What New Paperwork Does An Employer Have Under ObamaCare?

You are an employer. You are a bit unclear on the new paperwork you need to file to comply with the Affordable Care Act (ACA), also known as Obamacare.  As we go into the fourth quarter of 2014, this issue is taking on greater urgency.

You are completely normal. Many companies, including their advisors, are in the same situation. The rules are new, complicated and – and in some cases – repetitively postponed. Are you supposed to do anything different when you send out the 2014 Forms W-2 in early 2015, for example?

The easiest way to make sense of this is to divide employers into three categories. Why? Because each employer category has its own rules.

The first category is an employer with less than 50 employees (technically, “full-time equivalents”). The Government is quick to point out that this encompasses 96% of all employers, although of course it encompasses a much smaller percentage of employees.

If this is you:

·        You do not have to do anything different with your 2014 W-2s.

·        You are not required to provide health insurance coverage to your full-time employees.

·        You are not required to pay an employer penalty.

·        This is true for 2014, 2015 and all years thereafter.

So, if you are an employer in this category you may or may not offer health insurance to your employees, but this remains a business decision. You are not required to do anything – including filing any new paperwork – to be in compliance with the ACA.

Let’s make our second category employers with 100 or more employees. Why? Technically the original ACA divided employers into two groups: under 50 employees and 50 employees and over. There have been numerous regulatory changes to the law, and one change divided employers further into 50-but-99-and-under employees and 100-employees-and-over.

If this is you… you need to get ready to make changes. 

·         You do not have to do anything different with your 2014 W-2s (fortunately). However, see below for your 2015 W-2s, which you will file in 2016.

·        You will have to provide health insurance to your employees starting January 1, 2015.

o   The ACA itself defines what is acceptable insurance, referred to as “minimum essential coverage.”

§  It also has to be “affordable.”

§  These are areas you want to review with your insurance agent or benefits consultant.

o   There is a sub-rule in here that may or may not impact you. The ACA originally required employers to cover 95% of their full-time employees in 2015. That rule has been changed. You are now required to cover 70% of your full-time employees in 2015 and then 95% for 2016 and later years.

·        You will be required to pay an employer penalty if you don’t provide minimum essential and affordable health insurance.

o   Interestingly enough, this penalty will not appear on your business income tax return. The IRS has to wait until your employees have filed their individual tax returns, then match any information provided to the IRS by the health-care exchanges and by you as the employer.

o   This is expected to be in the form of an IRS notice. You will be given time to respond, after which the IRS will issue another notice and demand for payment.

o   You can therefore expect that this notice will not go out until the end of 2016 or more likely in 2017. This is approximately one-year after you paid the underlying payroll itself.

§  We should expect that this penalty will also eventually be required to be paid via estimated tax payments.

·        You will have new paperwork when you file your 2015 year-end payroll tax returns in 2016. These are known as the “Section 6056 rules” and are in place to provide employees the information they need to calculate their ACA penalty, if any, on their individual tax returns.

o   You will file Form 1095-C Employer-Provided Health Insurance Offer and Coverage. A copy of this goes to your employee. It will also go to the IRS with its transmittal – Form 1094-C Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns.

§  It is therefore similar to sending the W-2s with their transmittal Form W-3.

o   By the way, filing Forms 1095-C and 1094-C are optional for 2014 (to be filed in 2015). The IRS has said it would like you to file and consider them a “trial run,” but you do not have to.

o   But they are mandatory for 2015 (to be filed in 2016).

Finally, our third category: employers with 50 to 99 employees.

This category is different because in February, 2014 the IRS segregated what it called “midsized employers” (that is 50 to 99 employees). These employers received a one-year delay before facing ACA penalties – until January 1, 2016.

The “large employers” (100-or-more employees) received no such break and have to comply starting January 1, 2015.

If this is you… you need to get ready to make changes. 

·        You do not have to do anything different with your 2014 W-2s (fortunately). However, see below for your 2015 W-2s, which you will file in 2016.

·        You will have to provide health insurance to your employees starting January 1, 2016 (not 2015).

o   There is an interesting requirement, though.

§  You will have to certify – for 2015 - that…

·        You have not reduced your workforce to qualify for this relief; and

·        You have not materially reduced or eliminated any health coverage.

§  This certification is on Form 1094-C, which you will be filing anyway.

o   Otherwise, the requirements are the same as 100-and-more employers, as discussed above.

·        You will have an employer penalty for not complying, but you do not have to comply until January 1, 2016. That is, you have one additional year to comply (as compared to 100-and-more employers).

o   Otherwise, the requirements are the same as for 100-and-more employers, as discussed above.

