The Affordable Care Act (ACA) imposed an excise tax on the sale of certain medical devices by the manufacturer or importer of the device. The tax is 2.3 percent. Under the ACA, the excise tax was effective for the sale of medical devices after December 31, 2012. The tax is now under a two year moratorium. (more…)
Posts tagged ‘Obamacare’
The IRS is reminding applicable large employees (ALE) of upcoming information reporting deadlines under the Affordable Care Act (ACA) for the 2015 plan year (Heath Care Tax Tip 2015-80). Reporting for 2014 was voluntary; reporting for 2015 is mandatory. (more…)
Budget Act raises revenue with new tax compliance measures for partnerships, other changes
The new Bipartisan Budget Act of 2015, signed into law by President Obama in November, makes some far-reaching changes to partnership audits along with repealing automatic enrollment in health plans under the Affordable Care Act (ACA). The new law is a good preview of how Congress is looking to enhanced tax compliance as a revenue raiser. The tax compliance measures in the budget law, largely targeted to partnerships, are projected to generate more than $10 billion in revenue over 10 years. (more…)
Following the lead of the U.S. Department of Health and Human Services (HHS), the IRS has announced that employer-sponsored plans that fail to provide substantial coverage for inpatient hospitalization or physician services do not provide minimum value under the Affordable Care Act (ACA). The guidance from the IRS includes transition relief for eligible employer-sponsored plans. (more…)
After months of waiting, the U.S. Supreme Court announced its decision on the fate of the Code Sec. 36B premium assistance tax credit on June 25 in King v. Burwell, 2015-1 ustc ¶50,356. In a 6 to 3 decision, the Court held that enrollees in both federally-facilitated Marketplaces and state-run Marketplaces can claim the credit, which helps offset the cost of health insurance. The decision leaves in place the current IRS regulations on the credit and the regime for administering and claiming the credit.
Code Sec. 36B credit
The Affordable Care Act (ACA) created both the Marketplaces (previously called Exchanges) and the Code Sec. 36B credit. The Marketplaces connect eligible individuals with health insurance issuers. Some states have set up their own Marketplaces. In other states, the Marketplaces are operated by the federal government. Qualified enrollees may take advantage of the Code Sec. 36B credit if their incomes are within certain guidelines and they satisfy other requirements. When the IRS issued regulations on the Code Sec. 36B credit, the agency made the credit available to enrollees in state-run Marketplaces and federally-facilitated Marketplaces.
This decision by the IRS sparked controversy. A number of law suits were filed challenging the IRS’s regulations. According to the challengers, the ACA limited the availability of the tax credits to enrollees in state-run Marketplaces. Enrollees in federally-facilitated Marketplaces could not claim the credit. In the King case, both a federal district court and the Fourth Circuit Court of Appeals ruled against the challengers. The Supreme Court agreed to take up the case and heard oral arguments in March of this year.
Note. Not all of the challenges to the Code Sec. 36B regulations were unsuccessful in the lower courts. In a case very similar to King, the Court of Appeals for the District of Columbia Circuit struck down the IRS regulations as contrary to the plain language of the ACA. The split among the circuits left the outcome of the controversy far from certain.
Supreme Court’s decision
Chief Justice John Roberts delivered the Court’s decision in King. “Congress based the Affordable Care Act on three major reforms: first, the guaranteed issue and community rating requirements; second, a requirement that individuals maintain health insurance coverage or make a payment to the IRS; and third, the tax credits for individuals with household incomes between 100 percent and 400 percent of the federal poverty line. In a State that establishes its own Exchange, these three reforms work together to expand insurance coverage. Under petitioners’ reading, however, the Act would operate quite differently in a State with a Federal Exchange. As they see it, one of the Act’s three major re-forms – the tax credits – would not apply,” Roberts wrote. This outcome, the Court found, was not what Congress intended.
“The combination of no tax credits and an ineffective coverage requirement could well push a State’s individual insurance market into a death spiral. It is implausible that Congress meant the Act to operate in this manner,” Roberts added.
Three justices dissented in King. They would have found in favor of the challengers. “The Congress that wrote the Affordable Care Act knew how to equate two different types of Exchanges when it wanted to do so,” the dissent wrote. According to the dissent, the government did not show why the Court should have departed from the language of the ACA.
