We received a lot of great questions following the ACA seminar. We appreciate the submissions and have attempted to answer them below:
Q1: What happens if you don't have a filing requirement, but do file to either close the year or recoup the small amount of withholding that got taken? Does that over-ride the exemption?
A1: There are two issues here. The first is if there is no filing requirement you would not be required to include this income in determining the Household Income when applying at The Marketplace (ACA Seminar Manual: page 26, 5b). As for the exemption, there are several different exemptions that could apply, but the main one would be: The individual does not have to file because income is to low, below the filing requirement. Filing will not override the exemption as long as there was no required filing necessary (ACA Seminar Manual: page 5, B).
Q2: Are we supposed to look up the premium cost?
A2: There are 3 possible forms related to your question. Form 1095-A issued by the Marketplace will show the Premium Amount in column A of Part III. This form will be issued by the insurance company where the individual purchased insurance through the Marketplace. The form is required to be available by January 31, 2014 and is required to be mailed. Form 1095-B which is Health Coverage issued by a private insurance carrier is an optional form for 2014, but may be issued if the insurance company is ready for the 2015 filing season. The requirement of this form to be provided to the individual who purchased coverage is delayed until 2015 and will be mandatory to be provided in 2016 for the 2015 tax season. This form will not show the premiums paid, but your clients should be able to provide that information upon request. The form will show the months covered and the individuals covered by the insurance plan as well as the insurance carrier information. Finally, Form 1095-C: The Employer Provided Health Insurance or Offer and Coverage Form is also delayed until the 2016 tax season, but some large employers may provide if their systems are ready. This form will provide similar information as Form 1095-B plus information concerning the "employee share of lowest cost monthly premium for self only coverage. Please review the forms in the appendix section of your text. As instructions are released we may have more information concerning the forms at a later date.
Q3: How does the IRS know what the "lowest cost" plan is for a specific individual?
A3: This information will be provided on Form 1095-A Part III. Please review the Form in the Appendix section of the ACA Seminar Manual.
Q4: Are we supposed to verify the client's claim of premium cost?
A4: In past years, the question of health coverage, at least in the State of Iowa has been a common question as it is fully deductible on the State of Iowa tax return, as long as it is not pre-taxed. In addition, it is a figure that is asked for possible increased itemized deductions. Since we had 22 states participating via webinar, other states may also have state income tax issues related to health care costs. Your question deals with the verification of this information and just how far would you have to go in determining if the information is correct. Circular 230 Section 10.22 Diligence to Accuracy states the practitioner must exercise "Due Diligence". Circular 230 Section 10. 34 Standards of Practice, also states a practitioner may rely on clients information in "good faith" without verification, BUT, if the information seems unreasonable, incorrect or otherwise frivolous THEN it would be up to the practitioner to ask and document the additional questions and based on that information, you may want to request some documentation to support the item.
Q5: How do we determine & document the "lowest-priced coverage available"?
A5: This is an issue that will be determined by the Marketplace. Information will be included in Form 1095-A in Part III.
Q6: When talking about 'the lowest cost Bronze plan' - is that a bronze plan unique to the state? Or the area? Or the person?
A6: All plans will be unique per the state in which the taxpayer resides. In the ACA Seminar Manual, pages 39-40 listed the Benchmark Plans that the Marketplace uses in the calculations of the Premium Tax Credits. The plans will also vary based on if there is tobacco use, age and whether or not the applicant is pregnant, plus there are other factors depending on the health plan chosen. There is no one size fits all.
Q7: Would a College Student away from home 8-11 months per year, required to file a return, considered a member of household, for 8% test?
A7: Yes, but only if the individual is required to file a tax return. There has to be a filing requirement. This would not apply, if the filing of the return was only to get a refund and there was no filing requirement present. (ACA Seminar Manual, page 5 discusses this issue).
Q8: When does the form 8965 get filed? How long do we expect the IRS to take to respond to the form 8965?
