ACA Reporting: An Overview and New Developments

OCAHU Business Development Summit – 2/28/20 Marilyn A. Monahan, Monahan Law Office

Agenda

ACA Reporting: • New Developments • Shared Responsibility Penalties • Completing the Forms • IRS and HHS Activity: ACA Enforcement

More New Developments . . . . • California and the ACA

Resources and Questions

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New Developments

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Texas v. United States

On December 18, 2019, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit ruled 2-1 that the ACA’s individual mandate is unconstitutional

The appellate court then remanded the case to the trial court in the Northern District of Texas to determine whether the individual mandate is severable from, or inextricably linked with, the rest of the law, and based on that determination whether the entire law should be invalidated

21 Democratic state attorneys general and governors and the House asked the Supreme Court to review this year; the Supreme Court has declined

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Funding Bill and SECURE Act

The year-end funding bill and the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) include some significant changes to the ACA and more

Repeals: • Excise Tax on High Cost Employer-Sponsored Coverage (Cadillac Tax) • Annual Fee on Health Insurance Providers (1/1/21) • Medical Device Excise Tax • Parking tax on non-profits

Extends: • Patient Centered Outcomes Research Institute Fee (PCORI) for 10 years

(extended through 9/30/29); IRS Form 720 due July 31 • Paid family leave tax credit (12/31/20) • E-Verify (9/30/20) • Work Opportunity Tax Credit (12/31/20)

SECURE Act makes significant changes to retirement plan benefits

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Has Your Business Grown?

Are you an “applicable large employer” (ALE)? • ALE calculation is based on the average number of employees the

employer had during the preceding calendar year (50 or more FT + FTE) o Example: If an employer had 50 or more employees in 2018, the

employer is subject to §4980H and reporting requirements for 2019 Action Items: Becoming an ALE impacts §4980H compliance, Forms

1094/1095 reporting, and small group coverage availability Compliance Tip: Watch for changes in staff size and mergers and

acquisitions; aggregated (control) group rules apply Resources: IRS Publications 5200 and 5208 Compliance Tips for CA: Small group coverage in CA is for employers with no

more than 100 employees (more later on CA impact on ACA)

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Shared Responsibility Penalties

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Shared Responsibility Penalties

Individual Shared Responsibility Penalty • Eliminated for 2019 (Tax Cuts & Jobs Act) • But: California Minimum Essential Coverage Individual Mandate (S.B.

78) is effective 1/1/20 (more later) (also, MA, NJ, RI, VT, DC) • What impact might this change have on group health plans?

Employer Shared Responsibility Penalty (26 U.S.C. § 4980H) • Still in effect for “applicable large employers” (ALEs) • The employer shared responsibility penalties adjust each year:

o For calendar year 2019, (a) penalty is $2,500 & (b) is $3,750 o For calendar year 2020, (a) penalty is $2,570 & (b) is $3,860

• New: Statute of limitations: None (IRS Memo 20200801F) Employer IRS Form 1094/1095 Reporting

• Still in effect (more later—S.B. 78) 8

§4980H and Affordability Calculations

To avoid the §4980H(a) and (b) penalties, the “applicable large employer” (ALE) member must offer “minimum essential coverage” (MEC) to at least 95% of its full-time employees and their dependent children (not spouses); coverage must also be “affordable” and of “minimum value” (MV) to avoid a §4980H(b) penalty

Full-time employees: An employee who is employed an average of 30 hours of service per week • To determine if employee is a FT employee, employer may count hours

using the (a) monthly or (b) look-back measurement method (LBMM) • Do not have to offer coverage to part-time employees • Do not have to offer coverage during “limited non-assessment periods”

(LNPs), such as a waiting period or initial measurement period

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Penalties: §4980H(a)

If the employer does not offer MEC to at least 95% of its FT employees (and their dependent children),

And at least 1 FT employee enrolls in an individual plan through a Marketplace (such as Covered CA) and receives a “premium tax credit” (PTC),

Then the employer will be assessed an (a) penalty: • For 2019, penalty is $2,500 per year ($208.33/month) per FT employee,

but do not count first 30 FT employees o 2020: $2,570/year ($214.17/month)

• 2019 Example: 200 FT – 30 = 170; 170 x $2,500 = $425,000 penalty

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Penalties: §4980H(b)

If employer offers enrollment in MEC to at least 95% of its F/T employees (and their dependent children),