Since enactment of the ACA, the IRS and the U.S. Department of Health and Human Services (HHS) have issued instructions and guidance for enrollees in Marketplace coverage. The Marketplaces make initial determinations of eligibility for the credit. The IRS administers how enrollees claim the credit when they file their federal income tax returns. According to HHS, nearly 80 percent of all enrollees in Marketplace coverage have been eligible and have used the Code Sec. 36B credit to offset the cost of health insurance. The decision by the Supreme Court in King leaves the IRS regulations on Code Sec. 36B undisturbed. Going forward, nothing is expected to change for enrollees.
If you have any questions about the Code Sec. 36B credit and/or the Supreme Court’s decision in King, please contact our office.
The Affordable Care Act—enacted nearly five years ago—phased in many new requirements affecting individuals and employers. One of the most far-reaching requirements, the individual mandate, took effect this year and will be reported on 2014 income tax returns filed in 2015. The IRS is bracing for an avalanche of questions about taxpayer reporting on 2014 returns and, if liable, any shared responsibility payment. For many taxpayers, the best approach is to be familiar with the basics before beginning to prepare and file their returns.
Beginning January 1, 2014, the Affordable Care Act requires individuals (and their dependents) to have minimum essential health care coverage or make a shared responsibility payment, unless exempt. This is commonly called the “individual mandate.”
Nearly all employer-provided health coverage is treated as minimum essential coverage. This includes self-insured plans, COBRA coverage, and retiree coverage. Large employers will provide employees with new Form 1095-C, Employer-Provided Health Insurance Coverage and Offer, which will report the type of coverage provided. The IRS has encouraged employers to voluntarily report starting in 2015 for the 2014 plan year. Mandatory reporting begins in 2016 for the 2015 plan year.
Coverage obtained through the Affordable Care Act Marketplace is also treated as minimum essential coverage. Marketplace enrollees should expect to receive new Form 1095-A, Health Insurance Marketplace Statement, from the Marketplace. Individuals with Marketplace coverage will indicate on their returns that they have minimum essential coverage. Because so many individuals with Marketplace coverage also qualify for a special tax credit, they will also likely need to complete new Form 8962, Premium Tax Credit (discussed below).
Medicare, Medicaid and other government coverage
Medicare, TRICARE, CHIP, Medicaid, and other government health programs are treated as minimum essential coverage. There are some very narrow exceptions but overall, most government-sponsored coverage is minimum essential coverage.
Some individuals are expressly exempt under the Affordable Care Act from making a shared responsibility payment. There are multiple categories of exemptions. They include:
- Short coverage gap
- Religious conscience
- Federally-recognized Native American nation
- Income below income tax return filing requirement
The short coverage gap applies to individuals who lacked minimum essential coverage for less than three consecutive months during 2014. They will not be responsible for making a shared responsibility payment. Individuals who are members of a religious organization recognized as conscientiously opposed to accepting insurance benefits also are exempt from the individual mandate. Similarly, members of a federally-recognized Native American nation are exempt. If a taxpayer’s income is below the minimum threshold for filing a return, he or she is exempt from making a shared responsibility payment.
The IRS has developed new Form 8965, Health Coverage Exemptions. Taxpayers exempt from the individual mandate will file Form 8965 with their federal income tax return.
Shared responsibility payment
All other individuals – individuals without minimum essential coverage and who are not exempt – must make a shared responsibility payment when they file their 2014 return. For 2014, the payment amount is the greater of: One percent of the person’s household income that is above the tax return threshold for their filing status; or a flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285. The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014. Taxpayers will report the amount of their individual shared responsibility payment on their 2014 Form 1040.
The IRS has cautioned that it will offset a taxpayer’s refund if he or she fails to make a shared responsibility payment if required. However, the Affordable Care Act prevents the IRS from using its lien and levy authority to collect an unpaid shared responsibility payment.
Code Sec. 36B credit
Only individuals who obtain coverage through the Marketplace are eligible for the Code Sec. 36B premium assistance tax credit. The U.S. Department of Health and Human Services (HHS) has reported that more than two-thirds of Marketplace enrollees are eligible for the credit and many enrollees have received advance payment of the credit.
