FAQ: Understanding Employers’ “Responsibility” in the Federal Health Care Reform Law

FAQ: Understanding Employers’ “Responsibility” in the Federal Health Care Reform Law https://wahospitality.org/wp-content/uploads/2012/07/healthcare-headlines273.jpg

**NOTE** On July 2, 2013, the Internal Revenue Service announced that the penalty for employers  with 50 or more full-time equivalent employees that do not provide health care coverage to their employees will be delayed until 2015.

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The federal Patient Protection and Affordable Care Act (ACA) includes several components that apply to employers and business owners regardless of size.  While the most onerous of the provisions apply to employers with 50 or more full-time equivalent employees, each requirement brings forward new challenges for employers of all sizes.  Employers need to be aware of upcoming reporting requirements and the changes to existing processes that may be necessary to comply with these requirements.

The following are Frequently Asked Questions pertaining to several of these requirements:

Employee Notification

By October 1, 2013, all employers must provide written notification to their employees regarding the availability of a state-based health insurance exchange in their state.  According to the temporary rule issued by the federal Department of Labor in May 2013, this notification must also be provided to all new hires within 14 days of hire.

What information must be included in the employee notification of the state-based health insurance exchange?

The notice to inform employees of the state health insurance exchange must include the following:

  • Information regarding the existence of the exchange, as well as the contact information and description of the services provided in the exchange;
  • Notification that the employee may be eligible for a federal subsidy if the employee purchases coverage through the exchange; and
  • Notification that if the employee chooses coverage in the exchange, that he or she may lose the employer contribution (if any) to coverage offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

Can I just hold a staff meeting and verbally tell all employees about the exchange?

You may hold a meeting to discuss the availability of the state-based health insurance exchange, but the official notification must be provided in writing to all employees and must be written at a level in which your average employee will understand the information in the notice.  If your business is organized to allow electronic notification, you may provide the information electronically to your employees, but you must follow the Department of Labor’s safe harbor guidelines for electronically transmitting notifications.

How am I supposed to know how to write at the “level” in which my “average” employee can understand the written notification?

The Department of Labor has issued model language that employers are encouraged to use either in its entirety or as a guideline for how to draft a more tailored notification.  The model language is provided in both English and Spanish versions.  You may find the model language at:  http://www.dol.gov/ebsa/healthreform/index.html

How often must I share this information with my employees?

The law indicates that employers must provide this information annually to all employees.  However, the rules recently issued are temporary and speak to notification of all current employees prior to October 1, 2013, and to all new hires within two weeks of hire.  Permanent rules regarding communication of this information after 2013 will likely be released next year.

W-2 Reporting

Beginning with the 2013 tax year, all employers must include on each employee’s W-2 the amount of premium contributions (if any) the employer made on behalf of the individual employee.

I am a small employer and am not required to provide health care coverage to my employees but I choose to do so.   Am I required to report the premium contributions I make on behalf of these employees?

Yes, this requirement applies to all employers providing health care coverage, regardless of size.

Which contribution amounts must be included on the W-2?

At this time employers are only required to include the amount paid for major medical health care coverage provided to the specific employee.  Employers may choose to include coverage for standalone dental or vision plans, employer-only contributions to employees’ flexible savings accounts; health reimbursement arrangement contributions; or Archer medical savings account contributions, but are not yet required to do so.

Must I include employee premium contributions as well?

Yes, you must report the aggregate amount of premium contributions made by both the employer and the employee.

Will the aggregate premium contributions be considered taxable wages for my employees?  No

Will I be taxed on the premium contributions included on the W-2s of my employees?  No

Employer Responsibility

The federal law requires that employers with 50 or more full-time equivalent employees must either offer coverage to their full-time employees or face a potential IRS penalty.

How do I know whether I may be required to either provide health care coverage or pay the penalty?  How do I determine my employer size?

Size matters.  Any employer that has 50 or more FTEs (full-time equivalencies, not just full-time employees) will be subject to this requirement.  Take the following steps to determine your overall employer size:

  1. Divide employees into two pools:  Pool 1 should include all employees working 30 or more hours per week (this pool should include both hourly and salaried employees); and Pool 2 should include all other employees
  2. Take the body count of all employees in Pool 1 that work 30 or more hours per week.  Set this number aside.
  3. Total the number of hours worked by all employees included in Pool 2 during a four-week month, and divide the total hours by 120. (Note:  employers are allowed to exclude hours worked by seasonal employees that will not work more than 120 consecutive days in the year).
  4. Add the total from step 3 to the total in step 2 above – this will equal the total number of FTEs and determine your employer size.

For the most accurate measurement of employer size, complete these calculations for a consecutive six-month period of time and take the average of the sizes identified.

How will the government know if I am not providing coverage?

The IRS will be alerted by the state-based exchange when an individual comes to the exchange and applies for and receives a federal tax subsidy to purchase health coverage.  During this process, the state will identify whether the individual was employed and if so, will gather the name of the employer. The state will then contact you to gather information on your employer size and verify that you are not providing coverage.  They will then provide this information to the IRS which will investigate further.

How much is the penalty?

Employers not providing coverage will be assessed a penalty of $2,000 per full-time employee minus the first 30 full-time employees.

EX 1: An employer with 112 FTEs, but only 67 full-time employees, chooses not to provide coverage and one of their full-time employees applies for and receives a federal subsidy to purchase coverage in the exchange.  The employer will pay $2,000(67-30) = $74,000 in 2014

EX 2: An employer with 72 FTEs but only 26 full-time employees, chooses not to provide coverage and one of their full-time employees applies for and receives a federal subsidy to purchase coverage in the exchange.  The employer will pay $2,000(26-30) = $0.  This employer even though they are an applicable large employer based on size, will not pay a penalty given the allowable set-aside for the first 30 full-time employees.

When will penalties begin?

Eligible employers will be subject to the potential penalties beginning in 2014.  The IRS has not yet issued rules identifying whether the penalty will be applied immediately upon notification that an eligible employee has accessed a federal subsidy or whether it will be payable along with quarterly or annual taxes.  Additional rules will be released in the future to address these issues.

Who is considered a full-time employee?

Full-time employees include those employees working on average 30 or more hours per week.

What if I have more than one business?

It is possible you will have to aggregate employees from all of your businesses in order to determine your employer size.  Common control provisions, not individual business identification numbers, determine whether you must aggregate all employees.  Common control will apply when an individual or group of up to five individuals owns more than 80% of two or more businesses.  If common control applies, follow the steps identified above including all employees in the commonly controlled businesses in the calculations.

RESOURCES

Exchange notification technical release:  http://www.dol.gov/ebsa/newsroom/tr13-02.html

Department of Labor model language for employee exchange notification:  http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf

Donna Steward, President, Kiawe Public Affairs

This publication is intended to inform employers about provisions of the Patient Protection and Affordable Care Act and how those provisions may affect them.  This information should not be construed as legal or tax advice, and readers should not act upon the information contained therein without professional counsel.

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