will be included in the employee’s gross income and are payments of wages subject to employment taxes.
- Although some non-cash benefits may be excludible as de minimis fringe benefits (e.g., a T-shirt for a company wellness plan), cash fringe benefits generally aren’t eligible to be treated as excludable de minimis fringe benefits.
Find the original article here.
Source:
Bilski, J. (2016, June 10). Fed reveal how to handle tax treatment of wellness rewards [Web log post]. Retrieved from https://www.hrmorning.com/feds-reveal-how-to-handle-tax-treatment-of-wellness-rewards/
IRS Update on Filing ACA Forms After June 30, 2016
The IRS is giving a pass this year but encourages those who missed the deadline to file ACA Forms to still complete filing returns. See the article below from ThinkHR.com for more information.
Original Post from ThinkHR.com on July 1, 2016
If you are an applicable large employer, self-insured employer, or other health coverage provider, the deadline to electronically file ACA information returns (e.g., Forms 1094-B, 1095-B, 1094-C and 1095-C) with the IRS was June 30, 2016. The ACA Information Returns (AIR) system will remain up and running after the deadline. If you were not able to submit all required ACA information returns by June 30, 2016, you are advised to complete the filing of your returns after the deadline.
It is important to note the following:
- The AIR system will continue to accept information returns filed after June 30, 2016. In addition, you can still complete required system testing after June 30, 2016.
- If any of your transmissions or submissions was rejected by the AIR system, you have 60 days from the date of rejection to submit a replacement and have the rejected submission treated as timely filed.
- If you submitted and received “Accepted with Errors” messages, you may continue to submit corrections after June 30, 2016.
The IRS is aware that some filers are still in the process of completing their 2015 tax year filings. As is the case for other information returns, penalties may be associated with the submission of the ACA information returns for failure to timely file required returns. As the IRS has publicly stated in various forums in recent months, filers of Forms 1094-B, 1095-B, 1094-C and 1095-C that miss the June 30, 2016 due date will not generally be assessed late filing penalties under section 6721 if the reporting entity has made legitimate efforts to register with the AIR system and to file its information returns, and it continues to make such efforts and completes the process as soon as possible. In addition, consistent with existing information reporting rules, filers that are assessed penalties may still meet the criteria for a reasonable cause waiver from the penalties.
If you are not an electronic filer and you missed the May 31, 2016 paper filing deadline for ACA information returns, you should also complete the filing of your paper returns as soon as possible.
For more information, the IRS provides helpful questions and answers on the ACA reporting requirements for applicable large employers here.
Read the original article here.
Source:
Unknown (2016, July 1). IRS Update on Filing ACA Forms After June 30, 2016 [Web log post]. Retrieved from https://www.thinkhr.com/blog/hr/irs-update-on-filing-aca-forms-after-june-30-2016/
2017 HSA Limits Released
Original post benefitspro.com
Change is not the order of the day for health savings account (HSA) limits in 2017.
The Internal Revenue Service (IRS) issued its new guidelines for contributions and out-of-pocket expenses for HSAs that are tied to a high-deductible plan this week.
Maximum OOPs for individual and family accounts won’t budge next year, and contributions will remain intact for family plans. Individual contributions increased slightly.
Here’s the run-down of the details:
- Out-of-pocket maximums are unchanged at $6,550 for individuals and $13,100 for families;
- Maximum contributions for family plans remain the same at $6,750;
- Individual contributions can increase from $3,350 to $3,400.
High deductible plans in 2017 will be those that have an annual deductible of least $1,300 for self-only coverage and $2,600 for family coverage.
HSAs are open to all men and women enrolled in a high-deductible health insurance program (exceeding $1,300 for individuals and $2,600 for family) aside from those policyholders currently covered by Medicare or listed as a dependent.
For both 2015 and 2016, IRS regulations mandating the potential contributions on plans covering families (a minimum of two people) held successive increases of $100. Individual restrictions, meanwhile, were bumped up by $50 in 2015, but remained stable the following year.
The annual fluctuations of HSA contribution levels are based directly upon federal cost of living adjustments. They will be applied for the calendar year of 2017.
A full account of the new guidelines may be read under Revenue Procedure 2016-28.
IRS: Skip Form 5500’s Optional Compliance Questions
Original post shrm.org
The Internal Revenue Service (IRS) recently added new questions to the 2015 Form 5500 and 5500-SF (short form) annual retirement plan returns. The Form 5500 series of returns are used by retirement plans to report the financial condition, investments and operations of the plans to the Department of Labor (DOL) and IRS.
When the new IRS compliance questions were originally introduced, the IRS described the questions as optional for plan year 2015. However, in its most recent instructions, the IRS has specifically advised plan sponsors not to complete these questions for the 2015 plan year.
