How to Avoid ACA Filing Penalties
Originally posted by Michael Weiskirch on August 21, 2015 on eba.benefitnews.com.
The 6055 and 6056 tax filing has many employers and their advisers up in arms for the upcoming tax filing. The increased penalty amounts announced in July are alarming. A single 1095-C form violation could result in a penalty of $500 per form, with no cap if the employer shows intentional disregard — basically skipping out on the filing for 2015. A 500-person firm in this case would pay $250,000 in penalties. The good news is many employers can get a break of some sort for 2015. These are listed below:
Good faith effort
For 2015, employers who file will have protection even if their filing is incorrect or incomplete, as long as they show they made good faith efforts to comply with the ACA reporting requirements. A “good-faith effort” is defined as employer simply attempting to complete the forms. Keep in mind that the good-faith effort for 2015 tax year will disappear in 2016, thus penalties will apply for incorrect information in subsequent years.
Transition relief
Transition relief is designed to shield employers from shared responsibility penalties for all or part of 2015, reducing the exposure of the (A) $2,000 or (B) $3,000 penalties. This relief is not granted automatically and only applies for the 2015 tax year. To take advantage of this relief, the employer needs to complete line 22 of the 1094-C form or line 16 of the 1095-C for non-calendar year plans. With HCM File, we advise our clients to incorporate transition relief into their filing where appropriate. There are four flavors of transition relief, each essentially providing a bye for the months the relief is designated.
1) Qualifying offer method: Employer who offers MEC which does not exceed 9.5% of the federal poverty level to at least 95% of full-time employees.
2) 4980H for Employers with 50-99 Employees: Employer averaged between 50-99 employees
3) 4980H for 100+ Employers: Employer offered coverage to at least 70% of full-time employees
4) Non-Calendar Year Relief: Employers with plans that renew February-December in 2015.
30-day extension mirroring
The extension process for W2s and 1099s, the IRS will allow a 30-day extension as long as you can demonstrate certain hardship conditions and file Form 8809 by Jan. 31, 2016. Getting the final health plan participation and completing 1095-C forms for each health eligible employees, COBRA and retirees (if self-funded) is a lot to accomplish in a short window. As many employers scramble to complete their end of year payroll and compile the information for 6055/56, a good number of employers are looking to take advantage of the extension especially in the first year. Unlike the good faith effort and transition relief, the 30-day extension can be utilized in any tax year assuming the employer qualifies.
Also see: "Why get involved in ACA reporting?"
While good faith effort, transition relief and 30-day extensions are tools that employers may take advantage of to shield them from potential penalties, they should not be viewed as a method to evade penalties in all situations. Employers should strive for compliant, accurate and penalty-free filing without the support of any safety nets.
IRS Offers Relief for Small Employer Premium Reimbursement Arrangements
Originally posted February 25, 2015 by Laura Kerekes on ThinkHR.com.
On February 18, 2015, the IRS announced transition relief for certain small employers that subsidize the cost of individual health insurance policies for employees. Notice 2015-17 provides short-term relief from the $100 per employee per day excise tax that otherwise would apply to the employer.
Starting in 2014, employers of all sizes have been prohibited from making or offering any form of payment to employees for individual health insurance premiums, whether through reimbursement to employees or direct payments to insurance carriers. Employers also are prohibited from providing cash or compensation to employees if the money is conditioned on the purchase of individual health coverage. Employers that violate the prohibitions against these so-called “employer payment plans” are subject to an excise tax of $100 per day per affected employee. Exceptions are allowed for limited-scope dental or vision policies, supplemental plans, or retiree-only plans.
Small businesses in particular have been affected by the prohibition since many of them had subsidized individual policies for workers instead of offering a group health plan. Notice 2015-17 now offers short-term relief from tax penalties to give small employers additional time to comply with the prohibition. This relief applies only to small employers. Employers who are defined under the Affordable Care Act as applicable large employers (ALEs) — generally those with 50 or more full-time and full-time-equivalent employees — are not eligible for relief.
Specifically, the IRS will not impose excise taxes on employers that provide pretax reimbursement or payment of individual health insurance premiums as follows:
- For 2014, employers that are not ALEs (based on employer size in 2013).
- For January 1 through June 30, 2015, employers that are not ALEs (based on employer size in 2014).
Starting July 1, 2015, excise taxes may apply regardless of the employer’s size.
Note: This transition relief applies only to pretax reimbursement or payment of insurance premiums. It does not apply to after-tax reimbursements. It also does not apply to stand-alone health reimbursement arrangements (HRAs) or other arrangements to reimburse employees for expenses other than insurance premiums.
Additional Relief Provisions
Notice 2015-17 also provides relief for certain arrangements that reimburse premiums for 2-percent-or-more shareholders in Subchapter S corporations, and for certain employers that reimburse Medicare premiums or TRICARE expenses. These provisions are complex and affected employers should refer to their legal and tax advisors for guidance.