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August 5, 2015

Affordable Care Act (ACA) Reporting Requirements Update for Small Business

Two Issues of Concern for All Small Business: 

One aspect of the Affordable Care Act (ACA) that has largely been ignored has the potential to seriously impact some small businesses.  Under Section 4980D of the Internal Revenue Code an excise tax of $100 per day per employee can be assessed against an employer that reimburses employees for privately purchased health insurance rather than providing an actual group health plan through the business.    Plans (or simply “arrangements”), formal or informal, where the employer reimburses employees for out of pocket medical costs such as deductibles, co-payments, or non-covered procedures, may  also be subject to this excise tax.  The excise tax is assessed regardless of whether the reimbursement is treated as a pre-tax employee benefit or even as a post-tax addition to compensation as long as it is reported to the employee and calculated based on the cost or value of health insurance.  The only way to avoid the excise tax is to give the employee an unrestricted increase in compensation.  These types of arrangements are considered group-sponsored health plans that do not comply with the ACA.  It is important to note that the excise tax continues to be imposed at $100 per day for each day during which a failure to comply with the ACA occurs until such failure is corrected. Having just one employee with such an arrangement could result in a penalty of $36,500, assuming the failure to comply with the ACA was for only one year.  Having five employees with such an arrangement would increase that penalty to $182,500, assuming the failure to comply with the ACA was for only one year.  Also to be considered is the fact that the excise tax is not deductible at any level making the economic impact even greater. 

The $100 per day excise tax was scheduled to go into effect in 2014 but enforcement was delayed until July 1, 2015.  If you are still providing benefits to employees under this type of arrangement please contact your Wiss Tax Advisor immediately. 

Also going into effect for the 2015 tax year are new reporting requirements for Applicable Large Employers (ALE).  An Applicable Large Employer is an employer with more than fifty full time employees.  All such large employers are required under the ACA to provide health insurance to their employees.  Enforcement of this requirement will be aided primarily through new reporting requirements on forms 1095-B and 1095-C.  If you are an Applicable Large Employer you should (A) ensure that you are providing the appropriate level of Minimum Essential Coverage to your employees; (B) familiarize yourself with the filing requirements of these forms; and, (C) take steps now to ensure that you, or your payroll service provider, have the information needed and systems in place to file the forms at the end of the year. 

Small employers who do not meet the definition of an ALE must report participant coverage information to the IRS if they sponsor a self-funded health plan.  However, small employers who offer only fully insured plans are not subject to the reporting requirements.  Health insurance companies will report individual participant coverage details to the IRS for fully insured plans. 

If you prepare your own payroll, or if you are unsure whether or not your payroll provider is properly equipped to file these forms on your behalf please contact your Wiss Tax Advisor immediately to avoid unnecessary confusion and last-minute scrambling in December and January. 

If you have general questions about the Affordable Care Act, any information provided in this message, or suggestions for a future update on this subject, please contact Arthur SchwartzmanAndrew Goldstein, or Mike Bodrato at aschwartzman@wiss.comagoldstein@wiss.commbodrato@wiss.com. Arthur and Andrew can be reached at 212.594.8155 and Mike at 973.994.9400.