The IRS decision to delay completion is due to privacy and misreporting concerns raised by retirement plan administrators and advisors.
The new compliance questions are intended to aid the IRS in determining whether a retirement plan, such as a 401(k) plan, is in compliance with applicable law—in particular, how the plan is satisfying discrimination testing and making timely plan amendments. The new questions also ask whether the plan trust incurred unrelated business taxable income and if the plan made in-service distributions, such as hardships. Specifically, the following new lines were added:
Form 5500 Annual Return (Report of Employee Benefit Plan)
• Provide preparer information including name, address and telephone number.
Schedules H (Financial Informaiton) and Schedule I (Small Plan Financial Information)
• Did the plan trust incur unrelated business taxable income?
• Were in-service distributions made during the plan year?
• Provide trust information including trust name, EIN, and name and telephone number of trustee or custodian.
Schedule R (Retirement Plan Information) – New Part VII: IRS Compliance Questions
• Is the plan a 401(k) plan?
• How does the 401(k) plan satisfy the nondiscrimination requirements for employee deferrals and employer matching contributions?
• If the Average Deferral Percentage (ADP) test or Average Contribution Percentage (ACP) test is used, did the plan perform testing using the “current year testing method” for non-highly compensated employees?
• Did the plan use the ratio percentage test or the average benefit test to satisfy the coverage requirements under Section 410(b)?
• Does the plan satisfy the coverage and nondiscrimination tests by combining this plan with any other plans under the permissive aggregation rules?
• Has the plan been timely amended for all required tax law changes?
• Provide the date of the last plan amendment/restatement for the required tax law changes.
• If the plan sponsor is an adopter of a pre-approved master and prototype or volume submitter plan that is subject to a favorable IRS opinion or advisory letter, provide the date and serial number of that letter.
• If the plan is an individually-designed plan and received a favorable determination letter from the IRS, provide the date of the plan’s last favorable determination letter.
• Is the plan maintained in a U.S. territory?
Form 5500-SF Annual Return (Report of Small Employee Benefit Plan)
• Asks for all the information added to the Forms and Schedules above.
• Were required minimum distributions made to 5 percent owners who have attained age 70½?
When plan sponsors and plan administrators are eventually required to respond to these new questions, their responses could highlight plan compliance issues of which the plan sponsor or the IRS may not have been aware, and could lead to follow-up investigations from the IRS. The new questions are helpful guidance for plan sponsors to make certain that their 401(k) and 403(b) plans are in compliance.
‘Where’s My 1095?’ Addressing Tax Filing Confusion
Many employees are confused over how to report that they received health coverage when filing their income tax returns this tax season, the first in which they’re required to affirm that they had Affordable Care Act (ACA)-compliant coverage throughout the year or risk penalties under the individual coverage mandate.
Much of this confusion involves Form 1095-B (Health Coverage) and Form 1095-C (Employer-Provided Health Insurance Offer and Coverage).
“There are two different 1095 forms that an employee or former employee might get, depending on how coverage was provided,” explained Mike Chittenden, a counsel at Miller & Chevalier in Washington, D.C. “If it’s fully insured coverage from a large employer”—with 50 or more full-time employees or equivalents, refered to as an applicable large employer (ALE)—“then they’ll receive a Form 1095-C from their employer and a Form 1095-B from the insurance company. If it’s self-insured coverage from an employer, they’ll just receive a 1095-C that combines the information that would otherwise appear on both forms.”
These forms are also filed with the IRS by large employers; Forms 1094-B and 1094-C are transmittal forms submitted to the IRS along with Forms 1095-B and 1095-C, respectively.
For small businesses with fewer than 50 full-time employers or equivalents that provide employees with an ACA-compliant group plan, the rules are a bit different. If fully insured (as most small companies are), the insurance company that provides coverage is required to send enrollees a copy of Form 1095-B and to submit Forms 1995-B (along with transmittal Form 1094-B) to the IRS in order to report minimum essential coverage.
If a small company is self-insured and provides coverage, it must provide employees and the IRS with Form 1095-B. But small business that offer insurance are not required to send Form 1095-Cs to employees or to the IRS.
| Fewer than 50 full-time employees/equivalents (non-ALEs) | 50 or more full-time employees/equivalents (ALEs) | |
| No coverage offered | Not subject to reporting | |
| Fully insured plan | Insurance company completes Forms 1094-B and 1095-B | Employer completes Forms 1094-C and 1095-C (Parts l and ll only) |
| Self-insured plan | Employer completes Forms 1094-B and 1095-B | Employer completes Forms 1094-C and 1095-C (Parts l, ll and lll) |
Originally, these forms were intended to be given to employees or former employees by Feb. 1 (as Jan. 31 fell on a Sunday this year), along with Form W-2. Filers would then use them when completing Line 61 of their individual tax returns, showing that they had qualifying health coverage from their employer—referred to as minimum essential coverage—during the year. The form could be shared with tax preparers and retained with other tax documents.