A8: Form 8965 is the Health Care Exemption form. A draft of the Form 8965 Instructions has been issued which define the Codes required in Part III Column C. If there is an exemption, the Form must be filed with the tax return at the time of filing. If the client is applying for an exemption based on: coverage being unaffordable(Code A), a short gap in coverage(Code B), a citizen living abroad(Code C), membership in a health care sharing ministry( Code D), membership in a federally recognized tribe(Code E), a hardship exemption for two or more members of a tax household whose combined cost of employer-sponsored coverage is considered unaffordable ( Code G), a hardship exemption for individuals who purchased insurance through the initial open enrollment( Code G), Tricare or Medicaid programs that are not minimum essential coverage( Code H), CHIP application during open enrollment (Code G), eligible for services from and Indian health care services provider(Code E) or being incarcerated (Code F), they can claim the exemption through the use of the Form 8965. But, if they are claiming an exemption based on: membership in a recognized religious sect whose members object to insurance, or an exemption based on another hardship, they must apply for this through the Marketplace. As to how long IRS will take to match and respond if needed, we will have to see how that all falls out as practitioners do their part to comply. (ACA Seminar Manual, pages 6-11 and the Form 8965 is in the appendix).
Q9: If we have married individuals who are "separated" how much documentation are we going to need to save up in order to keep our clients safe?
A9: Circular 230 Section 10.22 Diligence to Accuracy states the practitioner must exercise "Due Diligence". Circular 230 Section 10. 34 Standards of Practice, also states a practitioner may rely on clients information in "good faith" without verification, BUT, if the information seems unreasonable, incorrect or otherwise frivolous THEN it would be up to the practitioner to ask and document the additional questions and based on that information, you may want to request some documentation to support the item. If you have to do any "shared allocations" calculations on Form 8962 Part 4 you will need detailed information. More is always better. At the National Tax Forum Karen Hawkins, Director of OPR made it very clear concerning "Due Diligence" when preparing returns.
Q10: Will the Form 8965 have to be filed with every return?
A10: You would file Form 8965 only if the client has been granted a Marketplace exemption from coverage or they are claiming another allowable coverage exemption. Refer to A8 (above) for more information.
Q11: Do we all need HIPPA forms from our clients since we are dealing with health info?
A11: Based on the definition below, no personal health records are being disclosed, only the cost of health coverage which will be used to preparer a correct and complete tax return if needed. If you are requested to provide any confidential health records to a third party, you must have your client sign the HIPPA form, and you must specifically describe in the form what information you are providing, to whom you are providing it, and for what purpose it has been requested. If you are the one requesting use of the confidential health records, you must provide a copy of this form to your client.
There is speciic language required to be included in this form, and this specific language is in the form provided to you here. You may add additional elements to the form, so long as they do not contradict the required language. We recommend that you use the form exactly as it is provided for you here.
Q12: In the following year where do tax payments get applied first? Penalty or income tax?
A12: If there is an outstanding tax liability from the current year, any credits will be applied to the current year tax, to determine the final amount due. If there is still a refund to be paid and a tax liability, such as an Individual Shared Responsibility Payment Penalty, was accessed in a previous year, IRS will take the amount due from any remaining refund in the current year and apply it to the balance due.
Q13: If a client claims an exemption when they file the tax return, whether they were eligible or not, is that reviewed? Are they subject to the penalty after the fact if it is not determined that they were eligible for the hardship?
A13: At this phase of the ACA implementation, we do not know what information IRS will have at its disposal to verify exemptions. We do know that information is to be shared by various authorities with the IRS, but how IRS uses or chooses not to use the information is unknown. Common sense would tell me that they will probably create some filters to identify possible notices to be issued on various pieces of information supplied by the various new ACA forms. I would anticipate a notice, requiring the taxpayer to verify any exemption that was not obtained through the Marketplace. If obtained through the Marketplace I think a person has to provide information upfront in order to obtain that exemption. Form 8965 currently does not provide us with any instructions as to what form of documentation needs, if any, to be provided with the tax return. There may not be any that will need to be provided; which means "compliance" will occur after the fact, through the audit process. In this case, do your "Due Diligence" and get as much information as you can for the taxpayer's file concerning the exemption and the steps you took to request the information. Bottom Line: WE DO NOT KNOW HOW FAR IRS WILL GO WITH PREPARER RESPONSIBILITIES CONCERNING THIS ISSUE. We do not want to see preparer penalties issued.
Q14: If we are filing 8965 with the tax return, and the exemption isn't approved until certified, where do we get the exemption certificate number required in column C?