But the value of coverage is not “minimum value” (MV) or is not “affordable” (so that an individual qualifies for a premium tax credit (PTC)), and

At least one FT employee enrolls in an individual plan through a Marketplace (such as Covered CA), and receives a PTC,

Then the employer will be penalized a (b) penalty: • For 2019, the lesser of $2,500 per FT employee (less 30 FT employees)

or $3,750 ($312.50/month) per FT employee receiving PTC o 2020: $3,860/year ($321.67/month)

• 2019 Example: In 2019, ALE offers MEC coverage to 95% of its FT employees, but coverage is not MV and affordable; 5 FT employees receive PTC; 2019 penalty is $18,750

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§4980H and Affordability Calculations

Employer coverage is not affordable if employee contribution toward self-only premium for the employer’s lowest-cost plan that provides “minimum value” (MV) exceeds 9.5% of “household income”– • 9.86% for 2019; 9.78% for 2020

May determine affordability based on one of the three safe harbor methods: W-2, rate of pay, or federal poverty line (FPL)

Action Item: Recalculate affordability (contributions) each year • New affordability percentage issued each year (see above) • Adjust rate of pay if minimum wage changes (more over) • FPL will adjust each year; may use FPL in effect 6 mos. prior to plan

year: 2019 FPL is $12,490 and 2020 FPL is $12,760 for continental US, 1-person home

Compliance Tip: SBC discloses if plan is MEC and MV Compliance Tip: Document, document, document

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Minimum Wage

California: On January 1, 2020, the minimum wage in California increased to $12/hour for employers with 25 employees or less, and to $13/hour for employers with 26 or more employees (ALEs)

Municipalities: New minimum wage rates went into effect January 1, 2020, in various California cities, including Belmont, Cupertino, Daly City, El Cerrito, Los Altos, Menlo Park, Mountain View, Novato, Oakland, Palo Alto, Petaluma, Redwood City, Richmond, San Diego, San Jose, San Mateo, Santa Clara, Sonoma, and Sunnyvale

Compliance Tip: Don’t forget to also update workplace posters

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Safe Harbor Examples (2020)

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• Box 1 wages: $27,040 ($13/hour, 40 hours/week) • $27,040 ÷ 12 = $2,253 • $2,253 x .0978 = $220.34

W-2

• Based on a formula, not actual hours worked • $13 x 130 = $1,690 • $1,690 x .0978 = $165.28

Rate of Pay

• 2019 FPL: $12,490; $12,490 ÷ 12 = $1,040.83; $1,040.83 x .0978 = $101.79

• 2020 FPL: $12,760; $12,760 ÷ 12 = $1,063.33; $1,063.33 x .0978 = $104

FPL

Safe Harbor Examples (2019)

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• Box 1 wages: $24,960 ($12/hour, 40 hours per week) • $24,960 ÷ 12 = $2,080 • $2,080 x .0986 = $205.09

W-2

• Based on a formula, not actual hours worked • $12 x 130 = $1,560 • $1,560 x .0986 = $153.82

Rate of Pay

• 2019 FPL: $12,490 (2018 FPL = $12,140) • $12,490 ÷ 12 = $1,040.83 (2018 FPL = $1,011.67) • $1,040.83 x .0986 = $102.63 (2018 FPL = $99.75)

FPL

IRS Forms 1094/1095 Reporting

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Why It Matters

The IRS needs to know: 1. Whether individuals have health coverage (if not, prior to 2019, they

had to pay an individual shared responsibility penalty) 2. Whether individuals who obtained coverage from the Marketplace are

entitled to a subsidy (PTC) 3. Whether ALE members owe an employer shared responsibility penalty

(a §4980H(a) or (b) penalty) These forms provide the data needed to make these determinations The forms which have to be prepared, furnished, and filed:

• Form 1094-C (transmittal) (typically, one form per employer) • Form 1095-C (employee statement) (typically, one for each FT employee)

Note: Even ALEs that do not offer coverage must furnish/file the forms; small employers that self-fund have to furnish/file Forms 1094/1095-B

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Forms 1094/1095: Deadlines for 2019 Forms

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Employer Obligation Due Date

Furnishing 1095-Cs to Employees • Deadline Extended (IRS Notice 2019-63)

January 31, 2020 • March 2, 2020

Filing 1094-C and 1095-Cs with the IRS (on paper)

February 28, 2020

Filing 1094-C and 1095-Cs with the IRS (electronically) (required if filing ≥250 1095-Cs)

March 31, 2020

• No additional extensions will be granted to furnish the Forms 1095-C. • Employers may file a Form 8809 to obtain a 30-day extension to file the forms. • Small employers that self-fund must file and furnish Forms 1094-B and 1095-B.