But as many employers seemed unlikely to meet this deadline, the IRS issued Notice 2016-4 at the end of 2015, extending the due date for providing employees with Forms 1095-B and 1095-C until March 31, and extended other ACA reporting deadlines as well:
| Forms | Previous IRS Due Date | New IRS Due Date |
| Forms 1095-B and 1095-C due to employees. | Feb. 1, 2016 | March 31, 2016 |
| Forms 1094-B, 1095-B, 1094-C and 1095-C to be filed with the IRS if filing on paper (fewer than 250 employees). | Feb. 29, 2016 | May 31, 2016 |
| Forms 1094-B, 1095-B, 1094-C and 1095-C to be filed with the IRS if filing electronically. | March 31, 2016 | June 30, 2016 |
| Source: ADP, based on IRS Notice 2016-4 and IRS Tax Tip 2016-27. | ||
Tax Filing Conundrum
The problem is that many employees had been told that they would need these forms to prepare their 2015 income taxes. Many even believed, incorrectly, that Form 1095s were to be filed with their tax returns, along with their Form W-2s.
To mitigate these concerns, in January the IRS updated its webpage with Questions and Answers about Health Care Information Forms for Individuals. In Q&A number 3, the IRS answers the question, “Must I wait to file until I receive these forms?” as follows:
If you are expecting to receive a Form 1095-A [for those enrolled in a nongroup plan through the ACA’s Health Insurance Marketplace], you should wait to file your 2015 income tax return until you receive that form. However, it is not necessary to wait for Forms 1095-B or 1095-C in order to file.
Some taxpayers may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their 2015 tax return. While the information on these forms may assist in preparing a return, they are not required. Individual taxpayers will generally not be affected by this extension and should file their returns as they normally would.
Like last year, taxpayers can prepare and file their returns using other information about their health insurance. You should not attach any of these forms to your tax return.
But employees don’t typically read the latest IRS updates posted online. Employers, therefore, should inform workers to expect these forms by March 31, and assure them they may go ahead and file their taxes—and collect any refunds that may be coming their way—without waiting until the form is in their hands.
Filing Without Form 1095
“While the form is helpful, obviously, in that it gives you all the information you need in one place, most employees won’t need the form to complete their taxes,” Chittenden explained. “For example, if an employee worked for the same company and had coverage all year, then they can go ahead and complete their taxes and check the box that indicates coverage all year. Similarly, if they changed jobs but had coverage under their old and their new employer without a gap, they also can check the box saying ‘yes.’ You don’t have to attach a copy of the form to your return, whether you’re filing paper returns or filing electronically. So you don’t actually need Form 1095-B or Form 1095-C to complete your tax return.”
Given the deadline extension for providing these forms, “employees should be reassured that they don’t need them to complete their taxes, and employers should be telling them that,” Chittenden said.
Employers should also be prepared for questions when employees do receive their 1095s in March. Many who have already submitted their returns may worry that having done so without the form will require filing a corrected return.
Ask HR
If employees think they might have had a gap in health coverage but aren’t sure, they still don’t necessarily need the form. “They could look at their pay stubs to see if they include information about coverage—for example, if there are deductions in each month for coverage, then it’s a pretty safe bet that they probably had coverage in each month,” said Chittenden. “They can also go to the employer and ask HR, which can give them the answer about whether or not they had coverage.”
ACA reporting has been a challenge for many employers, and “they’re doing their best to get these forms out as quickly as they can,” said Chittenden. Due to the rush, “employees may subsequently receive corrected forms, if the employer determines later that they were inaccurate, so that’s something they should be aware may be coming. And employers should be aware that they have an obligation to correct incorrect forms.”
Penalties Reduced If Timely Correction Made
The penalty for not filing an information return with the IRS generally is $250 for each return. The penalty for providing an incorrect statement to employees/enrollees is $250 for each erroneous statement. Since there are separate penalties for returns filed with the IRS and for statements furnished to individuals, filing failures could easily result in “double” penalties.
The IRS has provided short-term relief from reporting penalties for 2015 filings, as long as the employer has made a good faith effort to comply with the reporting requirements, and has filed returns and provided statements on time. However, even employers that were late might be eligible for penalty relief if the IRS determines there was reasonable cause,
Regulatory clarity makes ID protection a more attractive employee benefit
Original post benefitsnews.com
Identity theft is the fastest growing crime and consumer complaint in America, and benefit industry experts say concerned employees are seeking protection as an employer perk more than ever. New regulatory certainty about how identity theft protection benefits are taxed could increase the popularity of the benefit as an employer offering.