A14: Form 8965 is the Health Care Exemption form. We are eagerly awaiting instructions on this form which will define the Codes required in Part III, Column 3. If there is an exemption, the Form must be filed with the tax return at the time of filing. If the client is applying for an exemption based on: coverage being unaffordable, membership in a health care sharing ministry, membership in a federally recognized tribe or being incarcerated, they can claim the exemption through the use of the Form 8965. But, if they are claiming an exemption based on: membership in a recognized religious sect whose members object to insurance, eligible for services through an Indian Health Care Provider or an exemption based on hardship, they must apply for this through the Marketplace and the Marketplace will issue them a Certificate of Exemption Number which you will use on the Form 8965. As to how long IRS will take to match and respond if needed, we will have to see how that all falls out as practitioners do their part to comply. (ACA Seminar Manual, pages 6-11 and the Form 8965 is in the appendix).
Q15: Will a penalty from one year be carried forward into perpetuity?
A15: Yes, until the 10 year collection statute expires, if of course the return was filed.
Q16: Do you anticipate that the employers will need to complete the 1095-C, or will the employer's health insurance provider provide the 1095-C forms to the employees?
A16: It depends; we are awaiting the final instructions. But, if you look at the Form 1095-C, much of the information will need to be supplied by the insurance company in combination with information from the employer. We can anticipate that the insurance plan will issue the Form 1095-C after obtaining the required information from the employer.
Q17: Who creates the 1095-A, B or C? Employer, Tax Preparer or Insurance Company?
A17: Form 1095-A will be issued by the insurance company through the Marketplace. Form 1095 B and C, we can anticipate they will be issued by the insurance provider, see Q16 and A16 also.
Q18: No enforcement on the penalty? Is it fair to assume this will be an added provision in the future?
A18: It is possible, but as long as there is a refund in future years IRS can reduce the refund and collect the penalty.
Q19: So, if I have a client who provides health insurance to his employees, I am assuming that client will be responsible for providing 1095-C forms to all employees?
A19: We are still awaiting the final instructions of the Form 1095-C, but much of information the insurance carrier will have. See Q16/A16 and Q17/A17 for more information.
Q20: Is every employer required to file a 1095-C and report no coverage is offered?
A20: The form 1094-C appears to only apply to Applicable Large Employers (ALE). Once we have the instructions, we will have more information. At this time, it only appears to apply to ALE's.
Q21: If the insurance companies are not issuing 1095 forms for the 2014 year, how will we report the coverage?
A21: There is a safe harbor giving insurance companies another year to comply with the reporting requirement. I would anticipate some will try to comply next year to provide that information to the insurers. Those who do not provide some documentation of coverage, places the tax return preparer in a position to do their best to gather the information needed.
Q22: Will Wellmark "generally" be creating the 1095-c? Again, generally.
A22: Yes
Q23: It appears the "hardship" exception and the fact IRS can't enforce the penalty through collection that the Robert's tax was setup to fail. Is that accurate?
A23: Depends on the viewpoint.
Q24: What about divorced parents claiming a dependent but does not live with you?
A24: First, if that person is claiming the child as a dependent they would be required to provide dependent health coverage for that dependent or pay the "Shared Responsibility Payment". If they were exempt from providing coverage they would file the Form 8965, and I am hoping there will be a code in the instructions for just this purpose where when the child is shared between various years on a tax return and only one provides the insurance coverage there is a way to provide that information. Until the Form 8965 instructions are released we will not know how this will be handled. Hopefully we will have more on this later.
Q25: So if a child does custom hire for a farmer down the road for $3000 that requires us to report it, but if they get a W-2 for $3000 they won't have a filing requirement so it won't get included?
A25: There are two issues here. The first is if there is no filing requirement you would not be required to include this income in determining the Household Income when applying at The Marketplace (ACA Seminar Manual, page 26, 5b). If the income is on Form 1099 as nonemployee compensation that would create a filing requirement and the income would be included in Household Income for the purpose of applying at the Marketplace. If the income were on a Form W-2 they would most likely be under the filing requirement if this was the only income and the income would not be included. As for the exemption, there are several different exemptions that could apply, but the main one would be: The individual does not have to file because income is to low, below the filing requirement. Filing will not override the exemption as long as there was no required filing necessary (ACA Seminar Manual, page 5, B).
Q26: Can gambling winnings be offset by gambling losses?
A26: Gambling winning are reported on line 21 on the front of Form 1040 and can only be offset as an itemized deduction. Therefore, the winnings will be included in income when determining the MAGI for the Marketplace.
Q27: Does a Schedule C or F loss reduce the income (offsetting W-2 income) for purposes of the tax credit?
