Integrated HRAs

A new option exists for employers when it comes to paying for employee health care coverage. On June 13th, the U.S. Departments of the Treasury, Labor, and Health and Human Services (the Departments) issued a final rule allowing employers to use pretax dollars to subsidize employee premiums in the individual health insurance market. Now, employers of all sizes that do not offer a group coverage plan can fund a new health reimbursement arrangement (HRA) known as individual coverage HRA (ICHRA).

Previously, under the Affordable Care Act, employers were prevented from offering stand-alone HRAs that would allow an employee to purchase coverage on the individual market. That has changed. Employers now have the option to provide their workers and their families with tax-preferred funds to pay all or a portion of the cost of coverage that workers purchase in the individual market. The departments posted an FAQs regarding the new regulation. ICHRAs are advantageous to employers because they maintain the tax favored status that apply to a traditional group health plan. Additionally, another employer-sponsored insurance called Excepted Benefit HRAs (EBHRA) allows employers to finance an additional pretax $1,800 per year to reimburse employees for certain qualified medical expenses (such as premiums for vision and dental insurance) even if the employee opts out of enrollment in the traditional group plan.

Qualified Small Employer HRAs (QSEHRA) are still an attractive alternative to group coverage for smaller employers- those with fewer than 50 full-time employees. Under QSEHRAs, employers can give their employees money tax-free to purchase individual health policies through the ACA exchange, similar to ICHRAs. Employees can use these funds to pay all or part of the insurance plan premium or pay for out-of-packet medical costs. While ICHRAs are void of caps on annual allowance amounts, in 2019, QSEHRAs allowance amounts were capped at $5,150 for self-only employees and $10,450 for employees with a family. While ICHRAs are free of caps, employees who choose ICHRAs will not be able to receive any premium tax credit/subsidy for exchange-based coverage. In some instances, if an employer funds an ICHRA or a QSEHRA coupled with individual-market insurance, this will bar the individual-market coverage from becoming part of the Employee Retirement Income Security Act (ERISA).

If employers choose to offer ICHRAs, then the new regulations require a written notice be issued to all employees who are eligible. In this notice, employers need to include a provision that states the ICHRA may make them ineligible for a premium tax credit or subsidy when buying an Affordable Care Act exchange-based plan. ICHRAs will be available for plan years starting on or after January 1, 2020. Employers offering an ICHRA with a plan year that begins on January 1, 2020 should help eligible employees understand that they must enroll in individual health insurance coverage during the open enrollment period, November 1, 2019 through December 15, 2019, for individual health insurance coverage that takes effect on January 1, 2020.

ICHRAs and EBHRA are two new health insurance arrangements that could provide smaller employers with innovative and more cost-effective ways to finance worker health insurance coverage. The IRS has noted that including safe harbor provisions to ensure employers still satisfy the ACA’s affordability and minimum value requirements with ICHRAs will come out later this year.

© 2019 Vandenack Weaver LLC

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IRS Issues Guidance on Health Care Reporting Requirements for 2017

by Joshua A. Diveley

The IRS issued guidance October 17, 2017, indicating Forms 1040 for the 2017 tax year will not be accepted if the taxpayer does not report on the health coverage reporting requirements of the Affordable Care Act (ACA). For prior tax years, returns that did not report required ACA information were delayed for processing, but it did not prevent the return from ultimately being processed and any applicable refund from being issued.

In general, the ACA requires taxpayers to obtain minimum essential health insurance coverage for themselves and any dependents. If sufficient coverage is not obtained, the ACA imposes a penalty. Form 1040 directs taxpayers to report the existence or non-existence of essential coverage or whether an exemption from coverage applies.

The IRS guidance is available at: https://www.irs.gov/tax-professionals/aca-information-center-for-tax-professionals.

© 2017 Vandenack Weaver LLC
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Small Business Health Care Tax Credit

As a result of the Affordable Care Act (ACA), qualified small employers may be eligible to receive a tax credit for a portion of the health insurance premiums paid on behalf of their employees. The Internal Revenue Service recently released a reminder regarding the credit.

There are several requirements for small businesses to qualify for the credit. The small business must have fewer than twenty-five (25) full time equivalent employees, pay an average wage of less than $50,000 a year, and pay at least half of the employee health insurance premiums. Additionally, the employers must be enrolled in a qualified health plan offered through a Small Business Health Options Program Marketplace, or meet certain exceptions to the requirement.