More than 13 million Americans fall victim to identity theft every year, which means every three seconds someone's identity is stolen. Increased concern about the crime has individuals clamoring for identity theft protection benefits. How that benefit would be taxed, however, had been a topic of some debate in the benefit industry, with some employers eager to offer the benefit but concerned about the impact on employee income taxes.
In its Dec. 30 announcement, the IRS said it will allow preferential tax treatment for employer-provided identity theft benefits, despite the absence of a data breach. Generally, all benefits provided to an employee by an employer must be treated as income, unless the Code provides an exclusion. Previous guidance from the IRS created an exclusion for identity protection services, but only after a breach and only for individuals whose personal information might have been compromised.
The IRS’s latest announcement notes that several commenters requested guidance regarding the tax treatment of identity protection services provided before a data breach. According to the commenters, these services are being provided with increasing frequency in order to allow early detection of data breaches and minimize the impact of breaches when they occur. In response, the IRS has concluded that its previous guidance should be extended.
“The IRS will not assert that an individual must include in gross income the value of identity protection services provided by the individual’s employer or by another organization to which the individual provided personal information (for example, name, social security number, or banking or credit account numbers). Additionally, the IRS will not assert that an employer providing identity protection services to its employees must include the value of the identity protection services in the employees’ gross income and wages. The IRS also will not assert that these amounts must be reported on an information return (such as Form W-2 or Form 1099-MISC) filed with respect to such individuals,” the guidance states.
Any further guidance on the taxability of these benefits will be applied prospectively, it adds.
“This guidance is welcome news for employers that want to offer identity protection services to employees as part of their data security strategy. They may now offer these services without increasing their (or their employees’) federal tax liability. However, employers should be mindful of state and/or local tax laws as they may differ from federal tax law,” according to Tzvia Feiertag, a senior associate in the Labor & Employment Law Department of the global law firm Proskauer.
The preferential tax treatment does not apply to cash received in lieu of identity protection services or to proceeds received under an existing identity theft insurance policy, the guidance says.
What employees need to know now to file tax forms for PPACA
Original post benefitspro.com
The Patient Protection and Affordable Care Act (PPACA) reporting deadlines are rapidly approaching, presenting a major administrative burden for employers who face penalties for failing to report in a timely and accurate manner.
While there has been significant discussion of employer roles and responsibilities, employees have been largely left out of the equation.
However, many employees will soon be receiving new forms that are critical to their ability to file their tax returns and to their employers’ ability to accurately fulfill their own reporting requirements. Among these are Forms 1095-A, 1095-B, and 1095-C.
With this in mind, it is important for employers to educate individual taxpayers on what they are required to do and when and how to complete these requirements in the easiest and most efficient manner.
1095-C
The most commonly received form will be the new 1095-C, which millions of Americans will be receiving for the first time this year.
This new government form is used to tell the Internal Revenue Service that you were eligible for insurance coverage under the Affordable Care Act and whether you took advantage of or waived this coverage.
This form will be sent by employers no later than March 31 to all eligible full-time employees who worked for a company with a total of 100 or more full-time or full-time equivalent employees in 2015. For the purposes of this form, full-time is any employee working 30 or more hours per week or 130 hours in a calendar month.
According to the IRS guidance, Form 1095-C helps to determine whether both the employer and the employee have complied with the “shared responsibility” clause of the ACA.
The form also determines whether an individual or family qualifies for the Premium Tax Credit, which reduces the burden of purchasing health insurance.
Anyone who does not have coverage elsewhere and chose to decline employer-sponsored health care coverage will be required to pay a penalty for not carrying coverage--this penalty will be assessed on their tax return.
For 2015, the penalty for declining all health care coverage is $325 per uninsured adult and $162.50 per uninsured child or 2 percent of household income, whichever is greater up to a family maximum of $975.
The penalty will increase to $695 per uninsured adult and $347.50 per child or 2.5 percent of household income up to a family maximum of $2,085 in 2016, and will continue to rise with inflation year-over-year.
However, the IRS offers special exemptions based on income, circumstance and membership in certain groups, so those without coverage should research their options or consult a tax professional. (The most common exemption is for those who declined employer-sponsored coverage that would have cost more than 8 percent of their total household income.)
Health care exemptions can be claimed by filing IRS form 8965 with your taxes. As previously noted, the form also determines who may be eligible for premium credits to help defray the expense of coverage.
Employers are required to submit insurance coverage information, along with social security numbers and other identifying employee information to the IRS, and employee failure to disclose a waiver of coverage may result in an audit and penalties greater than the ACA individual mandate penalty.
1095-B
Form 1095-B essentially serves the same purpose as form 1095-c, but is used by and sent to employees of companies with fewer than 100 employees.