A27: Yes.
Q28: If a person gets married during the year and one or both have insurance credit, but their combined income makes it so that no credit is available, will this result in a massive credit repayment? Is this a consideration of when to get married?
A28: Maybe. In the ACA Seminar Manual, page 43 discusses the repayment and the caps on the repayment amounts. This type of situation could generate additional tax in the form of a repayment. You would have to prepare Part 4 of the Form 8962 Shared Allocation.
Q29: Am I understanding correctly that forms 1095-B and 1095-C are not required to be issued until 2016 for the 2015 tax year? If so, isn't that going to make figuring the Roberts' tax complex without forms to provide the information? Or am I mistaken about the dates?
A29: You are correct about the dates. This will make it difficult. I have addressed this in various other questions with the best information we have right now.
Q30: I still don't understand - if the insurance companies are not required to issue 1095 forms for the 2014 tax year, how can we figure the penalty, the PTC, etc?
A30: Several other questions address this issue. Remember the Premium Tax Credit will not be an issue as the Form 1095-A is required to be issued for the 2014 year. That will be issued by the Marketplace insurers. Forms 1095-B and Form 1095-C are delayed until 2015 and issued in 2016 for the 2015 year. I imagine some companies will issue, but we will have to wait and see. I am working on a series of interview questions and will try and address this issue for all. Which means your 2015 interview will be more important than ever.
Q31: If in Iowa your income drops below 133% of poverty level, do you have to repay PTC that was advanced because you should have been on Medicaid?
A31: If the Annual Household Income is below 100% of the Federal Poverty Level, generally, the client is not eligible for the Premium Tax Credit. At 133% of the FPL, there would be a Premium Tax Credit generally available. This is the issue where it is important that the individual keeps the Marketplace informed of any changes in family size, income etc., so the PTC can be adjusted throughout the year. Another issue to remember is that the PTC paid in advanced is paid to the insurance company and not to the individual, therefore the individual must also pay their share of the premium and keep the insurance current or the Marketplace will not advance the next month’s premium. There is room for fraud in this program we will have to wait and see if all parts work effectively.
Q32: Without form 1095B or 1095C, how would we know to calculate the penalty?
A32: Several other questions address this issue. Remember the Premium Tax Credit will not be an issue as the Form 1095-A is required to be issued for the 2014 year. That will be issued by the Marketplace insurers. Forms 1095-B and Form 1095 C are delayed until 2015 and issued in 2016 for the 2015 year. I imagine some companies will issue, but we will have to wait and see. I am working on a series of interview questions and will try and address this issue for all. Which means your 2015 interview will be more important than ever.
Q33: What if no policy is offered, and every employee is expected to get their own?
A33: The issue here would be whether the employer is considered an Applicable Large Employer, whether Minimum Essential Coverage is offered and Minimum Value is available. If they are an ALE, then Employer Shared Responsibility Payment (penalty) would apply.
Q34: If it will not be mandatory for the 1095-B and 1095-C for 2014 how will we get the information needed to correctly prepare the 2014 return?
A34: Several other questions address this issue. Remember the Premium Tax Credit will not be an issue as the Form 1095-A is required to be issued for the 2014 year. That will be issued by the Marketplace insurers. Forms 1095-B and Form 1095 C are delayed until 2015 and issued in 2016 for the 2015 year. I imagine some companies will issue, but we will have to wait and see. I am working on a series of interview questions and will try and address this issue for all. Which means your 2015 interview will be more important than ever.
Q35: Required plan notice: Where do I get the required notice/format?
A35: http://www.dol.gov/ebsa/PDF/newhealthlawsnoticeguide.pdf
Q36: If employee has insurance through the marketplace before employment begins, and choses to keep it, where does the employer stand?
A36: A person who is eligible for affordable employer-provided coverage is no longer eligible for premium tax credits. Although an employee can retain marketplace coverage, his eligibility for the PTC ends when the new coverage offer arises. The employer is only liable for a shared responsibility payment if the employee receives a PTC. As long as the employer's insurance is affordable, the employee who declines the employer-proved coverage in favor of his existing Marketplace coverage will not be eligible to continue receiving the PTC. Consequently, the employer will not be liable for the shared responsibility payment.
Q37: So the credit is not available now with insurance bought thru a broker only later when SHOP is online?
