Tax

Affordable Care Act Update

2014
Author:  Robert Conner

Robert Conner

Director

Tax

Health Care
Manufacturing & Distribution

1801 California Street, Suite 2900
Denver, CO 80202-2606

Denver
303.861.4545

The Patient Protection and Affordable Care Act (ACA) was signed into law on March 23, 2010, with the goal of providing more Americans access to affordable, quality health insurance. Many ACA provisions are in full effect; however, the following key provisions affecting individuals and businesses loom on the horizon. Affected individuals and businesses should plan now to ensure processes are in place to capture appropriate information for reporting purposes.

Employer-Provided Health Insurance Mandate

Final regulations released on February 10, 2014, phase in the employer “play or pay” mandate for the 2015 and 2016 plan years for employers with 50 or more full-time employees and equivalents (FTEs).

Beginning in 2015, any new employer not in existence in the prior year is subject to the play or pay mandate if it is reasonably expected to and actually does employ on average at least 50 (or 100 for 2015) FTEs on business days during the first year of existence.

What are the penalties if an employer subject to the play or pay mandate fails to provide minimum essential coverage? If any FTE receives a premium tax credit or cost-share subsidy when purchasing individual health coverage on an exchange, the employer’s penalty is $2,000 per year ($166.66 per month) multiplied by the total number of FTEs, not counting the first 30 (or first 80 for 2015).

What are the penalties if an employer subject to the play or pay mandate provides minimum essential coverage but that coverage is not affordable or does not provide minimum value? If any FTE receives a premium tax credit or cost-share subsidy when purchasing individual coverage on an exchange, the penalty is $3,000 per year ($250 per month) multiplied by the number of FTEs who receive a premium tax credit or cost-share subsidy when purchasing individual coverage on an exchange. This penalty is capped at the amount that would apply had the employer not offered any coverage at all.

Small Employer Health Insurance Tax Credit

Companies that employ fewer than 25 FTEs earning on average less than $50,800 (indexed for inflation) may be eligible for the Small Employer Health Insurance Tax Credit if they cover at least 50 percent of the health premium for each qualified employee. For tax years beginning on or after January 1, 2014, the credit only is available to small businesses that purchase health coverage through the federal Small Business Health Options Program (SHOP) Marketplace. Businesses are allowed to claim the credit for any two consecutive years beginning after
December 31, 2013.

Individual Shared Responsibility Mandate

Effective January 1, 2014, all U.S. citizens and legal residents are required to maintain qualifying health coverage or make a penalty payment in 2015 with the filing of their 2014 tax return. Qualifying coverage includes employer-provided coverage, health insurance purchased in the Health Insurance Marketplace, most government-sponsored coverage and coverage purchased directly from an insurance company.

Certain situations exempt individuals from the requirement to maintain qualified coverage, including:

  • No affordable coverage options are available because the cost of annual premiums exceeds 8 percent of household income
  • Coverage gaps do not reach three consecutive months
  • Hardships prevent an individual from obtaining coverage
  • The individual belongs to a group explicitly exempted from the mandate

For nonexempt individuals forgoing coverage, the penalty for 2014 is the greater of:

  • One percent of household income above a filing status threshold
  • $95 per adult and $47.50 per child, limited to a maximum of $285

One-twelfth of the penalty is due for each month in which qualifying coverage is not in effect.

Individual Premium Tax Credit

Beginning in 2014, certain individuals with moderate to low income levels may be eligible for a premium tax credit that can make purchasing health insurance coverage more affordable. To qualify for the credit, individuals generally must meet the following criteria:

  • Health insurance is purchased through the marketplace
  • The individual is ineligible for coverage through employer or government plans
  • Income is below a certain threshold
  • Married couples may not file separate returns
  • The individual cannot be claimed as a dependent by another person

This credit is claimed on the federal income tax return for the applicable year and is reconciled with any advance credit payments received during the year

Employer Reporting Requirement

Beginning with the 2015 calendar year, ACA requires certain employers to annually furnish new information returns that follow the same due dates as Form W-2 filings. These information returns provide a mechanism for the IRS to monitor compliance with the employer-provided health insurance mandate, individual shared responsibility mandate and employee’s entitlement to an individual premium tax credit.

Employers with fewer than 50 FTEs that provide employer-sponsored health coverage must provide FTEs enrolled in employer-sponsored self-insured health coverage with Form 1095-B, Health Coverage. Forms 1095-B are transmitted by the employer to the IRS with Form 1094-B. Employers purchasing fully insured health coverage will not be responsible for filing these forms as the responsibility falls to the insurer.

Employers with more than 50 FTEs must provide FTEs with Form 1095-C, Employer-Provided Health Insurance and Coverage. Forms 1095-C are transmitted by the employer to the IRS with Form 1094-C.

Applicable employers are encouraged to view these forms and related instructions now (currently in draft form on the IRS website) to ensure they have systems in place to collect the required data as of January 1, 2015.

Failure to accurately file these forms or intentional disregard of the filing requirement could subject the employer to a penalty of up to $500 for each FTE.

Being prepared is the key to successfully navigating these complex new rules. Schedule a meeting with your BKD advisor to discuss deadlines and potential cash flow implications related to ACA provisions.



Download the 2014 Year-End Tax Advisor here!

BKD LinkedIn BKD Twitter BKD Youtube BKD Google Plus