As President Donald Trump’s administration begins its work, rumors that most or all of the Affordable Care Act (ACA) could be repealed are plentiful. Over the next few months, the future of the law should be known. However, the ACA remains in place for 2017 and employers should move forward accordingly.
Currently in effect under the ACA, business owners with 50 or more employees who are either full-time (FT) or full-time equivalent (FTE) are required to offer health insurance coverage to their FT employees. FTEs are determined by dividing the total hours of all part-time employees worked in one month by 120. Seasonal employees are not included in this calculation.
While the test to determine coverage requirements is based upon calculating the number of both FT and FTE employees, employers are only required to provide health insurance to those employees who work 30 or more hours per week. In order to maintain compliance, health insurance coverage must pass these two tests.
Employers with 50 or more FT and FTE employees, who wait for the new administration’s plans for health insurance, may be underestimating the impact of potential penalties for not offering health insurance to all eligible employees. Employers who fail to offer appropriate coverage could face a penalty of $2,000 per year for each full-time employee, reduced by 30 if one or more FTs receive assistance from a Health Insurance Marketplace offered by the federal or state government.
The ACA is still law despite its uncertain future. Compliance is especially critical for employers in the restaurant, hotel, and manufacturing industries where large workforces are common. Business owners should continually evaluate their FTE employees and the cost to provide health insurance coverage to those eligible against the potential noncompliance penalties.
Look for future posts on how changes to the ACA will affect businesses. For individual questions or more information on how the ACA influences a restaurant, hotel, or companies that serve the hospitality industry, contact Aaron M. Boker at 240.364.2582 or firstname.lastname@example.org.
In a recent news report, the state of Maryland identified 20 tax preparers believed by the state to be electronically filing fraudulent returns, and went so far as to publish the names of those preparing firms. Such returns typically claim deductions and credits that do not exist. While some taxpayers knowingly participate in the fraud, other taxpayers are not aware that it is being done.
We unfortunately live in a world where tax fraud and scams are becoming more brazen and aggressive. The vast majority who play by the rules are the ones who pick up the tab for the revenue lost by government agencies. We bear that cost. To help reduce fraud, we suggest the following:
For more information, contact Aronson’s Laurence C. Rubin, CPA, at 301.231.6200.
The Internal Revenue Service (IRS) LB&I audit division announced a series of campaigns for issues they have identified as ripe for noncompliance. LB&I handles tax examinations for businesses with assets in excess of $10 million. The success of these campaigns typically trickles down to other audit divisions and can become standard procedure.
One campaign is targeting S corporations that report losses to its shareholders, to verify that the shareholder has sufficient basis to deduct the loss. This does not mean every such S corporation will receive an audit notice. Some may be audited while others may receive letters questioning particular items on the return, asking for an explanation or clarification.
If you are a shareholder in an S corporation, we recommend that you review your basis schedule for accuracy or work with your tax advisor to begin maintaining one. It is the shareholder’s responsibility to support any loss claimed on the tax return.
For questions about this topic or more information, please contact Aronson’s Laurence C. Rubin, CPA, at 301.231.6200.
Foreign Accounts, Offshore Assets, Ownership of Foreign Companies, Foreign Gifts and Inheritances, or Interests in a Foreign Trust?
It is a common misunderstanding that a person with U.S. citizenship or residency believes foreign accounts, foreign sources of income, and foreign assets do not need to be reported on their U.S. federal tax return. A failure to report such income to the IRS and other U.S. government agencies can result in substantial penalties. With increased enforcement in U.S. federal international tax reporting and compliance, many U.S. individuals are now becoming aware of reporting requirements.
A U.S. individual that owns or has signature authority over a foreign account may be required to disclose the account on the U.S. Foreign Bank Account Report (FBAR), which is filed with U.S. FinCEN. There is a $10,000 civil penalty per year for the non-willful failure to file the FBAR on time. Failure to report foreign account balances to FBAR can carry a penalty of up to $100,000 USD or 50% of the unreported foreign account balance for the intentional failure to file the FBAR. Furthermore, intentional or willful failure to file the FBAR can lead to criminal prosecution and imprisonment.
