In connection with providing an extension to the ACA filing deadlines, the IRS also issued guidance changing some of the ACA reporting rules. Notice 2015-87 applies to plan years starting on or after December 16, 2015, so it will not impact most 2015 filings. Some of the changes are as follows:
1. Opt Out Payment and Affordability
The notice provides guidance on what amount an employee will be considered to contribute to the cost of coverage for determining affordability. Affordability is based on the lowest-cost single-only coverage providing minimum value.
The new rules explain when flex credits and opt-out payments will be considered toward the amount an employee is required to pay for coverage. If the employee can receive a flex credit that can be applied to reduce his cost of medical coverage, but the employee cannot receive the flex credit in cash, that amount counts toward reducing the employee’s cost of coverage. However, if the employee can get a cash payment or apply the payment toward other non-medical lines of coverage, that cash out amount (opt-out payment) does not reduce his contribution for determining affordability. The amount available to the employee in cash is added to the employee’s share of the lowest-cost single-only health plan option to determine the employee’s cost of coverage.
For example, consider an employer who offers a $150 payment to employees who opt-out of medical coverage. Also assume the employer has a $0 employee premium for the lowest cost single only coverage, is $0. For purpose of determining affordability and for identifying the employee share number to put on Line 15 of Form 1095-C, the monthly value would be $150 (opt out payment plus cost to employee of coverage).
2. Affordability 9.5% Increased.
Affordability of health coverage is based on 9.5% of household income. The 9.5% was changed last year to 9.56% for a COLA adjustment. This COLA adjustment was not previously applied to the affordability safe harbors (W-2, Rate of Pay, FPL). It has now been applied, and all are 9.56% for 2015. The percentage increases to 9.66% for all in 2016.
3. Hours of Service.
Hours of service for determining full-time status are any hours for which an employee is paid or entitled to payment for the performance of duties. The IRS clarified that an hour of service does not include hours after termination of employment. It also does not include (1) an hour for which an employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workmen’s compensation, or unemployment or disability insurance laws; and (2) an hour of service for a payment which solely reimburses an employee for medical or medically related expenses incurred by the employee.
Periods during which an individual is not performing services but is receiving payments due to short-term disability or long-term disability will result in hours if the individual is still considered an employee and if the benefits are funded by the employer. The guidance says that disability benefits from coverage paid with after tax dollars will not be considered hours of service.
Employers may have to separately track pre-tax and after-tax disability payments for determining how to credit hours.
4. Penalty Amounts Increased.
Penalty amounts for ACA violations have been increased. For 2015 and 2016 they will be $2,080 and $2,160, respectively, under Code § 4980H(a) and $3,120 and $3,240, respectively, under Code § 4980H(b).
5. Governmental Employers and Controlled Groups
The IRS issued guidance for governmental employers determining controlled group status. It says that government entities may use a reasonable good faith interpretation of the Code’s aggregation rules for purposes of determining applicable large employer status.
A copy of the guidance can be found here.