Forms 1094/1095: Reporting Penalties

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2015 Penalty

2016 Penalty

2017 Penalty

2018 Penalty

2019 Penalty

Failure to file with IRS (max)

$250 ($3M)

$260 ($3,193,000)

$260 ($3,218,500)

$270 ($3,275,500)

$270 ($3,339,000)

Failure to furnish to employee (max)

$250 ($3M)

$260 ($3,193,000)

$260 ($3,218,500)

$270 ($3,275,500)

$270 ($3,339,000)

Intentional disregard

$500 (no cap)

$530 (no cap)

$530 (no cap)

$540 (no cap)

$550 (no cap)

• Penalty relief available for 2015-2019 if employer can show good faith effort to comply (IRS Notice 2019-63). • No relief in the case of ALE members that (a) cannot show a good faith effort to comply and (b) fail to timely file an information return or furnish a statement.

Forms 1094/1095: Changes for 2019

Forms 1095-B still required; Part III of Form 1095-C still must be completed; however,

IRS Notice 2019-63: Insurers do not have to mail the Forms 1095-B if they meet two conditions: • Prominently state on website that notices are available and provide

contact information • Provide notices within 30 days of a request

Forms remove references to individual shared responsibility penalty Note: Employees in states with individual shared responsibility penalty in

2019 will want a copy of this form Note: What is going to happen for the 2020 Forms 1094/1095?

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How to Complete the Forms

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How to Complete the Forms: Scenario 1

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Acme Consulting, Inc. has 120 FT employees at beginning of 2019 and 20 PT employees

Acme offers MEC coverage to all FT employees, spouses, & dependents (so, MEC coverage offered to at least 95% of FT employees and dependent children); calendar year plan

Coverage is fully insured, MV, and “affordable” • $90/mo. for self-only coverage for the lowest cost plan (FPL)

John Q. Participant was hired ($12/hr) and started work on Feb. 1, 2019 Because of a waiting period, John was offered coverage and he enrolled

the first of the month after 1 month of employment (3/1); he also enrolled his wife (Susan) and daughter (Emma)

Acme had no other terminations or new hires during the year Acme is not part of an aggregated (control) group

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1H = No offer of coverage 1A = MEC, MV, FPL offered to employee; MV offered to spouse & dependent(s)

2A = Not employed during the month 2D = LNP (waiting period) 2C = Enrolled

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Scenario 2: Rate of Pay Safe Harbor ($150/mo.)

1H = No offer of coverage 1E = MEC, MV offered to employee; MV offered to spouse & dependent(s)

Form 1094-C, Line 22: Do not check box A (because not using FPL safe harbor)

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Scenario 3: John Waives Coverage

2A = Not employed during the month 2D = LNP (waiting period) 2H = rate of pay safe harbor

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Scenario 4: Same Facts as Scenario 1, but Acme Is Self-Funded

IRS and HHS Activity: ACA Enforcement

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IRS Activity

IRS 226J Letter: The purpose is to notify you that you may owe a §4980H penalty for a specific tax year • Includes proposed “Employer Shared Responsibility Payment” (ESRP) • Basis for ESRP explained in ESRP Summary Table (more over) • Form 14764 and Form 14765 (more later) will be attached • 30 days to respond; may request an extension

IRS 5699 Letter: The purpose is to notify you that you have not filed the 1094/1095 forms for a specific tax year • 30 days to respond; may request an extension

Action Items: Don’t panic; be prepared to respond timely; ask for help when needed; get your records and supporting documentation together; consider problems that may exist in subsequent years and fix them

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ESRP Summary Table: Example

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January: Beta Corp. did not offer MEC coverage to at least 95% of its FT employees; 3 FT employees received a PTC that month. February: Beta Corp. did offer MEC coverage to at least 95% of its FT employees, but it was not affordable; 3 FT employees received a PTC that month. March: Beta Corp. did offer MEC coverage to at least 95% of its FT employees, but it was not affordable; no FT employee received a PTC that month.

