The IRS has issued guidance on the recently announced delay in implementation of the Patient Protection and Affordable Care Act’s information-reporting provisions and its employer shared-responsibility — also known as “play or pay” — provision. The provisions apply to “large” employers, including for-profit, nonprofit and government entities. Although the effective date of the provisions has been pushed out one year, from Jan. 1, 2014, to Jan. 1, 2015, the IRS is encouraging employers to voluntarily comply with the information-reporting provisions for 2014.
The delayed provisions
The health care act’s information-reporting provisions require annual information sharing by:
• Health insurance issuers, self-insured employers and other providers of health coverage, and
• Applicable “large” employers on the health insurance they offer (or don’t offer) their full-time employees.
Proposed rules for the information-reporting provisions are expected from the IRS later this summer.
The play-or-pay provision imposes a penalty on “large” employers that don’t offer a “minimum value” of “affordable” health care coverage to their full-time employees (and their dependents) if just one full-time employee enrolls in a qualified health plan through a government-run Health Insurance Marketplace (originally referred to as a “health insurance exchange”) and receives a premium tax credit.
For both the information-reporting and the eligibility of play-or-pay provisions, a “large” employer is one with at least 50 full-time employees or a combination of full-time and part-time employees that’s equivalent to at least 50 full-time employees. For example, 100 half-time employees would generally equal 50 FTEs. A full-time employee is an individual employed on average at least 30 hours per week. Under proposed regulations, 130 hours of service in a calendar month is the monthly equivalent of 30 hours per week.
The annual penalty for large employers not offering coverage generally is $2,000 per full-time employee in excess of 30 full-time employees. If coverage is offered but it isn’t deemed affordable, or it fails to provide minimum value, the annual penalty generally is the lesser of this same penalty or $3,000 for each employee receiving the credit. For purposes of penalty calculations, full-time employees don’t include full-time equivalent employees (FTEs), only actual full-time employees.
A domino-effect delay
The deferral of the information reporting requirements is intended to provide time for the IRS to simplify the requirements and for employers, insurers and other reporting entities to develop systems for collecting and reporting the requisite data. The delay in these requirements, in turn, necessitated a delay in the implementation of the play-or-pay provision. The information reporting will be critical to the administration of the play-or-pay provision.
An employer typically won’t know whether a full-time employee received a premium tax credit. This means it generally won’t be able to determine whether it owes a penalty under the play-or-pay provision. So, after the IRS receives the information under the information-reporting requirements, it will determine whether a penalty is due. When it appears a penalty is due, the IRS will contact the employer, which will have the opportunity to respond before the penalty is actually assessed. Thus, the delay in the information reporting would make it impractical to determine which employers would owe penalties for 2014.
Bottom line: The IRS won’t assess penalties for failure to comply with the information-reporting or play-or-pay provisions for 2014. But other health care act provisions scheduled to go into effect in 2014, such as those related to the premium tax credit, individual shared-responsibility and health insurance exchanges, have not been given a similar extension.
Extra preparation time
The IRS guidance encourages employers to voluntarily comply with the information-reporting provisions for 2014, once the relevant rules have been issued, to prepare for the full application of the provisions in 2015. At the very least, you should use this extra time to determine whether you’ll be considered a large employer and, if so, ensure you provide your full-time employees with the coverage necessary to avoid penalties — or decide that you’d prefer to pay the penalties. (Keep in mind that health insurance premiums are deductible; the play-or-pay penalties are not.) If you have questions on how these or other health care act provisions may affect your company, please give us a call.
For more information contact Jim Haubrock at [email protected].