All advance payments of the credit must be reconciled on new Form 8962, which will be filed with the taxpayer’s income tax return. Taxpayers will calculate the actual credit they qualified for based on their actual 2014 income. If the actual premium tax credit is larger than the sum of advance payments made during the year, the individual will be entitled to an additional credit amount. If the actual credit is smaller than the sum of the advance payments, the individual’s refund will be reduced or the amount of tax owed will be increased, subject to a sliding scale of income-based repayment caps.
A change in circumstance, such as marriage or the birth/adoption of a child, could increase or decrease the amount of the credit. Individuals who are receiving an advance payment of the credit should notify the Marketplace of any life changes so the amount of the advance payment can be adjusted if necessary. Please contact our office if you have any questions about the Code Sec. 36B credit.
IRS officials have told Congress that the agency is ready for the new filings and reporting requirements. Our office will keep you posted of developments.
As January 1, 2015 draws closer, many employers are gearing up for the “employer mandate” under the Affordable Care Act. For 2015, there is special transition relief for mid-size employers. Small employers (employers with fewer than 50 full-time employees, including full-time equivalent employees) are always exempt from the employer mandate and related employer reporting.
Under Code Sec. 4980H, an applicable large employer must make a shared responsibility payment if either:
- The employer does not offer or offers coverage to less than 95 percent (70 percent in 2015) of its full-time employees and their dependents the opportunity to enroll in minimum essential coverage and one or more full-time employee is certified to the employer as having received a Code Sec. 36B premium assistance tax credit or cost-sharing reduction (“Section 4980H(a) liability”); or
- The employer offers to all or at least 95 percent of its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan and one or more full-time employees is certified to the employer as having received a Code Sec. 36B premium assistance tax credit or cost-sharing reduction (“Section 4980H(b) liability”).
For purposes of the employer mandate shared responsibility provisions, an employee is a full-time employee for a calendar month if he or she averages at least 30 hours of service per week. Under final regulations issued by the IRS earlier this year, for purposes of determining full-time employee status, 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week.
The IRS has provided two methods for determining whether a worker is a full-time employee: the monthly measurement method and the look-back measurement method. The monthly measurement method allows an employer to determine each employee’s status by counting the employee’s hours of service for each month. The look-back measurement method allows employers to determine the status of an employee as a full-time employee during a future period, based upon the hours of service of the employee in a prior period.
In September 2014, the IRS clarified the look-back method in certain circumstances. The IRS described application of the look-back method where an employee moves from one measurement period to another (for example, an employee moves from an hourly position to which a 12-month measurement period applies to a salaried position to which a 6-month measurement period applies). The IRS also described situations where an employer changes the measurement method applicable to employees within a permissible category (for example, an employer changes the measurement period for all hourly employees for the next calendar year from a 6-month to a 12-month measurement period).
Transition relief for mid-size employers
Mid-size employers are exempt from the Code Sec. 4980H employer mandate for 2015 under special transition relief. Employers qualify as mid-size if they employ on average at least 50 full-time employees, including full-time equivalents, but fewer than 100 full-time employees, including full-time equivalents.
The IRS has placed some restrictions on this transition relief for mid-size employers. During the period beginning on February 9, 2014, and ending on December 31, 2014, the employer that reduces the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition is ineligible for the transition relief. A reduction in workforce size or overall hours of service for bona fide business reasons will not be considered to have been made in order to satisfy the workforce size condition, the IRS explained.
Code Sec. 6056 requires certain employers to report to the IRS information about the health insurance, if any, they offer to employees. The IRS has posted draft forms and instructions about Code Sec. 6056 reporting on its website: Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage.
Information reporting encompasses (among other things):
- The employer’s name, address, and employer identification number;
- The calendar year for which information is being reported;
- A certification as to whether the employer offered to its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an employer-sponsored plan;
- The number, address and Social Security/taxpayer identification number of all full-time employees;
- The number of full-time employees eligible for coverage under the employer’s plan; and
- The employee’s share of the lowest cost monthly premium for self-only coverage providing minimum value offered to that full-time employee.
Code Sec. 6056 reporting for 2015 is mandatory. Although mid-size employers may be exempt from the employer mandate, they are not exempt from Code Sec. 6056 reporting for 2015. The IRS is requiring all Code Sec. 6056 information returns to be filed no later than February 28 (March 31 if filed electronically) of the year immediately following the calendar year to which the return relates.
Please contact our office if you have any questions about preparing for the employer mandate and Code Sec. 6056 reporting.