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HHS Activity

Marketplace Appeal: Appeal made to HHS; the purpose is to let you know that an employee received an APTC from the Marketplace (Covered CA) • 90 days to respond

HHS is seeking very specific information about each employee identified The documents requested are designed to prove that this employee was:

1) Made an offer of coverage for the calendar year, and that the employee waived or accepted the coverage

2) Offered coverage that was affordable, based on the employee’s income 3) Offered coverage that was affordable, based on the cost of coverage 4) Offered coverage that was MV (tip: SBC)

Compliance Tips: For open enrollment, ensure that your lowest-cost plan—for entire calendar year—is clearly identified on the SBC and rate sheet (use same name), that the monthly cost of coverage for that plan is identified, and that names of employee and employer are identified

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The End . . . or Fishing for More Information? California ACA Update

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CA: Individual Shared Responsibility Penalty

S.B. 78: California Minimum Essential Coverage Individual Mandate

The federal Tax Cuts & Jobs Act reduced the ACA’s individual shared responsibility penalty to zero, effective 12/31/18

Effective 1/1/20, California effectively reinstates it, at the state level Californians (unless exempt) must have MEC coverage or may have to pay a

penalty when they file their individual tax return with the FTB MEC coverage includes individual plans; small and large group employer-

sponsored plans; Medicare Part A; Medicare Advantage; Medi-Cal; TRICARE Premium assistance (PTC) to pay for coverage is expanded Action Item: S.B. 78 contains a reporting requirement for employers Action Item: May encourage group plan enrollment—communicate Action Item: Covered CA open enrollment recently extended

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Plan Eligibility: Effect of New CA Laws

A.B. 5 – Common Law Employees & Independent Contractors: If you re-define independent contractors as employees, they could become eligible for benefits & impact ACA implementation (ALE status, 1094/1095 reporting, etc.) • Action Items: (a) Consult with employment lawyer; (b) review plan terms and

update as necessary

S.B. 30 – Registered Domestic Partners: Effective January 1, 2020, S.B. 30 expands definition of who is eligible to register in CA as DP • Action Items: (a) For fully insured plans—and self-funded plans that cover

registered DPs—this means more people will be eligible; (b) review plan eligibility language to ensure it is consistent with change in the law

Compliance Tip: For ACA purposes, make certain your plan language (wrap/SPD)

defines eligibility and waiting period, and describes look-back measurement method (if you use it)

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Resources and Checklists

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ACA Checklist for ALEs for Open Enrollment

Choose MEC, MV plan ACA is focused on lowest-cost plan, but may also offer buy up options SBC confirms MEC, MV status

Choose affordability safe harbor and calculate employee self-only premium contribution; document safe harbor; create rate sheet

Define eligibility and waiting period; document in SPD Identify FT employees and offer MEC, MV, affordable coverage to at least 95% As you prepare open enrollment materials, for each month of the calendar year,

ensure that your lowest-cost plan is clearly identified on the SBC and rate sheet (use same name); that the monthly cost of coverage for that plan is identified; and that enrollment form/waiver includes name of employee, employer, plans offered, coverage period, and date

Compliance Tip: Keep records! SBCs, rate sheets, affordability safe harbor, employee counts, waviers, etc.—everything you need to complete the 1094/1095 forms and respond to an IRS audit or HHS appeal

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Resources

From Monahan Law Office: • IRS Form 1095-C (2019): Indicator Codes for Lines 14 and 16 • IRS Form 1095-C (2019): Limited Non-Assessment Periods (LNPs) • IRS Reporting Action Plan (2019)

From the IRS: • Instructions for Forms 1094-C and 1095-C (2019) • Publications 5208 and 5200: Affordable Care Act: Are you an

applicable large employer? • ACA Information Center for Applicable Large Employers (ALEs) (online) • Questions and Answers about Information Reporting by Employers on

Form 1094-C and Form 1095-C (online) • Questions and Answers on the Individual Shared Responsibility

Provision (online)

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Questions?

Marilyn A. Monahan Monahan Law Office

4712 Admiralty Way, #349 Marina del Rey, CA 90292

(310) 989-0993 marilyn@monahanlawoffice.com

www.monahanlawoffice.com @MonahanLawCA

© 2020 Marilyn A. Monahan.

All rights reserved.

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Legal Notice

The information provided during this program does not constitute legal

advice. In addition, this program only provides a summary of certain complex and always evolving laws and regulations. Attendees should

consult their legal counsel for guidance on the application and implementation of the many federal and state laws that impact employee

benefit plans, including the topics discussed during this program.

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