ACA Compliance Errors that Can Get You in Trouble with theIRS

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The IRS is Issuing ACA Penalties To Home Health & Hospice Agencies

October 15, 2019

AFFORDABLE CARE ACT TERMS

• FT (Full-Time)

• FTE (Full-Time Equivalent)

• PT (part-time)

• ALE (Applicable Large Employer)

• MEC (Minimum Essential Coverage)

• MV (Minimum Value)

• PTC (Premium Tax Credit)

• ESRP (Employer Shared Responsibility Payment)

• LNAP (Limited Non-Assessment Period)

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Who Does the Employer Mandate Impact?

• Applies to an “employer” with 50 or more FT or FTE employees, referred to as an Applicable Large Employers (ALE).

How Do You Determine the “Employer”?

• Internal Revenue Code (IRC) section 414(b), (c), (m), or (o) (“Controlled Group”)

• An “employer” is defined to include all entities that are part of the same “employer aggregated group,” which can include a “controlled group,” and/or an “affiliated service group.”

• An “employer” also includes “predecessors” and “successors,” which become relevant when there is a acquisition or asset purchase.

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How Do You Determine ALE Status?

• All of the employees of the “employer aggregated group” must be considered for ALE testing.

• Sole proprietors, partners, 2% or more S Corp shareholders, for example, are not employees for purposes of ALE testing, but often take a salary on payroll.

ALE Calculation

• An employee with 130 or more hours per month is considered FT for the month for purposes of determining whether an offer of coverage is required.

• An employee with 120 hours or more per month is considered FT for the month for purposes of determining ALE status.

• The hours of all employees with less than 120 hours per month are added and then divided by 120 to determine the total FTEs for purposes of determining ALE status.

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ALE Calculation

• Add each months total FT and FTE counts for all 12 months in the preceding tax year and divide by 12. Round down to get your ALE status.

• If the result is 50FT/FTE or greater, then you are an ALE.

• FT/FTE Reports are not your ACA FT employees!

ALE Requirements

• An ALE is required to file annual information returns with the IRS under Section 6056 of the Internal Revenue Code. The filings detail the ALE’s offers of health care coverage to its employees (and their dependents).

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ALE Requirements

• If ALEs do not make adequate offers of health coverage, they can be assessed by the IRS an ESRP penalty under Section 4980H of the Internal Revenue Code.

What is 4980H?

IRC 4980H(a) Each Month:

Offer a health plan with MEC to at least 95% of FT employees and their dependents.

• Avoids 4980H(a) penalty

• Often called the “Hammer” penalty

Failure to meet this requirement will trigger the 4980H(a) penalty if at least one FT employee received a PTC.

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4980H(a) Penalty Amount

*Monthly Penalty for every 100 FT employees

2015: $173.33 X 100 = $17,333.00

2016: $180.00 X 100 = $18,000.00

2018: $193.33 X 100 = $19,333.00

2019: $208.33 X 100 = $20,833.00

2020: $214.91 X 100 = $21,491.00

* Does not included the 80 freebies for 2015 or the 30 freebies for all years after.

What is 4980H?

IRC 4980H(b) Each Month:

Offer of coverage to FT employees must be both:

• Affordable (3 safe harbors available: Federal Poverty Line (FPL), Rate of Pay, W-2)

• MV

Failure to meet this requirement will trigger the 4980H(b) penalty for every FT employee that receives a PTC.

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4980H(b) Penalty Amount

Not Minimum Value or Affordable

• 2015 = $260 per PTC listed employee

• 2016 = $270 per PTC listed employee

• 2017 = $282.50 per PTC listed employee

• 2018 = $290 per PTC listed employee

• 2019 = $312.50 per PTC listed employee

• 2020 = $321.66 per PTC listed employee

4980H(a) Tied To 4980H(b)?

• Stop and ask yourself one question

• Do you have ACAs largest penalty risk tied to your “Minimum Value” plan sold to you by your Broker?

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ACA is Complex

1. Employer Aggregation Analysis (to figure out which entities are grouped together as the single employer) for ALE status determination.

2. Applicable Large Employer Group Analysis (e.g., average FT/FTE analysis for prior year).

3. Establish Monthly Measurement Method or Look-Back Measurement Method.

4. If Look-Back Measurement Method selected, define the “Standard” & “Initial” Measurement, Administrative & Stability Periods.

ACA is Complex

1. Obtain Time & Attendance / Payroll data: Required date range of data will depend on measurement method used.

2. Examine existing health benefits offering – “Plan Level” (MEC, MV, Affordability, Waiting Periods).

3. Obtain Health Benefits Data: “Employee Level” (Eligibility/Enrollmentperiods).

4. Calculate FT/PT status using payroll, time & attendance, and leave o absence records.

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ACA is Complex

1. Calculate trending FT/PT and pending FT/PT employees.

2. Determine 4980H compliance %, and 4980H(a) & (b) penalty exposure ($).

3. Document/store audit defense records (e.g., offer of coverage/enroll/decline records, measurement methodology, etc.).

4. Repeat Steps 7-10 each month (Monthly Reporting).

Monthly KPIs

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Monthly Missed Offers

Monthly Required Offers

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Monthly IRS Documentation Checklist

IRC 6056 Reporting

IRC 6056 Each Year:

1. Report to IRS on the monthly offer and coverage requirements for 4980H

penalty assessments.

