OVERVIEW

On Sept. 11, 2019, the IRS updated their Questions and Answers (Q&As) on the employer shared responsibility rules under the Affordable Care Act (ACA), to include adjusted penalty amounts for 2019 and 2020. According to the FAQs, the penalty amounts will be increased as follows:

• For calendar year 2019, the adjusted $2,000 amount is $2,500 and the adjusted $3,000 amount is $3,750.
• For calendar year 2020, the adjusted $2,000 amount is $2,570 and the adjusted $3,000 amount is $3,860.

ACTION STEPS

Employers that owe a pay or play penalty will receive a Letter 226-J from the IRS, which will propose and assess the applicable penalties. The IRS began issuing Letter 226-J to employers in late 2017 to propose and assess pay or play penalty liability for the 2015 calendar year. For 2016 calendar year liability, the IRS began issuing Letter 226-J in 2018.

Employers subject to these rules should ensure that they are offering the required coverage, or they may face increased penalties for each year in which they fail to comply.

Overview of the Pay or Play Penalties

The ACA requires applicable large employers (ALEs) to offer affordable, minimum value health coverage to their full-time employees (and dependents) or pay a penalty. This employer mandate is also known as the “employer shared responsibility” or “pay or play” rules.

An ALE will face a penalty if one or more full-time employees obtain a subsidy through an Exchange. An individual may be eligible for a subsidy either because the ALE does not offer coverage, or offers coverage that is “unaffordable” or does not provide “minimum value.”

Penalty for ALEs Not Offering Coverage—The 4980H(a) Penalty

Under Section 4980H(a), an ALE will be subject to a penalty if it does not offer coverage to “substantially all” full-time employees (and dependents) and any of its full-time employees receives an Exchange subsidy. An ALE satisfies the requirement to offer coverage to “substantially all” of its full-time employees and their dependents if it offers coverage to at least 95%—or fails to offer coverage to 5% (or, if greater, five)—of its full-time employees (and dependents).

Under Section 4980H(a), the monthly penalty assessed on ALEs that do not offer coverage to substantially all full-time employees (and their dependents) is equal to the ALE’s number of full-time employees (minus 30) x 1/12 of $2,000, for any applicable month. After 2014, the $2,000 penalty amount is indexed by the premium adjustment percentage for the calendar year.

Penalty for ALEs Offering Coverage—The 4980H(b) Penalty

ALEs that do offer coverage to substantially all full-time employees (and dependents) may still be subject to penalties if at least one full-time employee obtains a subsidy through an Exchange because:

• The ALE did not offer coverage to all full-time employees; or
• The ALE’s coverage is unaffordable or does not provide minimum value.

Under Section 4980H(b), the monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is 1/12 of $3,000 for any applicable month. However, the total penalty for an ALE would be limited to the Section 4980H(a) penalty amount. After 2014, the $3,000 penalty amount is indexed by the premium adjustment percentage for the calendar year.

Pay or Play Penalty Adjustments

The pay or play rules provide for an inflation adjustment beginning in calendar years after 2014. For calendar years after 2014, the applicable per-employee penalty amounts of $2,000 and $3,000 are increased based on the premium adjustment percentage for the year, as follows:

• For 2015, the adjusted $2,000 amount is $2,080 and the adjusted $3,000 amount is $3,120.
• For 2016, the adjusted $2,000 amount is $2,160 and the adjusted $3,000 amount is $3,240.

• For 2017, the adjusted $2,000 amount is $2,260 and the adjusted $3,000 amount is $3,390.
• For 2018, the adjusted $2,000 amount is $2,320 and the adjusted $3,000 amount is $3,480.
• For 2019, the adjusted $2,000 amount is $2,500 and the adjusted $3,000 amount is $3,750.
• For 2020, the adjusted $2,000 amount is $2,570 and the adjusted $3,000 amount is $3,860.

Enforcement Procedures

The general procedures the IRS uses to propose and assess the employer shared responsibility penalties are described in Letter 226-J. The IRS will issue Letter 226-J to an ALE if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee).