In addition to the FBAR, U.S. federal Form 8938 Statement of Specified Foreign Financial Assets also discloses ownership of foreign accounts. Form 8938 is required to be filed with a U.S. federal income tax return. Failure to file the form on time will result in a $10,000 USD penalty per year. Beginning for tax years ending on or after December 31, 2015, certain U.S. companies with foreign financial assets must file Form 8938. Previously, only U.S. individuals were required to file Form 8938. There are U.S. Treasury regulations, which now provide the rules regarding Form 8938 filing requirement for U.S. companies.
A U.S. individual may be required to file U.S. federal Form 5471, to report ownership of a foreign corporation, a Form 8865 to report ownership of a foreign partnership, or a Form 8858 to report ownership of a foreign disregarded entity. Failure to file any of these forms on time with a U.S. federal tax return carries a $10,000 USD penalty per year.
A U.S. individual may be required to file U.S. federal Form 3520, to report the receipt of a gift from a nonresident individual or an inheritance from a foreign estate. Failure to report a foreign gift or inheritance could carry a penalty up to 25% of the undisclosed amount.
A U.S. individual may be required to file U.S. federal Form 3520, to report a distribution from a foreign trust or Form 3520-A to report an interest as a U.S. grantor of a foreign grantor trust. Failing to file these forms could result in substantial penalties.
Amnesty programs provided by the IRS are available for U.S. individuals with prior year U.S. international tax reporting delinquencies. Under certain circumstances, the U.S. individual may be able to file the prior year U.S. international reporting forms without penalties.
To avoid penalties, consider working with a qualified U.S. international tax reporting and compliance expert who knows what options are available and can effectively prepare these forms for prior years as necessary. It is advisable to file prior year FBARS and Forms 5471, etc. before filing the current year tax return. Keep in mind that the current year tax return must still be filed on time to avoid penalties. Filing your current return can increase the chances of penalty abatement relief with respect to the prior year filing delinquencies.
Winning a contract in a new state can present many challenges, not least of which is ensuring that your company is compliant with the state’s tax code. The worst approach to state tax compliance is assuming that the taxes your company may be subject to and the tax treatment of your company’s activity will be the same as in other states. This is especially the case when it comes to Hawaii. It’s not surprising that many government contractors venturing into Hawaii overlook the General Excise Tax (GET), as it’s often assumed that the GET is essentially the same as most other states’ sales and use taxes. However, the unique nature of the GET can catch many businesses off guard, and the Department of Taxation’s penalties can be quite unforgiving.
The first thing every government contractor needs to know about the Hawaii GET is that it is NOT a sales tax. Certainly, the GET has some similarities to a typical sales and use tax. However, the GET has three critical distinctions from a typical sales tax, all of which affect government contractors. Those distinctions are:
Contractors hanging their hat on the “I am a government contractor, so I am exempt from tax” stance are in for a rude awakening when they receive a notice from Hawaii requesting GET returns for the past decade. Most government contractors providing services to the government are subject to the GET at a rate of either 4.0% or 4.5% of their gross receipts, so it does not take a particularly large contract to result in a material tax liability.
At its core, the GET is rather simple. The tax base for a service provider is generally gross revenue from services performed from within Hawaii. Given that the GET is a gross receipts tax, there are very few exemptions or deductions. However, the few that government contractors should be aware of are:
Government contractors need to be proactive in recognizing that their receipts will likely be subject to the GET, so the additional costs should be factored into their bids. Contractors that are assessed years after a contract has ended will likely be unable to recoup those liabilities from their customers. Finally, the penalties assessed by Hawaii can be up to 60% of the tax liability, but there is a fair chance of getting those penalties waived, especially if you come into compliance before Hawaii issues you a notice.
If you have concerns about your company’s compliance with the Hawaii GET, please contact Aronson or Michael L. Colavito, Jr. at 301.231.6200.