• File Forms 1094-C & 1095-C with IRS.

2. Report to FT Employees on the monthly offer and coverage by the

Employer: “Employee Disclosure.”

• Furnish Forms 1095-C to applicable individuals.

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IRC 6056 Reporting Deadlines

Late Filing/Furnishing Penalties

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IRS “ACV” System

• Tax Inspector General for Tax Administration (TIGTA) reported that the IRS had been working on building an Affordable Care Act Compliance Validation “ACV” System to be ready by June 2017 for enforcement of 2015 tax year.

• The IRS ACV System cross references the TINs of these individuals’ Forms 1095-C with their corresponding Forms 1095-A, which are reported by the state or federal market place exchanges for individuals who obtain PTCs.

IRS “ACV” System

Potentially Significant Outcomes: 4980H(a) & (b) Penalties

• IRS determines a FT employee was entitled to PTC and the ALE was not in

compliance with IRC Section 4980H(a) (failed to offer MEC to at least 95%

of the FT employees and their dependents). ALE may be assessed a

4980H(a) penalty based on the ALE’s entire workforce for each month of

noncompliance if at least one FT employee received a PTC.

• IRS determines an FT employee was entitled to PTC and the ALE was not in

compliance with IRC Section 4980H(b) (MV and/or Affordability

requirements to a FT employee that was not in a LNAP). ALE may be

assessed a 4980H(b) penalty for each month the FT employee received a

PTC.

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IRS “ACV” System

Potentially Significant Outcomes: Employee Eligible for PTCs?

• IRS determines employee was not entitled to PTC. ALE does not get assessed Section 4980H penalty for this employee. IRS claws back the PTC from the employee.

• IRS determines employee was entitled to PTC but ALE was in compliance (e.g., met MEC, MV and Affordability requirements to the FT employee that was not in a LNAP; was not an employee or FT in LNAP, etc.). ALE does not get assessed Section 4980H penalty for this employee.

Form 1095-C “Employee Disclosure”

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Form 1095-A “Exchange PTCs”

IRS “ACV” System

• November 2017 ACV issues first 2015 Letter 226J penalty notices.

• IRS reported 434,507 1094-Cs by 318,296 employers filed in 2015.

• IRS identified 49,259 employers at risk in 2015 alone or 1 in 9 filers.

• IRS Issued Assessments for 2015 totaling $4.5 billion.

• IRS acknowledges missing many employers in 2015.

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IRS “ACV” System

• October 2018 IRS begins issuing 2016 Letter 226J penalty notices.

• January 2019 IRS begins issuing 5005-A/886-A assessments to employers who failed to file 1094-C and 1095-C forms.

• June 2019 IRS begins issuing 226J for the 2017 Tax Year.

• July 2019 IRS begins issuing 972CG penalties to late filers.

2019 Mainland Federal Poverty Line

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How Many Obtain PTCs?

• 2019 Exchange 11,444,141 Enrollees

• 9,710,535 Received a PTC

• Average PTC is $539/Month

California

• 2019 1,513,883 Enrollees

• 1,311,943 Received PTCs

• Average PTC is $470/Month

Other States 2019

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The Employer Mandate Is Here to Stay

• 2019 ACA’s Individual Mandate is $0

• Individual Mandate does not change Employers’ obligations under the Employer Mandate.

• States implementing individual mandates to fill in the gap (CA, NJ, VT, MA, D.C.)

• More considering (MD, HI, CT, RI, MN)

The Employer Mandate is Here to Stay

• The ACA Employer Mandate continues to be the law of the land and has been since 2015

• Good faith effort Transition Relief available for 2015-2018 reporting from IRC 6721/6722 penalties (1094/1095 corrections) NOT IRC 4980H penalties(offering to 95%, MV, 9.5%)

• 2015 and 2016 had almost 100,000 226J notices totaling several billion dollars in penalties

• IRS is currently beginning 2017 tax year audits

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What To Do Next?

1. Confirm your ALE status from 2015-2018 and each year moving forward. (Don’t forget about “Employer Aggregation Groups.”)

2. If you haven’t made your ACA filing with the IRS, file your Forms 1094-C and 1095-C NOW to toll the statue of limitations on penalties.

3. Review your 2017-2018 filed Forms 1094-C and 1095-C for errors and correct them as reasonably possible to take advantage of the ACA’s “Good Faith” provisions.

4. Obtain the 2015-2018 Receipt ID and Filing Status: “Accepted,” “Accepted with Errors,” or “Rejected.”

5. Seek the consultation of experts in this field and don’t just rely on your insurance broker to keep you in compliance!

Keep Current

• Find publications and blogs to keep you current on regulatory and enforcement issues.

• www.acatimes.com

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CONTACT INFORMATION

Name: Gregg Kasubuchi

Title: Vice President SalesOrganization: Truasic fka: First Capitol Consulting Email Address: gkasubuchi@truasic.com

Phone Numbers: O: 213-355-5108

M: 626-215-5279