It’s the “silly season” on the Hill and a busy season for ACA regulators. This article gives you brief notes about Notice 2015-87, information reporting relief and the § 4980I delay buried in the omnibus spending bill.
IRS Notice 2015-87 first answers questions on the periphery of earlier guidance effectively killing stand-alone HRAs. Most notably, an HRA or employer payment plan may be used to reimburse (or to pay directly) premiums for individual policies that provide only excepted benefits – e.g., stand-alone dental or vision plans.
Notice 2015-87 also clarifies that plan-integrated employer HRA contributions that may be used to pay premiums or employee cost sharing obligations under the group health plan are counted to reduce the employee’s share of the premium for purposes of affordability determinations under Code § § 4980H and 5000A. The same is true of some, but not all, employer cafeteria plan flex contributions. IRS forecasts future regulations on related treatment of “opt-out” payments made to employees who decline group health plan coverage.
Which brings us to a federal contractor conundrum. The Service Contract Act and Davis-Bacon Act require certain federal contractors to pay prevailing wages and benefits. The benefit obligation may be satisfied either by benefits or by cash in lieu of those benefits. Until this Notice, employers paying cash in lieu of benefits were exposed to double burdens. Here’s the temporary relief offered a p. 16 of Notice 2015-87.
Treasury and IRS continue to consider how the requirements of the SCA, the DBRA, and the employer shared responsibility provisions under § 4980H may be coordinated. However, until the applicability date of any further guidance, and in any event for plan years beginning before January 1, 2017, employer fringe benefit payments (including flex credits or flex contributions) under the SCA or DBRA that are available to employees covered by the SCA or DBRA to pay for coverage under an eligible employer-sponsored plan (even if alternatively available to the employee in other benefits or cash) will be treated as reducing the employee’s required contribution for participation in that eligible employer-sponsored plan for purposes of § 4980H(b), but only to the extent the amount of the payment does not exceed the amount required to satisfy the requirement to provide fringe benefit payments under the SCA or DBRA. In addition, for these same periods an employer may treat these employer fringe benefit payments as reducing the employee’s required contribution for purposes of reporting under § 6056 (Form 1095-C), subject to the same limitations that apply for purposes of § 4980H(b). Employers are, however, encouraged to treat these fringe benefit payments as not reducing the employee’s required contribution for purposes of reporting under § 6056. If an employee’s required contribution is reported without reduction for the amount of the fringe benefit payment and the employer is contacted by the IRS concerning a potential assessable payment under § 4980H(b) relating to the employee’s receipt of a premium tax credit, the employer will have an opportunity to respond and show that it is entitled to the relief described in this Q&A-10 to the extent that the employee would not have been eligible for the premium tax credit if the required employee contribution had been reduced by the amount of the fringe benefit payment or to the extent that the employer would have qualified for an affordability safe harbor under § 54.4980H-(4)(e)(2) if the required employee contribution had been reduced by the amount of the fringe benefit payment. See also Q&A-26 for certain relief with respect to employer information reporting under § 6056.
Finally, we get a plain English answer to what had seemed for years a simple question – i.e., whether the employer mandate affordability safe harbor (9.5% of household income) is inflation-adjusted. The answer (p. 18, Q12) is “yes.” Thus, the 2015 number is 9.56% and the 2016 number will be 9.66%. Information reporting rules under Code section 6056 will be revised accordingly.
Similarly, the annual assessable payment amounts under Code sections 4980H are inflation-adjusted (p. 20, Q13), so that the $2,000 amount for 2015 is $2,080 and the $3,000 amount is $3,120. For 2016, those numbers will rise to $2,160 and $3,240.
IRS will revise its 4980H “hours of service” rules to clarify that employers need not count as “hours of service” payments made under workers’ compensation and disability plans to former employees. However, disability benefit payments, if funded in part by employee contributions, may count as hours of service if the employee is still on the payroll.
Staffing companies providing labor to educational organizations will face revised § 4980H rules that require them to observe the special employment break period rules that apply to the educational organization, unless the employee is offered full year employment. (P. 23, Q15.)
Bad news for state and local government agencies (p. 25, Q19): If you are deemed a separate employer under applicable state law and you are an ALE, you must have a separate EIN and must report separately on Form 1094-C. The rules about reporting through another Designated Government Entity do not change this. One DGE may report for ten ALEs, but it must file ten 1094-Cs.
It’s not new, but its repetition is welcome: IRS does not intend to penalize 2015 ALE reporting errors made in good faith by ALEs that tried to report correctly, timely in 2016. (That’s Q&A-26, p. 30.) Which brings us to § 202 of H.R. 2029, the omnibus spending bill, which directs IRS to treat information returns as completely correct if the errors involve small dollar amounts. It’s not perfectly clear whether this applies to Form 1095-C, line 15 affordability reporting. Let’s hope.
And, to gift-wrap this, § 101 of the omnibus spending bill delays Cadillac tax (Code § 4980I) accrual from 2018 to 2020 and directs the IRS to re-examine the applicable inflation adjustment formula. Merry Christmas; happy holidays; may the Schwarz be with you.