Changes for 2016 could affect your business.
The Affordable Care Act (ACA), which may have been intended to provide peace of mind for all U.S. workers, has raised more questions than it has answered. And each new tax year brings new deadlines, new regulations, and new questions.
The updates for 2016 have significant ramifications for thousands of employers in Iowa. Cynthia Boyle Lande, an attorney with Brown Winick in Des Moines, says there are three key areas of concern for employers.
The Employer Mandate
When the ACA first went into effect, the Employer Mandate applied to employers with 100 or more full-time employees. However, beginning in 2016 the Mandate applies to employers with 50 or more full-time employees (including part-time equivalents).
This means employers who meet this standard are required to offer health insurance coverage to their employees that is affordable and provides “minimum value.”
Lande explains, “Coverage is affordable if the employee’s cost of employee-only coverage does not exceed 9.5 percent of the employee’s household income. And coverage provides minimum value if the policy pays at least 60 percent of covered costs.”
Qualifying employers who do not provide this minimum coverage are subject to severe penalties.
In addition to the change in number of employees, the reporting requirements are also changing. Employers required to offer coverage must report the insurance offering to employees each year and to the IRS.
“Initially deadlines were to coincide with deadlines for reporting W-2s. But in December, the IRS pushed that back,” Lande says. Employees were to be informed by March 31. The IRS reporting, if filing on paper, must be completed by May 31. If filing electronically, employers have until June 30. All employers with at least 250 full-time employees are required to file electronically.
“These deadlines apply to an employer’s 2015 numbers under the 2015 guidelines. So employers with 50 to 100 employees are not required to offer. But this data must be reported by the new deadline,” she says.
Beginning in 2016, the Internal Revenue Service will also be issuing penalties for employers who violate ACA guidelines.
“This really hits employers with 5 to 10 employees,” says Lande. “Employers that are reimbursing employees for individual policies are now subject to penalties because this practice violates two of the market reforms under the ACA: the prohibition on annual limits and the requirement to provide preventive services without cost sharing.”
She explains that many such business owners wanted to provide insurance for employees but were unable to find an affordable group policy because of their size. “Employers would have their employees buy their own insurance because they could get a better rate, then the employer would reimburse them for their premiums.”
This is contrary to the new ACA guidelines, and employers who continue to do so will be subject to penalties of $100 per day per employee. “They were doing more than was required,” Lande says, “and now the IRS is going to start issuing penalties for that.”
Lande offers the following advice to employers who had been doing this:
- Stop The reimbursements. “There are other options,” she says. “But most important, employers need to stop reimbursements.”
- Enroll in a group policy. More group policy options may be available at this point, and any insurance policy is less costly than the IRS penalties.
- Adjust employee salary or wages. “This is a bit of a gray area,” Lande explains. “So it needs to be handled carefully. The salary adjustment needs to avoid any connection to ‘insurance’ or ‘reimbursement.’”
Employers can adjust the employee pay to enable employees to purchase their own insurance, but the adjustment can’t be deemed “insurance reimbursement” or “insurance compensation” or anything similar. The increased pay will also be taxed as wages.
“It’s a difficult situation because some employers say this makes them appear less competitive as an employer since any adjustment to salary cannot be promoted as insurance-related,” she says.
Lande advises employers to consult with an attorney or a tax professional before making any decision about compensation or insurance-related benefits. “Much of what’s new for 2016 was in place already,” she says. “But the IRS had allowed a period of transition for employers, and that’s no longer the case.”
Updates in the Affordable Care Act, for the most part, simply put into effect guidelines that had been delayed since the Act was passed. But those updates could have a significant effect on your bottom line whether you’re an employer or an employee.