Spending Resolution Affects ACA Taxes

OVERVIEW

On Jan. 22, 2018, President Donald Trump signed into law a short-term continuing spending resolution to end the government shutdown and continue funding through Feb. 8, 2018. The continuing resolution impacts three taxes and fees under the Affordable Care Act (ACA).

Specifically, the continuing resolution:

  • Delays implementation of the Cadillac tax on high-cost group health coverage until 2022;
  • Provides an additional one-year moratorium on the health insurance providers fee for 2019 (although the fee continues to apply for 2018); and
  • Extends the moratorium on the medical device excise tax for an additional two years, through 2019.

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. Sapoznik Insurance will continue to keep you informed of changes.

Cadillac Tax Delayed

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 who provided the coverage.

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.

The continuing resolution delays implementation of the Cadillac tax for an additional two years, until 2022.

There is some indication that this additional delay will lead to an eventual repeal of the Cadillac tax provision altogether. Over the past several years, a number of bills have been introduced into Congress to repeal this tax. Although President Trump has not directly indicated that he intends to repeal the Cadillac tax, he has stated that repealing and replacing the ACA is a key goal of his administration.

Moratorium on the 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.

The continuing resolution provides an additional one-year moratorium on the health insurance providers fee for the 2019 calendar year. However, the continuing resolution specifically declines to extend the moratorium through 2018. Therefore, the fee continues to apply for the 2018 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 one-year moratorium may result in significant savings for some employers on their health insurance rates.

Moratorium on the Medical Devices 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.

The continuing resolution extended this moratorium for an additional two years, through the 2019 calendar year. The continuing resolution provides that this additional delay applies to sales made after Dec. 31, 2017. Therefore, as a result of both moratoriums, the medical devices tax will not apply to any sales made between Jan. 1, 2016, and Dec. 31, 2019.

 

This ACA Compliance Bulletin is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

Furnishing Deadline Delayed for 2017 ACA Reporting

OVERVIEW

On Dec. 22, 2017, the Internal Revenue Service (IRS) issued Notice 2018-06 to:

  • Extend the due date for furnishing forms under Sections 6055 and 6056 for 2017 for 30 days, from Jan. 31, 2018, to March 2, 2018; and
  • Extend good-faith transition relief from penalties related to 2017 information reporting under Sections 6055 and 6056.

Notice 2018-06 does not extend the due date for filing forms with the IRS for 2017. The due date for filing with the IRS under Sections 6055 and 6056 remains Feb. 28, 2018 (April 2, 2018, if filing electronically).

ACTION STEPS

The IRS is encouraging reporting entities to furnish statements as soon as they are able. No request or other documentation is required to take advantage of the extended deadline.

Section 6055 and 6056 Reporting

Sections 6055 and 6056 were added to the Internal Revenue Code (Code) by the Affordable Care Act (ACA).

  • Section 6055 applies to providers of minimum essential coverage (MEC), such as health insurance issuers and employers with self-insured health plans. These entities will generally use Forms 1094-B and 1095-B to report information about the coverage they provided during the previous year.
  • Section 6056 applies to applicable large employers (ALEs)­­—generally, those employers with 50 or more full-time employees, including full-time equivalents, in the previous year. ALEs will use Forms 1094-C and 1095-C to report information relating to the health coverage that they offer (or do not offer) to their full-time employees.

Extended Furnishing Deadline

The IRS has again determined that some employers, insurers and other providers of MEC need additional time to gather and analyze the information and prepare the 2017 Forms 1095-B and 1095-C to be furnished to individuals. Therefore, Notice 2018-06 provides an additional 30 days for furnishing the 2017 Form 1095-B and Form 1095-C, extending the due date from Jan. 31, 2018, to March 2, 2018.

Despite the delay, employers and other coverage providers are encouraged to furnish 2017 statements to individuals as soon as they are able.

Filers are not required to submit any request or other documentation to the IRS to take advantage of the extended furnishing due date provided by Notice 2018-06. Because this extended furnishing deadline applies automatically to all reporting entities, the IRS will not grant additional extensions of time of up to 30 days to furnish Forms 1095-B and 1095-C. As a result, the IRS will not formally respond to any requests that have already been submitted for 30-day extensions of time to furnish statements for 2017.

Impact on Filing Deadline

The IRS has determined that there is no need for additional time for employers, insurers and other providers of MEC to file 2017 forms with the IRS. Therefore, Notice 2018-06 does not extend the due date for filing Forms 1094-B, 1095-B, 1094-C or 1095-C with the IRS for 2017. This due date remains:

  • 28, 2018, if filing on paper; or
  • April 2, 2018, if filing electronically (since March 31, 2018, is a Saturday).

Because the due dates are unchanged, potential automatic extensions of time for filing information returns are still available under the normal rules by submitting a Form 8809. The notice also does not affect the rules regarding additional extensions of time to file under certain hardship conditions.

Employers or other coverage providers that do not meet the due dates for filing and furnishing (as extended under the rules described above) under Sections 6055 and 6056 are subject to penalties under Section 6722 or Section 6721 for failure to furnish and file on time. However, employers and other coverage providers that do not meet the relevant due dates should still furnish and file. The IRS will take this into consideration when determining whether to abate penalties for reasonable cause.

Impact on Individuals

Because of the extended furnishing deadline, some individual taxpayers may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their 2017 tax returns. Taxpayers may rely on other information received from their employer or other coverage providers for purposes of filing their returns, including determining eligibility for an Exchange subsidy and confirming that they had MEC for purposes of the individual mandate.

Taxpayers do not need to wait to receive Forms 1095-B and 1095-C before filing their 2017 returns. In addition, individuals do not need to send the information they relied upon to the IRS when filing their returns but should keep it with their tax records.

Extension of Good-faith Transition Relief from Penalties for 2017

Notice 2018-06 also extends transition relief from penalties for providing incorrect or incomplete information to reporting entities that can show that they have made good-faith efforts to comply with the Sections 6055 and 6056 reporting requirements for 2017 (both for furnishing to individuals and for filing with the IRS).

This relief applies to missing and inaccurate taxpayer identification numbers and dates of birth, as well as other information required on the return or statement. No relief is provided for reporting entities that:

  • Do not make a good-faith effort to comply with the regulations; or
  • Fail to file an information return or furnish a statement by the due dates (as extended).

In determining good faith, the IRS will take into account whether a reporting entity made reasonable efforts to prepare for reporting the required information to the IRS and furnishing it to individuals (such as gathering and transmitting the necessary data to an agent to prepare the data for submission to the IRS or testing its ability to transmit information to the IRS). The IRS will also take into account the extent to which the reporting entity is taking steps to ensure that it will be able to comply with the reporting requirements for 2018.

 

This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.