A37: No, the credit for small employer health insurance premiums is available, even when insurance is purchased through a broker for 2014. However, the plan must be a SHOP plan. The credit will be claimed on Form 8941.
Q38: How will practitioners be able to find out whether the employer's health insurance is through SHOP or not? Typically, asking the client does not produce an accurate answer to a question like this. Will any form identify whether the policy is a SHOP policy?
A38: If the client is an employee, whether the insurance is provided through SHOP makes no difference. It is only of significance to the employer because only the purchase of SHOP plans give small employers eligibility for the health insurance premium credit.
Q39: My understanding of the Form 8941 credit is that is effective for tax years beginning in 2014 & later, and there is a two-consecutive-year limitation. The seminar materials state the credit is only available for 2014 & 2015. Does this mean a taxpayer cannot skip 2014 and claim the credit in 2015 & 2016?
A39: No. That's an important clarification. The two-year consecutive period for eligibility begins the first year the employer attaches the Form 8941, so 2015 and 2016 would work, but 2014 and 2016 would not.
Q40: Can the IRS assess a civil penalty for those who don't pay the SRP?
A40: IRC section 4980H(d)(1) provides, "Any assessable [shared responsibility] payment provided by this section shall be paid upon notice and demand by the Secretary, and shall be assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68."
Q41: What should an employer do if they had an HRA for part of 2014?
A41: If an employer had any noncomplying plan for 2014, the reimbursements made under such a plan must be treated as taxable wages for 2014 to avoid penalties.
Q42: If an employer that does not offer group health insurance reimburses its employees for their privately purchased insurance, and treats these reimbursements as taxable wages, are these reimbursements in violation of ACA?
A42: It is acceptable to reimburse premium payments as long as those reimbursements are treated as taxable wages.
Q43: I am very unclear about whether 125 cafeteria plans are subject to penalties. Can this be clarified?
A43: A standalone 125 plan will subject an employer to penalties if it reimburses employees for health care premiums. 125 plans are excepted from ACA requirements (thus, no penalties will arise), however, if the employer offers other group health insurance coverage and the maximum benefit payable to an employee does not exceed the greater of two times the employee’s salary reduction election for the year, or $500 plus the amount of the participant's salary reduction election.
Q44: On Sec 105 plans (under Base or TASC for example), if a farmer employs his wife and has one employee, is it OK if the plan covers the wife and dependent children? Is that still one participant plan and OK under ACA or are the spouse and the dependent children considered more than 1 participant?
A44: If the farmer employs only his wife and covers his family under the plan, that is acceptable is considered only one participant.
Q45: What happens if you have a Self-insured plan using a TPA (Third Party Administrator)? Are you subject to the reinsurance fee?
A45: Yes.
Q46: Doesn't the 20% HSA penalty go away once the owner is 65?
A46: Yes. Great point!
Q47: Can an employer contribute to employees HSA without offering group health insurance or a HRA?
A47: Yes.But the employee must have a HDHP.
Q48: Is there a flowchart available for this info? If not, we would request one.
A48: Great idea. We'll try to put something together, maybe for the October webinars.
Q49: Problem - example: typical sole proprietor employees’ spouse, use 105 plan successfully. Recommend how to fix if there is an additional employee, thus the plan not excepted benefit?
A49: If the employer has two employees then the plan will run afoul of the ACA unless it is integrated with a group health plan. Any benefits paid on employees' behalf must be made taxable wages to avoid penalties.
Q50: Is there much possibility that Congress would extend the small employer health insurance credit beyond 2015?
A50: To clarify, the credit will be available beyond 2015, but for now, it's only available for two consecutive years. So if the employer claims it in both years beginning in 2014. It will not be available in 2016. We'll have to watch to see if Congress changes that limitation.
Q51: Do you believe that under the ACA S corporations which provide health insurance to their more than 2% shareholders will still add that to federal and state wages but not social security or Medicare taxes? Or will those health insurance premiums now be subject to social security and Medicare taxes?
A51: We have addressed this question in our article:The Thorny Impact of the ACA on More-Than-2% shareholders. As long as this insurance is provided through a group health plan, past practice continues. Included in wages, but not subject to FICA.
Q52: What if you have a client with an S Corporation where the husband and wife are the only employees - Can insurance premiums continue to be reported on W-2 in box 1 and 16 but not subject to SS/Medicare and reported in Box 14 as well.
A52: Yes. Again, please see our detailed article.