It may also be sent directly by an insurer to certify that individuals/families had non-employer sponsored coverage in place in 2015. This coverage may have come from:
- Government health care plans such as Medicare Part A, Medicare Advantage, Medicaid, the Children's Health Insurance Program, and Tricare for military members, veterans’ medical benefits and plans for Peace Corps volunteers.
- Health coverage purchased through the "Marketplace" -- Web-based federal and state insurance markets set up under the Affordable Care Act.
- Any individual health insurance policy in place before the Affordable Care Act took effect.
Depending on the way a health care plan is structured, some employees may receive both a 1095-B and a 1095-C.
1095-A
Form 1095-A is only applicable to those who purchased their health care coverage through ACA’s health care exchanges.
This form plays a critical role in reconciling the Advanced Premium Tax Credits (also known as APTCs)--a yearly stipend based on modified adjusted gross income designed to help lower-income individuals and families defray the cost of purchasing exchange-based health insurance--for 2015 and in determining future credits for 2016.
Per IRS and ACA requirements, any excess APTC received in the previous year must be repaid through income tax.
What to do with these forms
Like the more familiar W-2 or 1099 forms, the 1095-A, B, and C will be needed to file a 2015 tax return for anyone who receives it.
Those using a tax preparer will need to bring it with them along with their other filing documents, and those doing their own taxes or using tax preparation software will need to keep this document with their tax records in case of any further inquiry /audit by the IRS.
Help is available
Of course, this is just one important factor in gaining a more thorough understanding of the complexities of the ACA. While the IRS has worked to streamline the process as much as possible, many employers and employees are struggling to understand and keep pace with changing requirements.
However, for quick questions, there are many good resources available to both employers and employees. One of the best is the IRS website.
As in all tax-related issues, the most important factors in handling ACA reporting for all groups are to know what’s coming, prepare in advance, keep excellent records, take note of deadlines and avail yourself of helpful resources.
IRS Issues Forms and Instructions for ACA Reporting
Originally posted on shrm.org.
In early February 2015, the IRS released draft versions of the forms that employers subject to the Affordable Care Act (ACA) “shared responsibility” mandate—sometimes referred to as “play or pay”—will be required to file in order to show that the health coverage they offer to their employees is compliant with ACA requirements. The forms implement reporting obligations under Internal Revenue Code sections 6055 and 6066, which the ACA added to the tax code.
The forms are not required to be filed by employers for tax year 2014. However, in preparation for the first required filing of these forms (in 2016 for 2015), reporting entities may, if they wish, voluntarily file.
The IRS also released a new brochure Affordable Care Act: Reporting Requirements for Applicable Large Employers, which discusses getting ready for monthly tracking and preparing to fill out new IRS forms in 2016.
The forms include:
• Form 1095-B: Health Coverage. To be filed with the IRS and provided to taxpayers by insurers, as well as by self-insured employers that are not subject to the employer "shared responsibility" mandate, to verify that individuals have minimum essential coverage that complies with the individual coverage requirements.
• Form 1095-C: Employer-Provided Health Insurance Offer and Coverage. To be filed by employers with 50 or more full-time or full-time equivalent employees to verify their compliance with the employer "shared responsibility" mandate. Form 1095-C will also be used to establish employee eligibility for premium tax credits if the employer does not offer affordable and adequate coverage.
• Form 1094-B: Transmittal of Health Coverage Information Returns and Form 1094-C: Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. These are the transmittal forms that insurers and employers will use to transmit the individual 1095-Bs and 1095-Cs to the IRS.
“Insurers and self-insured health plans will provide a Form 1095-B to each of their enrollees and members, and file these forms, together with a transmittal Form 1094-B with the IRS,” explained Timothy Jost, J.D., a professor at the Washington and Lee University School of Law, in an earlier post regarding the draft forms on the Health Affairs Blog. “Large employers must provide a Form 1095-C to each employee, and transmit these, together with a transmittal [Form 1094-C] to the IRS.”
The IRS also issued instructions relating to the above forms:
• Text of Instructions for IRS Forms 1094-B and 1095-B.
• Text of Instructions for IRS Forms 1094-C and 1095-C.
“The instructions for the 1094-C and 1095-C are by far the most complex of the instructions...filling 13 pages with dense, two column, print,” noted Jost in a blog post regarding the draft versions (the final instructions reach 14 pages and are in a smaller type face, and thus even longer). “Most of the complexity derives from the options for complying with the employer mandate and the transition exceptions to that mandate that the administration has created,” Jost explained.
The forms “are identical to the draft forms released in the late summer of 2014,” Jost noted in a February 2015 blog post. “The instructions for the transmittal forms 1094-B and 1095-B are virtually identical to the draft instructions. … The final instructions for forms 1094-C and 1095-C, however, contain a number of changes from the draft instructions and should be reviewed carefully by insurers, employers, and those who advise them.”