·        You will have new paperwork when you file your 2015 year-end payroll tax returns in 2016. These are known as the “Section 6056 rules” and are in place to provide employees the information they need to calculate their ACA penalty, if any, on their personal tax returns.

o   You will file Form 1095-C Employer-Provided Health Insurance Offer and Coverage. A copy of this goes to your employee. It will go to the IRS with its transmittal – Form 1094-C Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns.

§  It is therefore similar to sending the W-2s with their transmittal Form W-3.

o   By the way, filing Forms 1095-C and 1094-C are optional for 2014 (to be filed in 2015). The IRS has said it would like you to file and consider them a “trial run,” but you do not have to.

o   But they are mandatory for 2015 (to be filed in 2016).

You now have a high-altitude view of what you, as an employer, are to do to comply with the ACA filing requirements. Unless you are a less-than-50 employer, you will have additional reporting requirements. Please consider that some of this information is not presently collected as part of your routine accounting process. Both 50-to-99 and more-than-100 employers should review that new procedures will be in place to collect the information needed to complete these new ACA tax forms. Whereas these forms will not be filed until early 2016, they will contain information going back to January, 2015.

Z Street Decision Will Force IRS To Disclose How It Reviews – And Delays - Tax-Exempt Applications

I am reading things that make me wonder what is going on at the IRS. It repetitively appears that the agency – or at least influential partisan players – think that the job of the IRS is to take sides in political issues.

I am looking at Z Street v Shulman. It is a Court decision from the District of Columbia. There are some interesting points in here, embalmed in yawn-inducing legalese.

Let’s talk about this case.

Z Street is a non-profit corporation. It comes out of Pennsylvania, was organized in 2009 and immediately applied for tax-exempt status. Its purpose is to educate the public about Zionism; about facts on the formation of the Jewish state; and about Israel’s right to refuse to negotiate with terrorists.

We know about that the IRS instituted a policy of 501(c)(4) suppression prior to the 2012 presidential election. The 501(c)(4)s are a different animal from a (c)(3), the “traditional” charity. A (c)(4) may engage in an unlimited amount of lobbying, as long as it stays within the issues for which it was organized. If someone felt strongly about blue M&Ms, for example, I suppose that someone could organize a (c)(4) and lobby nonstop – as long as they stayed within the issues concerning blue M&Ms. A (c)(4) can also engage in some partisan political activity, as long as it does not become its primary activity. There is a price however for this freedom to till so close to political soil: deductions to a (c)(4) are not deductible.

Contrast that to a (c)(3), contributions to which are tax-deductible. As a trade-off, there are severe restrictions on lobbying activities of a (c)(3).

Anyway, Z Street applies for (c)(3) status. It wants that tax-deductible status, understandably. It is possible that – in the future – it will spin-off a (c)(4). 

Here are some quick dates:

·       12/29/09 - applies for exempt status with IRS

·       5/15/10 – IRS send a letter requesting additional information

·       6/7/10 – Z Street provides additional information to the IRS

·       7/10/10 – Z Street’s attorney tracks down the IRS person (Dianne Gentry) handling the file.  Agent Gentry tells the attorney that she has two reservations:

o   Z Street is engaged in “advocacy” activities that are not permitted under Section 501(c)(3)

o   The IRS has special procedures for applications from organizations whose activities relate to Israel, and whose positions with respect to Israel contradict the current policies of the U.S. government. She further stated, “these cases are being sent to a special unit in the D.C. office to determine whether the organization’s activities contradict the Administration’s public policies."

I am stunned.

I immediately pick up on the issue of a (c)(3) and advocacy. I expected that issue, and frankly, I wonder why Z Street didn’t organize a (c)(4) instead.

But “special procedures” and the “Administration’s” current policies? My tax-exempt application is to be judged on whether the Administration “likes” me and whether I say “politically correct” things? Good grief, bring on Kristallnacht.

Z Street brought a lawsuit. They alleged that the IRS maintains a special policy when it comes to Israel and to (c)(3)s whose stance does not agree with the Obama Administration, and that such applications are subject to special procedures not applied to other organizations. 

What does Z Street want?

·       A declaration that policy is unconstitutional, and

·       An injunction forcing the IRS to disclose the policy and barring the IRS from employing the same.

The IRS stalled this thing almost long enough to put your kid through college. I am disturbed that the IRS core argument seems to be “we can do whatever we want.” Here are their arguments:

(1)  The Anti-Injunction Act

The AIA was first enacted in 1867, and states that ”no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax is assessed.”

The IRS argued that the AIA barred the Court from granting injunctive relief.

(2)  Code Section 7428

Code Section 7428 already provides remedy for organizations that seek to challenge IRS determination of their (c)(3) status.

(3)  The IRS also argued that the case should be dismissed on “sovereign immunity” grounds.