Q53: I thought a 2% or greater shareholder was not subject to FICA on health premiums. I thought it was only reported as federal and state wages only.
A53: Great question. Again, this is addressed in detail in our article.
Q54: If we have a S-Corp with several owners more than 2%, they have a group health insurance plan that we record health insurance cost on Line 1 of W-2 not subject to Social Security or Medicare - are you saying this scenario is subject to social security and Medicare.
A54: No. This issue is addressed in our detailed article.
Q55: Are ancillary benefits allowed to be reimbursed under an exempted HRA for dental & vision limited to insurance premiums only or are out-of-pocket expenses allowed as well?
A55: Out of pocket expenses may be reimbursed as well.
Q56: Is a HSA exempt from the ACA?
A56: HSAs coupled with a high deductible health plan do meet ACA requirements. The ACA did make some changes to HSAs. These include eliminating reimbursements for over the counter medications and increasing the penalty for non-qualified withdrawals to 20% for those under the age of 65.
Q57: Will the webinar be recorded and available to access in the future?
A57: Yes, the replay is available to subscribers of TaxPlace.
Q58: Kristy: Hate to beat a dead horse, but what about Amish employers that might meet or exceed the 50+ - where do they stand with regard to penalties?
A58: The employer mandate applies to Amish employers.
Q59: What is the statute of limitations for the IRS to take the "Roberts" tax from a future year refund?
A59: It would likely be collectable through a withheld refund for a 10-year period.
Q60: So S-Corp shareholder health insurance premiums are now subject to SS and Medicare taxes and are deductible to the S-Corp and above the line for the shareholder?
A60: Not necessarily. Please read our article for a more thorough explanation.
Q61: Regarding health insurance for 2% S-corp shareholders now being subject to FICA tax: Does it matter whether the health insurance policy is in the corp name or in the individual employee/shareholder name? (Assuming single-owner S-corp)
A61: As detailed in the article, health insurance premiums paid under this scenario would NOT be subject to FICA.
Q62: A C-corp has two employee shareholders that the corp pays their health insurance premiums directly. They also have a medical reimbursement plan for non-covered medical expenses. What filing requirements do they have under ACA?
A62: These reimbursements would have to be treated as taxable wages to avoid ACA penalties.
Q63: We do have one other question we would like addressed. From what we understand, if a S-Corp had a reimbursement program for employee health insurance (A program which was addressed in the minutes of the corp) in prior years it did not have to be reported on the W-2 as taxable income. Did that situation change of 1-1-14 to where it should be included on the W-2 in Lines 1, 3 and 5? Is it necessary to go back to the first of 2014 and collect social security and Medicare on that reimbursement amount or can the corporation just go from this point on and begin withholding social security and Medicare on the reimbursement amount?
A63: If this is a standalone reimbursement plan, it will not comply with the ACA and to avoid penalties, the amounts paid for the entire year will need to be included as income to the employees.
Q64: Have a farmer client utilizing the Section 105 health insurance premium and medical reimbursement plan. Spouse is the only employee. If he pays his children (under 18 years old) a wage, does this fact alone require him to make changes as far as the ACA is concerned?
A64: No, the son will not count as an "employee" under this scenario.
Q65: I attended the ACA seminar this morning via the online webinar. After listening to the case studies, I am wondering if you could give me some advice as to how to advise a client. This client is an S-Corporation with 8 shareholders (family from grandfather through grandchildren) owning greater than 2%. This entity is set up quite oddly as it doesn't pay wages and hasn't for 20+ years. (I just inherited the client from the previous business owner and don't know the details of that). However, I also prepare all of the individual returns. On the individual returns, the shareholders that are younger than 65 are forced to pay SE tax on their pass-through earnings while the 3 shareholders above 65 are not. (This was upheld in an appeals court case they were in several years ago). The S-Corp pays for everything for all shareholders and their families (housing, cars, etc...) Also included in this is their medical expenses. The S-Corp pays all health insurance premiums, all deductibles, all co-insurance, all prescriptions, etc... The policies are all individual policies (no group health insurance). Up until now they were able to deduct this from the 1120S income that passed through to the shareholders. From what I understood this morning, they will no longer be able to so this even though they "technically" don't have employees. Correct? What would you advise them to do? What does that do to the premiums being included in the income of the shareholders (both under 65 and above 65)?
A65: We apologize for the confusion. The scenario you described is still acceptable.
