Tag Archives: Affordable Care Act

IRS Provides Penalty Relief to Small Employers Sponsoring Premium Payment Arrangements

The IRS recently released yet another notice (2015-17) related to health coverage reimbursements for small employers, including many construction contractors. Small employers in the construction industry (those with 50 or fewer employees or full-time employees in 2014) will be glad to know that this new notice actually brings some good news, as the preceding related notices generally have not.

Under the Affordable Care Act (ACA), virtually all health coverage premium arrangements that are not integrated with an employer sponsored group health plan are deemed “group health plans” on their own. Group health plans are subject to the various ACA rules and the associated penalties for non-compliance. Standalone reimbursement arrangements, by their very nature, are generally not expected to comply with the ACA requirements and will be subject to a fine of $100 per employee per day, capped at $36,500.

Often, the cost of a group health insurance plan does not make fiscal sense for small employers. In lieu of this benefit, many employers provided premium reimbursements to their employees. Employers got a deduction for such reimbursements and employees did not have to include the reimbursements as taxable wages. This worked very well for employers and employees alike for many years. Effective January 1, 2014, these arrangements basically became obsolete.  Initially, there was great mystery regarding what arrangements would or would not be deemed a health plan and subject to the ACA requirements. Vendors and employers alike proposed various work-arounds only to be rebuffed by both the IRS and DOL. Further guidance also came out indicating that arrangements whereby employees included reimbursements as taxable wages would also be deemed a health plan, further restricting the use of this technique. In the end, it was determined that, effective January 1, 2014, employers could give employees additional taxable compensation to offset premium expenses but it could not be specifically linked to the payment of health insurance premiums.

Notice 2015-17 provides penalty relief for small employers who have a reimbursement plan in 2014 through June 30, 2015. For now employers can deduct premium and expense reimbursements while excluding them from employee’s taxable income up until June 30, 2015.

While the relief is minor, small employers should enjoy it while they can!

Please contact Mark Flanagan of Aronson’s compensation and benefits practice at 301.231.6257 to further discuss the impact of this relief on construction contractors.

IRS Releases New Guidance for ACA Compliance

The IRS released fact sheets 2014-09 discussing the Affordable Care Act (ACA) as it pertains to individuals, and 2014-10 discussing the ACA as it pertains to employers.  These fact sheets provide a helpful overview in gaining a broad understanding of essence of the ACA.

In short, all individuals, with very limited exceptions, must have insurance meeting minimum standards, and all employers with 50 or more full-time employees must offer affordable insurance.  Businesses with part-time employees should be especially cautious to compute the number of full-time equivalent employees, which could very well push the business over the compliance threshold.

Due to the complexity of the ACA, professional guidance should be sought. One misstep can result in significant penalties.  For further information or to discuss your specific situation, please contact your Aronson tax advisor at 301.231.6200.

IRS Releases Draft Forms for ACA Coverage Reporting Requirements

One of the fundamental goals of the Affordable Care Act “ACA” is health coverage for all. With that goal comes new reporting requirements for employers and insurance companies offering health coverage. The IRS recently released drafts of the forms that will be used to report 2015 coverage information in early 2016.

Construction companies with more than 50 full-time equivalent employees will be required to use Form 1095-C  to report whether or not they offered health coverage to their employees. The Form 1095-C that employees receive from their employer will include information on the months the employee was offered coverage and the employee’s share of the lowest cost monthly premium for self-only “minimum value” coverage. The employer will transmit the Form 1095-Cs, via Form 1094-C, to the IRS.

Regardless of their size, contractors that sponsor self-insured health plans and insurers are required to report on the individuals covered by their health plans. Form 1095-B will be provided to all primary insureds to show the months the primary insured and his or her family members had coverage under the plan. The plan sponsor/insurance company will transmit the forms to the IRS via Form 1094-B.

These reporting requirements are designed so that the IRS can monitor several key features of the ACA: compliance with the individual and employer mandates as well as eligibility for the premium tax credits associated with purchasing coverage through an exchange.

While these new requirements are not effective until the end of 2015, employers should begin to make sure systems and procedures will be modified in time to ensure compliance.

Please contact Mark Flanagan of Aronson’s compensation and benefits practice at 301.231.6257 to further discuss the impact of this requirement on your construction business.

 

Recent Tax Developments that May Impact Construction Contractors

gavel5Staying abreast of tax changes for your construction business can seem like a moving target, but continuous planning can help you minimize liability. In the second quarter of 2014, we saw a number of important tax developments that should be considered when managing your construction business.

No bankruptcy exemption for inherited IRAs.A unanimous Supreme Court held that inherited IRAs do not qualify for a bankruptcy exemption (i.e., they are not protected from creditors in bankruptcy). Under the Bankruptcy Code, a debtor may exempt amounts that are both (1) retirement funds, and (2) exempt from income tax under one of several Internal Revenue Code provisions, including one that provides a tax exemption for IRAs. The Supreme Court held that this exemption does not extend to inherited IRAs because funds held in them are not retirement funds. For this purpose, the term “inherited IRA” doesn’t include amounts inherited by the spouse of the decedent. This decision should be taken into account when selecting IRA beneficiaries. If a potential beneficiary is under financial distress, the IRA owner should consider naming a trust as beneficiary instead. The individual could be named as beneficiary of the trust without jeopardizing the full IRA funds in the event of a personal bankruptcy.