The Court goes to work:

(1)  The D.C. Circuit had already decided a case (Cohen) rejecting  that the AIA’s “assessment and collection” language bars any and all lawsuits that might ultimately impact revenue to the Treasury. It has to be so, otherwise one could pass virtually any law and render it unreachable by calling it a “tax.”

(2)  By its terms, Section 7428 applies when there is controversy concerning qualification of an organization as a (c)(3). The only available remedy under Section 7428 is a “declaration with respect to … initial qualification or continuing qualification.”

The Courts points out that Z Street is not asking the Court for (c)(3) qualification. Rather it is asking the Court to force the IRS to follow a “constitutionally valid process” – nothing more and nothing less.

(3)  The Administrative Procedure Act expressly waived sovereign immunity for lawsuits such as this. The APA waives sovereign immunity for suits for nonmonetary damages that allege wrongful action by an agency or its officers or employees.

The Court points out the obvious: that is exactly what Z Street is doing.

Judge Ketanji Brown Jackson observed:

Defendant struggles mightily to transform a lawsuit that clearly challenges the constitutionality of the process that the IRS allegedly employs when it determines the tax-exempt status of certain organizations into a dispute over tax liability as a means of attempting to thwart this action’s advancement.”

In legalese, this is like being punched in the face.

The Court decided that the Z Street’s lawsuit could proceed. After the IRS files its response, the case will go to discovery. The IRS will have to pony up what it has been doing with tax-exempt applications these last few years. Anticipate that Z Street attorneys will seek depositions from other groups similarly treated by the IRS.  

Good.

If proven, this type of behavior by the IRS is thuggish and needs to be punished. People need to lose their jobs, if not their freedom for a while. Perhaps we could build a Lois Lerner wing at a prison somewhere. Perhaps somewhere near the District of Columbia so these people would not have to travel far.

Why do I say this? Our taxation system relies – to an overwhelming extent – on voluntary compliance. The function of the IRS is to administer and collect taxes and process records of the same. Whatever our political stance, we can have common ground on the assessment and collection of tax. We can all hate the IRS equally.

If we disagree on tax law, however, we take that disagreement into the legislative arena. Allow elected representatives to hash it out. At least the representatives have to run for reelection occasionally, so there is some chance for an accounting of their decisions and actions. This is greatly preferable – and healthier for our system of governance – than partisan berserkers bending whatever lever of government they can access to impose their dogma du jour.

Remember: there will be a future White House with very different attitudes and values than the present one. If this behavior goes unpunished, those now in power will then be out of power, and it will be their views and causes that will be handed to the tender mercies of the partisan berserkers then in power.

Don’t come crying then.

The President’s myRA

The President introduced something called a “myRA” at the State of the Union speech. He explained…

… while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k) s. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: myRA. It’s a savings bond that encourages folks to build a nest egg. myRA guarantees a decent return with no risk of losing what you put in.”

The idea here is to encourage small retirement savers. The concern is that routine bank or investment fees (for example, the annual “maintenance” fee for an IRA) may discourage some (or many) from saving for retirement. Under the myRA, the government picks up that tab. The concept makes sense.

The myRA would function as a Roth-type account. Monies going in would not be deductible for income taxes.

Contributions will be automatic, voluntary and small. Initial investments could be as low as $25 and ongoing contributions as low as $5. Contributions would be made through “automatic” payroll deductions.

COMMENT: “Automatic” meaning actual employers who pay people in actual payroll department to process these transactions. Automatic seems to mean “magical” inside the Washington beltway. 

The myRA big deal will be the savers account balance “will never go down.”

COMMENT: Somewhat like a savings account or certificate of deposit. There are – by the way – no annual fees for those accounts either. They are “magical.”

The myRA will earn the same interest rate as the federal employees Thrift Savings Plan Government Securities Investment Fund.

NOTE: Which returned 1.47% in 2012. Unfortunately, inflation for 2012 was 1.8%. The G Plan pays investors the investor the average return on long-term Treasury bonds.  

It will be available to households earning up to $191,000 annually.

Participants will be able to save up to $15,000, or for a maximum of 30 years. 

            COMMENT: Remember: this is a “starter” savings plan.

There would be a provision to transfer the account to a Roth IRA.

COMMENT: That part makes sense, as these accounts can be described as “Roth-lite.”

The President created this by executive action this past Wednesday.

            COMMENT: Really? 

Reflecting the crowd currently occupying it, this White House also wants to compel employers that do not offer myRA’s to offer automatic enrollment IRAs.

OBSERVATION: Approximately half of American workers are not covered by a retirement plan at work, propelling policy mandarins to talk about “mandatory” solutions to the retirement “problem.” I acknowledge the problem - two problems, in fact. First, that many people do not save enough. It might help if they had a job, though. Second, that these hacks and their “mandatory” solutions are themselves a problem.  

Call me completely underwhelmed.