Q66: We have sub-S corporations who pay group health insurance on ALL eligible employees. There are several officers who are over 2% shareholders and they are included in the group policy. We have always increased their W-2 Line 1 by the amount of their premium and then put the amount in Line 14 to give them an above-the-line deduction on their tax return. We are confused as to whether or not this scenario would change under the ACA since they are in a group insurance. Do we now have to include those premiums on Line 3 and 5 and pay social security and Medicare on that amount or will things stay the same as prior years?
A66: As discussed in our article, you will continue to treat this situation as you always have. No FICA liability for the shareholders.
Q67: In regard to Sub-Chapter S more than 2% shareholders. The corporation reimburses shareholder for their health insurance premium which they pay out of their own pocket. It is then added to their federal wages, but not subject to the fica wages, and is also deducted as an adjustment on page 1 of the 1040. Is this still appropriate? Or is the health premium subject to fica? If it is subject to fica tax, is it still deductible as an adjustment on the form 1040?
A67: Great question. Hopefully our article will address this question.
Q68: The main follow-up question I have relates to the comments about subjecting S Corp shareholder health insurance to FICA for 2014. I have not been able to find anything “official” to support that online. I have attached an item from the IRS website that continues to reference the health insurance being treated as wages but not subject to social security or Medicare.
A68: We hope that our S Corporation follow-up article addressed this question. The IRS has not yet published anything dealing with the ACA’s impact on more than two percent shareholders. The IRS website continues to display the information it’s always offered regarding the tax treatment of premium payments made on the behalf of the more than 2 percent shareholders. As noted in the article, this basic law has not changed. The questionable issue arises where the corporation has other employees and now must treat such payments as strictly wages for all. The basis for excluding FICA for more-than-2 percent shareholders is that the reimbursements are made pursuant to a "plan or system covering all employees or selected employees." If you eliminate that plan for other employees, you have likely eliminated your grounds for the FICA exclusion. If there is a way to continue that "plan" for only more-than-2 percent shareholders without running afoul of nondiscrimination rules (currently in play only for self-funded plans), the FICA exclusion remains. Again, this is an unsettled area of the law and we are attempting only to highlight important issues for your consideration.
Q69: If I have a client that employs Seasonal H2A workers that then file taxes are they subject to the Individual Mandate penalty? Would the employers be subject to the employer shared responsibility payment?
A69: In order to buy private health insurance through the Marketplace, you must be a U.S. citizen or be lawfully present in the United States. The term “lawfully present” includes immigrants who have:
Valid non-immigrant visas – H2A Visa holders are considered lawfully present in the United States
Q70: Are they required to have health insurance? Will the employer be required to provide health insurance benefits? If I am working in the United States on a H2A visa, am I eligible for coverage in the Marketplace?
A70: Most people will be required to have health insurance beginning in 2014 or face a tax penalty. Some people qualify for exemptions from this requirement. If you qualify for an exemption from the individual mandate, you will not have to obtain health insurance. The exemptions are:
cannot afford coverage (coverage exceeds 8% of household income)
household income below tax filing threshold
economic hardship
short coverage gap (less than 3 consecutive months)
religious conscience
member of an Indian tribe
incarceration
membership in a health care sharing ministry
undocumented status
Beginning in 2015, if you’re a full-time worker and work for a large employer, your employer will face a penalty if they don’t provide coverage. Some employers may opt to take the penalty and not offer coverage. Check with your employer to see what they offer.
Eligibility to buy coverage in the Marketplace is based on where you establish your permanent residence. Some health insurers will offer larger networks than other plans and may offer multi-state networks. Once Open Enrollment begins, check the plans available in your Marketplace to see if there is a plan with provider coverage in the areas you work.
Yes. All lawfully-present immigrants – including “nonimmigrants” like H-2A workers and those on student visas – may purchase insurance in the marketplace.
The employer if they meet the following criteria would be subject to the employer shared responsibility payment.
