The Affordable Care Act places requirements on both employers and employees. The IRS is involved with many aspects of health care reform, including requiring employers to report certain data on a periodic basis and issuing tax penalties for not complying with certain mandates. The following health care reform components may subject employers to IRS consequences.
Medical Loss Ratio (MLR)
Insurance companies must spend a certain percentage of premium dollars on medical care compared to administrative expenses. Insurance companies that are not meeting the MLR standard must provide rebates to employers. Employers who are eligible for a rebate must determine how to distribute that rebate to employees or use the rebate to offset plan expenses. The IRS looks at an employer’s use of a MLR rebate to make sure it is used properly.
Form W-2 Reporting
Employers must report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2. This IRS requirement has been in effect since 2013 for some plans.
Minimum Value
An employer provided health plan must meet minimum value, by costing an employee not more than a certain percentage of household income. If a plan does not meet minimum value/cost and an employee receives a tax credit to purchase coverage on the Exchange, the employer will be subject to a tax penalty from the IRS.
Employer Health Coverage Reporting
Large employers (over 50 full time employees) must report the cost and availability of health coverage or pay a penalty. The reporting requirement will be made on a new IRS form and be required beginning in 2016 with respect to the 2015 plan year.
Insurer Health Coverage Reporting
Health insurance issuers and sponsors of self-funded health plans must report information about the minimum essential coverage provided under the plan. The reporting requirement will be made on a new IRS form and be required beginning in 2016 with respect to the 2015 plan year.
Small Business Health Care Tax Credit
A credit may be available for small businesses and small tax-exempt organizations to help mitigate the cost of offering health coverage to employees. Coverage must be offered through the SHOP Exchange in order for an employer to be eligible for the tax credit provided by the IRS.
Health Insurance Premium Tax Credit
Individuals and families can take a new premium tax credit to help them afford health coverage purchased through the Exchange. The credit may be available to certain individuals based on income thresholds, as determined by the IRS.
Individual Shared Responsibility Provision
Each individual must have minimum essential coverage for each month of the year, qualify for an exemption, or pay an IRS tax penalty on his/her tax return.
Tax credits, penalties, and IRS filings are implicated by many health care reform requirements. Both employers and employees should have a basic understanding of the tax impact of the Affordable Care Act.