“We hoped that the IRS was finding a way to streamline and simplify the reporting forms and instructions that employers will use in connection with the...employer and individual mandates. Those hopes were dashed...when the IRS released the final reporting forms and instructions,” stated a February 2015 alert from Lockton, an insurance brokerage. “The reporting forms and instructions remain detailed and complex, with many caveats, exceptions and special rules. Complicating this, reporting continues to be based on the calendar year, regardless of the year on which an employer’s plan operates.”
The Lockton alert further notes:
The final forms and instructions are labeled as “2014” forms, meaning they would relate to coverage during 2014. It is apparent, however, that these materials were created for the required reporting in 2016 with respect to coverage during 2015. In addition to explicitly stating that reporting with respect to 2014 is voluntary, the instructions explain how to indicate use of various transition rules that apply during 2015.
“As the forms must be filed by Feb. 28 (March 31 if filed electronically) and were just released in final form, it is very unlikely that many employers, insurers, or government programs will file for 2014,” noted Jost. “The 2015 forms are likely to be very similar, however, so it is probably important for employers and insurers to review these forms to ensure that they are on track for 2015 reporting.”
Advised a February 2015 alert from Fox Rothchild LLP, “Bear in mind that there is a considerable amount of time between now and the final filing obligation so there may be additional revisions to these instructions, or at least some further clarification. But in the meantime, read the instructions and familiarize yourself with the reporting obligations.”
Tracking and Reporting Employee Data
Companies with 100 or more full-time equivalent employees must begin complying with the ACA coverage requirements in 2015, although they will have two years to phase up to the requirement that they cover 95 percent of their workers. Companies with 50 to 99 full-time equivalent employees will have another year—until 2016—to start complying. Smaller businesses are exempt.
Under tax code sections 6055 and 6056, employers must compile monthly and report annually numerous data points to the IRS and their own employees. This data will be used to verify the individual and employer mandates under the law.
“Although required reporting under sections 6055 and 6056 will not occur until January 2016 to employees and March 2016 to the IRS, the data being reported is based on what happened during 2015,” according to an August 2014 article in HR Magazine. “Therefore, employers should have the necessary infrastructure in place to gather that information by January 2015 or very soon after.”
Given the cross-functional compliance and reporting requirements, having a multidisciplinary team in place is important, with a written workplan that specifies the responsibilities of HR, payroll, finance and other departments. The chief HR officer and the chief financial officer should coordinate their efforts and those of their staffs. Top-level executive sponsorship should ensure that all functions are working together and doing their part.
“Ideally, technology will take much of the reporting burden off of employers, automating significant portions of the data collection and reporting processes,” observed the Lockton alert, adding:
Unfortunately, technology will not produce accurate reporting without accurate data. In addition, while an employer’s current HR technology solutions may capture the information required for ACA reporting, it is unlikely that the employer has any one system that incorporates all of this information. It is also very likely that gathering the information from various sources and entering it into the required forms will be difficult and time-consuming. Employers that have not done so already will want to discuss with their third-party payroll and benefits administration vendors the extent to which they can handle the required information gathering and reporting.
| Reporting Requirement Still Applies to Mid-Size EmployersAlthough mid-size employers (between 50 and 99 full-time employees or equivalents) can take advantage of one year of transitional relief from the employer mandate requirements, delaying compliance until the first day of the employer's 2016 plan year, “these employers are still required to comply with the pay or play reporting requirement and the individual mandate reporting requirement, if the mid-size employer sponsors a self-funded group health plan,” advised law firm Miller Johnson. “In order to qualify for the transitional relief, mid-size employers must certify to the IRS that it meets the necessary requirements. Form 1094-C is used to certify that the mid-size employer meets these requirements.”
The firm added, “The good news is that these forms appear relatively simple to complete. The bad news, however, is that compiling the information necessary to complete these forms will likely impose significant administrative burdens.” |
2015 Monthly Information
“This reporting and disclosure requirement is new for employers and may catch some employers off-guard,” warned an alert by benefits consultancy Hill, Chesson & Woody, which added that the reporting requirements include collecting and disclosing:
- Social Security numbers of employees, spouses and dependents.
- Names and employer ID numbers(EINs) of other employers within the reporting employer’s controlled group of corporations for each month of the calendar year.
- Number of full-time employees for each calendar month.
- Total number of employees (full-time equivalents) for each calendar month.
- Section 4980H transition relief indicators for each calendar month.
- Employees’ share of the lowest-cost monthly premium for self-only, minimum value coverage for each calendar month.
- Applicable Section 4980H safe harbor for each calendar month.