An excerpt from Regulation [REG-138006-12]:
Seasonal Workers
Section 4980H(c)(2)(B)(ii) provides that if an employer’s workforce exceeds 50 full-time employees for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal workers, the employer is not an applicable large employer. Notice 2011-36 provided that, for this purpose only, four calendar months would be treated as the equivalent of 120 days. In response to comments, and consistent with Notice 2011-36, these proposed regulations provide that, solely for purposes of the seasonal worker exception in determining whether an employer is an applicable large employer, an employer may apply either a period of four calendar months (whether or not consecutive) or a period of 120 days (whether or not consecutive). Because the 120-day period referred to in section 4980H(c)(2)(B)(ii) is not part of the definition of the term seasonal worker, an employee would not necessarily be precluded from being treated as a seasonal worker merely because the employee works, for example, on a seasonal basis for five consecutive months. In addition, the 120-day period referred to in section 4980H(c)(2)(B)(ii) is relevant only for applying the seasonal worker exception for determining status as an applicable large employer, and is not relevant for determining whether an employee is a seasonal employee for purposes of the look-back measurement method (meaning that an employee who provides services for more than 120 days per year may nonetheless qualify as a seasonal employee). See section II.C.2. of this preamble for a discussion of the application of the look-back measurement method to seasonal employees. For purposes of the definition of an applicable large employer, section 4980H(c)(2)(B)(ii) defines a seasonal worker as a worker who performs labor or services on a seasonal basis, as defined by the Secretary of Labor, including (but not limited to) workers covered by 29 CFR 500.20(s)(1) and retail workers employed exclusively during holiday seasons. This definition of seasonal worker is incorporated in these proposed regulations. The Department of Labor (DOL) regulations at 29 CFR 500.20(s)(1) to which section 4980H(c)(2)(B)(ii) refers, and that interpret the Migrant and Seasonal Agricultural Workers Protection Act, provide that “[l]abor is performed on a seasonal basis where, ordinarily, the employment pertains to or is of the kind exclusively performed at certain seasons or periods of the year and which, from its nature, may not be continuous or carried on throughout the year. A worker who moves from one seasonal activity to another, while employed in agriculture or performing agricultural labor, is employed on a seasonal basis even though he may continue to be employed during a major portion of the year.”
After consultation with the DOL, the Treasury Department and the IRS have determined that the term seasonal worker, as incorporated in section 4980H, is not limited to agricultural or retail workers. Until further guidance is issued, employers may apply a reasonable, good faith interpretation of the statutory definition of seasonal worker, including a reasonable good faith interpretation of the standard set forth under the DOL regulations at 29 CFR 500.20(s)(1) and quoted in this paragraph, applied by analogy to workers and employment positions not otherwise covered under those DOL regulations. Several commenters suggested that seasonal workers not be counted in determining whether an employer is an applicable large employer. However, because section 4980H(c)(2) requires the inclusion of seasonal workers in the applicable large employer determination (and then excludes them only if certain conditions are satisfied), this suggestion is not adopted.
Q71: What happens if the employer must now withhold FICA that was not collected earlier in the year? What are the options when it comes to correcting and collecting the FICA from the employees and reporting it on Form 941? Must they amend the previous quarters or can it be done on the 4th quarter Form 941?
A71: Per the Form 941X instructions: Underreported tax. If you are correcting underreported tax, you must file Form 941-X by the due date of the return for the return period in which you discovered the error and pay the amount you owe by the time you file. Doing so will generally ensure that your correction is interest free and not subject to failure-to-pay or failure-to-deposit penalties. The error in this case was likely discovered in October of 2014 before the Form 941 for the 4th quarter was filed. The Q & A information posted very late in September and may not have been read by all participants. Make the required adjustments in the 4th quarter and make sure all employee matching of FICA is collected by years end.
Q72: Can employers reimburse active employees for Medicare supplement premiums or will these need to be considered taxable wages for 2014?
A72: This is a complicated issue and it will usually not be acceptable. However, for a very narrow subcategory of employers, it appears this practice will continue to be allowed. First, Medicare Supplement policies are excepted benefits under IRC section 9831(c)(3) so long as the benefits are provided under a separate policy, certificate, or contract of insurance. As such, the reimbursement of premiums for such policies would not run afoul of ACA market reforms. A number of other rules and regulations, however, would generally limit the ability of an employer to make this reimbursement. First, only employers with fewer than 20 employees could ever consider such reimbursement. It is illegal for employers with 20 or more employees (because it would be considered an incentive to abandon group coverage). Second, it appears that Medicare’s nondiscrimination rules would generally ban direct employer payment of Medicare Supplement premiums. However, in the narrow situation where there only a few active employees and they are all Medicare-eligible, it would appear to continue to be permissible for employer's to reimburse these employees for Medicare Supplement premiums.