Purchase of underlying property didn’t prevent deduction for lease termination payment. The Court of Appeals for the Sixth Circuit has allowed a party that exercised an option to buy property that it was leasing to deduct a portion of the amount tendered in the transaction as a lease termination payment. In so doing, it rejected the IRS’s argument that the full amount tendered had to be capitalized as part of the purchase price. The dispute centered on an obscure tax law, which states that, where property is acquired subject to a lease, no basis is allocated to the leasehold interest. The IRS said that this provision precluded a deduction, but the Sixth Circuit disagreed. Because the lease terminated when the taxpayer acquired the property, the property was not acquired subject to a lease and the law at issue did not apply to bar the deduction. Years earlier, the Tax Court reached the opposite result in a case with similar facts.

Employer health insurance tactic may backfire. The IRS has warned of costly consequences to an employer that doesn’t establish a health insurance plan for its employees, but reimburses them for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace). According to the IRS, these arrangements, called employer payment plans, are considered to be group health plans subject to the market reforms of the Affordable Care Act. These reforms include the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Such arrangements cannot be integrated with individual policies to satisfy the market reforms. Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee.

More enforcement of responsible person penalty likely.If an employer fails to properly pay over its payroll taxes, the IRS can seek to collect a trust fund recovery penalty equal to 100% of the unpaid taxes from a person who is responsible for collecting and paying over payroll taxes and who willfully fails to do so. A recent report issued by the Treasury Inspector General for Tax Administration has found the IRS has often not taken adequate and timely action in assessing and collecting the responsible person penalty. The report also makes recommendations for improvements, which the IRS has agreed to implement, making enforcement more likely.

Taxpayer Bill of Rights. In an effort to help taxpayers better understand their rights, the IRS has adopted a “Taxpayer Bill of Rights,” which dictates that previously disparate clauses are now prominently displayed in one place on the IRS’s website, falling into these 10 broad categories:

    • The right to be informed
    • The right to quality service
    • The right to pay no more than the correct amount of tax
    • The right to challenge the IRS’s position and be heard
    • The right to appeal an IRS decision in an independent forum
    • The right to finality
    • The right to privacy
    • The right to confidentiality
    • The right to retain representation
    • The right to a fair and just tax system.

Next year’s inflation adjustments for health savings accounts.The IRS has provided the annual inflation-adjusted contribution, deductible, and out-of-pocket expense limits for 2015 for health savings accounts (HSAs). Eligible individuals may, subject to statutory limits, make deductible contributions to an HSA. Employers as well as other persons (e.g., family members) also may contribute on behalf of an eligible individual. Employer contributions are generally treated as employer-provided coverage for medical expenses under an accident or health plan and are excludable from income. Typically, a person is an “eligible individual” if he is covered under a high deductible health plan (HDHP) and is not covered under any other health plan that is not a high deductible plan, unless the other coverage is permitted insurance (e.g., for worker’s compensation, a specified disease or illness, or providing a fixed payment for hospitalization).

For calendar year 2015, the limitation on deductions is $3,350 (up from $3,300 for 2014) for an individual with self-only coverage. It’s $6,650 (up from $6,550 for 2014) for an individual with family coverage under a HDHP. Each of these amounts is increased by $1,000 if the eligible individual is age 55 or older. For calendar year 2015, a “high deductible health plan” is a health plan with an annual deductible that is not less than $1,300 (up from $1,250 for 2014) for self-only coverage or $2,600 (up from $2,500 for 2014) for family coverage, and with respect to which the annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) do not exceed $6,450 (up from $6,350 for 2014) for self-only coverage or $12,900 for family coverage (up from $12,700 for 2014).

For more information about these changes or other tax issues, please contact an Aronson tax advisor at 301.231.6200 or contact us online.

Affordable Care Act (ACA) Notices Due October 1, 2013

aca noticesThe Affordable Care Act added a new section 18B to the Fair Labor Standards Act “FLSA.” This new section requires every employer that is subject to the FLSA to provide written notice of the new health insurance exchanges (aka health insurance marketplaces) as a coverage option to all current employees by October 1, 2013. Subsequent new hires must be provided the notice within 14 days of being hired. Generally speaking, businesses that are covered by the FLSA must have at least two employees and have annual sales or business revenue in excess of $500,000. Hospitals, schools and government agencies also are included. All included employers must provide the notice regardless of size. All employees, regardless of part-time or full-time status, are required to receive the notice.

The marketplaces are a new health coverage option for employees who are or are not offered coverage from their employer. The marketplaces will operate in some form in every state. The notices are required to include information about

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