“The first transmittal and returns will not be filed until January 2016, but much of the information must be reported for each calendar month of 2015,” the firm pointed out. “Ensuring internal time and attendance systems, record management, and payroll systems are capable of producing the required information is critical. Although there is much information left to be released by the IRS concerning the Code 6056 reporting requirement, employers subject to this requirement should begin preparing now.”
“The significant amount of information that is required to be reported to both employees and the IRS on these forms may factor in to an employer’s overall strategy for compliance with health care reform’s pay or play penalty requirement,” advised Miller Johnson.
| Steps to TakeIn light of the complexity of the new information reporting requirements, employers should take the following actions, advised McGladrey LLP in an alert:
• Learn about the new information reporting requirements and review the IRS reporting forms. • Develop procedures for determining and documenting each employee's full-time or part-time status by month. • Develop procedures to collect information about offers of health coverage and health plan enrollment by month. • Review ownership structures of related companies and engage professionals to perform a controlled/affiliated service group analysis. • Discuss the reporting requirements with the health plan's insurer/third-party administrator and the company's payroll vendor to determine responsibility for data collection and form preparation. • Ensure that systems are in place to collect the needed data for the reports. |
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| Four Steps Required Prior to ACA E-FilingFor calendar year 2015, applicable large employers must file Affordable Care Act Information Returns (Forms 1094-B, 1095-B, 1094-C and 1095-C) via paper returns by Feb. 28, 2016 or via electronic returns by March 31, 2016, reports the International Foundation of Employee Benefit Plans.
Electronic returns will be filed through the new ACA Information Returns (AIR) system. The AIR system is specifically designed for the IRS to process these new ACA forms. Other IRS e-filing systems do not support the ACA Information Returns. Prior to e-filing, applicable large employers must: (1) identify their responsible official(s) and contacts, (2) register with IRS e-services, (3) apply for the ACA Information Return Transmitter Control Code (TCC), and (4) participate in testing. |
Implementing Health Reform: IRS Requests Comments On Cadillac Tax
Originally posted by Timothy Jost on healthaffairs.org.
One of the last remaining features of the Affordable Care Act (ACA) that has yet to be implemented is the so-called “Cadillac tax,” which takes effect in 2018. Section 4980I will impose a 40 percent excise tax on employee benefits the cost of which exceeds certain statutory limits. The Cadillac tax is intended to limit the generosity of employer coverage on the theory that excess coverage encourages excess health care expenditures and thus drives up the total cost of health care. The tax is also, however, one of the major anticipated sources of revenue under the ACA, expected to raise $87 billion over the next 10 years.
On July 30, 2015, the Internal Revenue Service (IRS) released a Revenue Notice, requesting comments (due by October 1, 2015) on various issues that must be resolved to implement the Cadillac tax. The notice supplements an earlier notice requesting comments issued on February 23, 2015.
The earlier notice had addressed issues relating to (1) the definition of applicable coverage subject to the tax, (2) the determination of the cost of applicable coverage, and (3) the application of the dollar limit to the cost of applicable coverage to determine any excess benefit subject to the excise tax. The July 30 notice addresses additional issues, including the identification of the applicable taxpayer liable for the tax, employer aggregation, allocation of responsibility for the tax among applicable taxpayers, payment of the tax, age and gender adjustment, and further issues concerning the cost of applicable coverage.
Section 4980I(a) imposes a 40 percent excise tax on “excess benefits” provided to employees. Excess benefits are defined as the excess of the aggregate cost of applicable coverage for an employee for a month over the applicable dollar limit for that employee for that month. Section 4980I(c)(1) provides that each “coverage provider” must pay the tax on its applicable share of the employee’s excess benefit.
Section 4980I(c)(2) defines the “coverage provider” as (A) the health insurance insurer that provides health insurance coverage under a group health plan, (B) the employer with respect to contributions to health savings accounts (HSAs) or Archer medical savings accounts (MSAs), or (C) “the person that administers plan benefits” with respect to other applicable coverage. Section 4980I(f)(6) provides that the term “person that administers the plan benefits” includes the plan sponsor, as defined by the Employment Retirement Income Security Act, if the plan sponsor administers benefits under the plan. Each coverage provider is responsible for a share of the excise tax proportionate to its share of the total cost of coverage provided to an employee, as determined by the employer.
Defining The “Person That Administers Plan Benefits”
The term “person that administers plan benefits” is not a term that appears elsewhere in the Internal Revenue Code, the Affordable Care Act, or related legislation, so it must be defined for purposes of section 4980I. The IRS proposes two different approaches to identifying this person.
Under the first, the “person that administers plan benefits” would be the person responsible for the day-to-day administration of plan benefits, usually the third party administrator of a self-insured plan. This could cause problems if several third party administrators are responsible for different parts of a benefit plan.