The maximum credit is 50% of the premiums paid. Portions of the credit are phased out for employers paying employees over $25,000 and employers with more than 10 full time employees. The credit may not be claimed for more than two consecutive years.

If your business might qualify for the Small Business Health Care Tax Credit, a calculator is available through Healthcare.gov to estimate your tax credit, see https://www.healthcare.gov/shop-calculators-taxcredit/

© 2016 Vandenack Williams LLC
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IRS Issues Notice on PPACA “Cadillac” Tax

On July 30, 2015, the Internal Revenue Service (IRS) issued Notice 2015-52, addressing issues and seeking public comments on the implementation of the “Cadillac” tax on high-cost health insurance under the Patient Protection and Affordable Care Act (“PPACA”). The Cadillac tax is intended to discourage expensive health care plans by imposing a non-deductible 40 percent excise tax on the portion of health plan costs that exceed a predetermined dollar amount. The tax, which will go into effect in 2018, generally applies to healthcare benefit packages costing more than $10,200 for individuals and $27,500 for families, subject to certain proposed adjustments. Although the law was passed in 2010, many details of how the tax will be implemented still remain to be sorted out.

For example, one of the basic issues with the Cadillac tax is determining who has the responsibility to pay it. The law provides that the tax must be paid by the “coverage provider.” Depending on the circumstances, that may be the insurance company, the employer or “the person that administers the plan benefits.” However, some key terminology impacting these determinations have yet to be defined. Other unresolved complexities addressed the in IRS notice include: timing issues relating to calculation and payment of the tax, circumstances under which employers will be aggregated for purposes of the tax, and adjustments to the dollar limit based on age and gender.

The IRS has invited public comments on the issues raised in the Notice, as well as any other issues relating to the Cadillac Tax. Public comments are due no later than October 1, 2015. Comments received will be used in the preparation of forthcoming Treasury Regulations governing the Cadillac tax.

Notice 2015-52 is available at the following link: http://www.irs.gov/pub/irs-drop/n-15-52.pdf.

© 2015 Houghton Vandenack Williams
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New IRS Guidance Clarifies Tax Treatment of HSAs

Health savings accounts (HSAs) are a useful tool for employees and employers because of their tax-favored status. The IRS has recently clarified that certain Affordable Care Act rules will not affect the tax treatment of HSAs.

An HSA must be paired with a high-deductible health plan (HDHP) to receive tax-favored treatment. The Affordable Care Act requires health plans to provide certain preventive services with no deductible or cost-sharing. There was some concern that this rule would result in loss of HDHP status with the effect of HSAs losing tax favorable treatment. The IRS, however, has indicated that HDHPs will not lose their status as HDHPs solely because they offer the preventive services required by the Affordable Care Act. Thus, HSAs will still be a strong, tax-favored tool for dealing with medical expenses.

© 2013 Parsonage Vandenack Williams LLC

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IRS Releases Update on Partial ACA Postponement

The start date for employer reporting requirements under the ACA has now been pushed back to 2015. In response, the IRS has stated that it will release proposed rules for these requirements later this summer. As a result, employers will have additional time to prepare for the new law. They also will not be penalized for failing to comply with ACA reporting requirements for 2014.

The IRS notice also provides a clue as to how it may handle penalties under the ACA. Starting in 2015, certain employers must offer affordable coverage to their full-time employees. If they do not, and any of their full-time employees receive a premium tax credit, they may have to pay a penalty. But, employers will generally not know whether their employees received a premium tax credit. Thus, the IRS has indicated that it may inform employers if their full-time employees received a premium tax credit. If this is the case, employers may not have to determine if their employees have received premium tax credits.

© 2013 Parsonage Vandenack Williams LLC

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IRS Issues Proposed Regulations on Employer Shared Responsibility

The IRS has released proposed regulations explaining employer duties under the ACA. The regulations apply to employers who have more than 50 full-time employees or equivalents. Such employers may have to pay penalties if they do not offer affordable coverage to their employees.

In part, the regulations explain how the ACA affects employers. For example, they explain how to count full-time employees. The regulations provide sufficient detail that employers can begin to plan for 2014.

The IRS has established a new safe harbor for minor lapses in coverage. An employer offering affordable coverage generally will not violate the Act if it covers at least 95% of its employees. The IRS has also included rules that will make complying easier for employers who previously provided insurance for their employees. Similarly, the IRS will provide relief for employers who are close to the 50 full-time employee threshold.

Detailed information will become available at www.pvwlaw.com under Legal Articles and Information.

© 2013 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com