ALEs must respond to Letter 226-J—either agreeing with the proposed employer shared responsibility penalty or disagreeing with part or all of the proposed amount—before any employer shared responsibility liability is assessed and notice and demand for payment is made. Letter 226-J provides instructions for how the ALE should respond in writing.

If, after correspondence between the ALE and the IRS, the IRS determines that an ALE is liable for an employer shared responsibility penalty, the IRS will assess the penalty and issue a notice and demand for payment (Notice CP 220J). Notice CP 220J will:

• Include a summary of the employer shared responsibility penalty and reflect any payments made, credits applied and the balance due, if any; and
• Instruct the ALE how to make a payment, if any.

ALEs will not be required to include the employer shared responsibility penalty on any tax return that they file or make a payment before notice and demand for payment. For payment options, such as entering into an installment agreement, refer to Publication 594, The IRS Collection Process.

The employer shared responsibility penalty is subject to IRS lien and levy enforcement actions. Interest will accrue from the date of the notice and demand and continue until the ALE pays the total penalty balance due.

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OVERVIEW

On Dec. 20, 2019, President Trump signed into law a spending bill that prevents a government shutdown and repeals the following three taxes and fees under the Affordable Care Act (ACA):

• The Cadillac tax on high-cost group health coverage, beginning in 2020;
• The medical devices excise tax, beginning in 2020; and
• The health insurance providers fee, beginning in 2021.

The law also extends PCORI fees to fiscal years 2020-2029.

ACTION STEPS

Employers should be aware of the evolving applicability of existing ACA taxes and fees so that they know how the ACA affects their bottom lines. Deutsch & Associates, LLC will continue to keep you informed of changes.

Cadillac Tax

The ACA imposes a 40 percent excise tax on high-cost group health coverage, also known as the “Cadillac tax.” This provision taxes the amount, if any, by which the monthly cost of an employee’s applicable employer-sponsored health coverage exceeds the annual limitation (called the employee’s excess benefit). The tax amount for each employee’s coverage will be calculated by the employer and paid by the coverage provider.

Although originally intended to take effect in 2013, the Cadillac tax was immediately delayed until 2018 following the ACA’s enactment. A federal budget bill enacted for 2016 further delayed implementation of this tax until 2020, and also:

• Removed a provision prohibiting the Cadillac tax from being deducted as a business expense; and
• Required a study to be conducted on the age and gender adjustment to the annual limit.

Then, a 2018 continuing spending resolution delayed implementation of the Cadillac tax for an additional two years, until 2022.

There was some indication that these delays would eventually lead to an eventual repeal of the Cadillac tax provision altogether. The Cadillac tax has been a largely unpopular provision since its enactment, and a number of bills have been introduced into Congress to repeal this tax over the past several years.

The 2019 continuing spending resolution fully repeals the Cadillac tax, beginning with the 2020 taxable year.

Health Insurance Providers Fee

Beginning in 2014, the ACA imposed an annual, nondeductible fee on the health insurance sector, allocated across the industry according to market share. This health insurance providers fee, which is treated as an excise tax, is required to be paid by Sept. 30 of each calendar year. The first fees were due Sept. 30, 2014.

The 2016 federal budget suspended collection of the health insurance providers fee for the 2017 calendar year. Thus, health insurance issuers were not required to pay these fees for 2017. However, this moratorium expired at the end of 2017. A 2019 continuing resolution provided an additional one-year moratorium on the health insurance providers fee for the 2019 calendar year, although the fee continued to apply for the 2018 calendar year.

The 2019 continuing spending resolution fully repeals the health insurance providers fee, beginning with the 2021 calendar year. Employers are not directly subject to the health insurance providers fee. However, in many cases, providers of insured plans have been passing the cost of the fee on to the employers sponsoring the coverage. As a result, this repeal may result in significant savings for some employers on their health insurance rates.