Under the second approach, the “person that administers plan benefits,” would be the person ultimately responsible for administering the plan, including administering issues like eligibility determinations, claims administration, and arrangements with providers. The IRS requests comments on these two alternative approaches.
Related employers are aggregated for purposes of 4980I much as they are for other Internal Revenue Code purposes. The IRS requests comments on how aggregation would affect (1)
identification of the applicable coverage made available by an employer (2) identification of the employees taken into account for the age, gender adjustments, or adjustments for high risk profession employees; (3) identification of the taxpayer that must calculate and report excess benefits, and (4) identification of the employer liable for the tax.
Timing Of Determinations
The notice discusses at some length issues that arise with respect to the timing of determinations of the cost of coverage under self-insured plans and experience-rated insured plans. It is important that tax liability be determined and paid on a timely basis, but self-insured plans may need a time for claims runout at the end of a taxable period to determine the final cost of coverage. Experience-rated plans may receive discounts from the insurer after the end of the taxable period if experience is favorable, and a determination will need to be made whether to attribute this discount retroactively to the taxable period. The IRS requests further comments on these issues.
The notice also discusses at some length tax issues related to the pass through to employers of the excise tax by entities that pay the tax. It is anticipated that this will generally occur. The reimbursement of the cost of the excise tax by the employer to the coverage provider is not itself coverage subject to the excise tax. It is, however, taxable income to the coverage provider.
It is expected that the coverage provider will attempt to recover from the employer the cost of the income tax paid on this reimbursement in addition to the cost of the excise tax. The cost of the income tax is also not considered to be part of the cost of coverage, subject to the excise tax. The IRS requests comments on whether the cost of the income tax reimbursement that can be excluded from the cost of coverage should be determined based on the marginal tax rate of the particular coverage provider or on some average marginal tax rate.
Issues With Account-Based Coverage
Special issues arise with respect to account-based coverage — HSAs, Archer MSAs, flexible spending accounts (FSAs), and health reimbursement arrangements (HRAs). While the excise tax is calculated on a monthly basis, account-based contributions are not necessarily made on a monthly basis. The IRS is considering an approach under which contributions would be allocated pro-rata on a monthly basis.
Under the statute, the cost of applicable coverage under an FSA for any plan year is the greater of an employee’s salary reduction or total reimbursement received under the FSA. If an employer makes non-elective contributions to an employee’s FSA, these are only counted to the extent they are actually spent on medical care. This formula raises the possibility of double counting if amounts contributed through a salary reduction in one year are carried over and spent in a later year.
The IRS is considering, therefore, a safe harbor which would only count funds contributed through a salary reduction agreement in the year it was contributed, not the year it was spent. Comments are requested to this approach, as well as on whether non-elective contributions from an employer to an FSA should be treated the same way, and how contributions to an FSA should be allocated when total employee and employer contributions to a cafeteria plan exceed the statutory limit on contributions to an FSA.
The notice discusses briefly the treatment under the excise tax of the cost of coverage that is taxable to highly compensated employees because the coverage discriminates in their favor. The IRS understands that this excess coverage is subject to the excise tax and intends to revise reporting requirements accordingly.
Increasing Dollar Limits To Account For Age And Gender
Section 4980I(b)(3)(C)(iii) requires that the dollar limit above which the cost of coverage is subject to the excise tax be increased to account for the age and sex of a particular employer’s employees. The increased amount would be equal to the excess of the premium cost of the Blue Cross/Blue Shield standard benefit option under the Federal Employees Health Benefits Plan (FEHBP) if priced for the age and gender characteristics of the employees of an individual’s employer over the premium cost for providing this coverage if priced for the age and gender characteristics of the national workforce. This adjustment recognizes that older employees have higher health care costs than younger employees, and that younger women have higher health care costs than younger men. The fact that the the amounts that individual employers can pay for coverage before the excise tax attaches is adjusted for the age and sex of the employer’s employees has received little attention and is an important safety valve. The threshold can only be adjusted upwards, not downwards.
The notice proposes an approach for determining the age and gender composition of the national workforce and of a particular employer. It then proposes a seven step process that would be used for determining the relative FEHBP premium cost for various age and gender groups and for then determining the age and gender adjustment that should be applied for each employer given the composition of its own workforce.
The IRS is proposing the development of a form for employers to use to notify the IRS and their coverage providers as to the amount of the tax and how much each coverage provider is responsible. The IRS is also considering the method through which the tax would be paid. Finally, the IRS requests comments on the issues raised by this notice and the earlier notice, as well as comments on the relationship between the Cadillac tax and the employer responsibility tax, and stipulates that the notice does not provide guidance on which taxpayers can rely.