Medical Devices Excise Tax

The ACA also imposes a 2.3 percent excise tax on the sales price of certain medical devices, effective beginning in 2013. Generally, the manufacturer or importer of a taxable medical device is responsible for reporting and paying this tax to the IRS. The 2016 federal budget suspended collection of the medical devices tax for two years, in 2016 and 2017. As a result, this tax did not apply to sales made between Jan. 1, 2016, and Dec. 31, 2017. A 2018 continuing resolution extended this moratorium for an additional two years, through the 2019 calendar year. The moratorium is set to expire beginning in 2020.

The 2019 continuing spending resolution fully repeals the medical devices tax, beginning in 2020. Therefore, as a result of both moratoriums and the repeal, the medical devices tax does not apply to any sales made after Jan. 1, 2016.

PCORI Fees

The ACA created the Patient-Centered Outcomes Research Institute (PCORI) to help patients, clinicians, payers and the public make informed health decisions by advancing comparative effectiveness research. The Institute’s research is funded, in part, by fees paid by health insurance issuers and sponsors of self-insured health plans. Under the ACA, the PCORI fees were scheduled to apply to policy or plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019.

The 2019 continuing spending resolution reinstates PCORI fees for the 2020-2029 fiscal years. As a result, specified health insurance policies and applicable self-insured health plans must continue to pay these fees through 2029.

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It’s no secret that the concept of healthy eating has taken over American society. With the vast amount of information on healthy eating and healthy recipes that is readily available on the internet, you might think that it would be easy to clean up your eating habits. However, the truth is that many recipes on the internet do not contain nutritional facts and sometimes require a variety of new and expensive ingredients.

The Eat Well, Live Well: Recipe Book pulls a handful of recipes from the U.S. Department of Agriculture’s (USDA) website. This recipe book provides recipes in the following categories: breakfast, snacks, side dishes, entrees and desserts.

Each category features five recipes, lists serving sizes and provides nutritional information. The Eat Well, Live Well: Recipe Book is designed to make eating and cooking healthy meals, snacks and treats a bit easier by providing you with government-sponsored recipes.

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Losing weight may be the greatest battle that you fight in your lifetime. Experts speculate that a wide variety of issues affect how people gain and lose weight, yet gauging how to tip your energy balance is a great way to move the scale in your favor.

The first step in losing unwanted pounds is to determine how many calories you must consume each day to maintain your current weight. To do so, multiply your current weight by 15 (roughly the number of calories per pound per body weight needed to maintain your weight, if you are moderately active). Being moderately active means engaging in 30 minutes of physical exercise daily, such as a brisk walk, using an elliptical machine or climbing stairs.

Here’s an example: A woman who is 5 feet 4 inches tall and weighs 155 pounds must lose 15 pounds to be within a healthy weight range. Multiplying 155 by 15 yields 2,325 calories per day; that is the number of calories that the woman must eat to maintain her weight. If she wants to lose one to two pounds per week, she should eat 500 to 1,000 calories less (1,325 to 1,825). If she is not active, she should incorporate exercise into her routine.

Counting Calories

Counting calories to hit your target consumption goal does not need to be difficult. Here are some ways to do so:

• Avoid high fat or processed packaged foods and snacks.
• Add up the number of calories per serving of all the foods that you consume and then plan your meals around your target calorie total. To do so, read food and drink labels and pay close attention to serving sizes. Also, ask for nutrition information when eating out
• Eat meals that are low in calories at regular intervals. Plan your meals and snacks for specific times of the day and stick with this game plan.
• Cook with lean cuts of meat.
• Choose foods that are filling, yet low in calories, such as whole grains, fruits, and vegetables.
• Avoid eating fried foods—instead, cook in pans lightly coated with cooking spray or braise foods with wine or broth. Baking, broiling, and roasting are other methods for cooking that add no fat to the meal.
• Eat low-fat or fat-free dairy products, to get protein and calcium without the fat.
• Avoid fast foods that are high in calories and are portioned larger than what an average adult needs to consume for one meal.
• Avoid drinking soda, fruit juices and alcohol that are all high in calories. Opt for water, skim milk or diet soda instead.
• Avoid prepared “low calorie” meals (often frozen) that are high in sodium—focus on eating fresh foods.
• Eat fewer carbohydrates. Calories from carbs add up quickly—consuming fewer carbs will speed up your weight loss.