All posts tagged IRS

Companies Struggle with Benefits Compliance

More and more employers are being overwhelmed by all of the compliance requirements associated with managing employee benefits.

The Guardian Life Insurance Company of America’s “Benefits Balancing Act” study found that 60% of employers are feeling overwhelmed with the increased complexity of managing their benefits programs. One of the main reasons for the additional burden is the Affordable Care Act, with its myriad of compliance and reporting requirements.

The employer mandate and the documentation and new filing requirements with the IRS are high on the list of compliance issues, as are evolving Family Medical Leave Act (FMLA) and ERISA requirements.

Interestingly, larger firms with 100 or more employees are having the hardest time, with 70% saying they are especially challenged by installing new coverages, changing carriers and employee communications and enrollment.

The shackles of compliance are so great that it’s the number one benefits-related concern for nearly 30 % of employers, the study found. In fact, 70% said that their firms are not equipped to keep up with the steady changes in federal and state laws governing employee benefits.

The top areas of compliance concern are:

  • The ACA excise tax (“Cadillac tax”)
  • Changes to paid parental leave laws
  • ACA employer mandate
  • ERISA requirements
  • State and local FMLA requirements


In terms of administration the top concerns are:

  • Employee communications and education
  • Adding new benefits or changing plans and insurers
  • Establishing electronic data interchanges
  • Account management and service delivery
  • Claims and employee customer service
  • Enrolling employees


What companies are doing

As the regulatory landscape has shifted so dramatically over the last seven years, many employers have opted for outsourcing their benefits compliance.

This may be an especially smart move for smaller employers, which often do not have in-house benefits administration resources.


Among employers outsourcing at least some benefits activities, the study found that:

  • 50% use the services of a broker
  • 25% use an insurance company
  • 25% use a third-party vendor (enrollment firm, HR services firm or a private exchange)

IRS Targets Employers Who Fail to File ACA Forms

Film Noir style gangster/detective hiding behind a brick wall

The IRS has started sending letters to some employers asking them where their Affordable Care Act returns are, according to the National Association of Health Underwriters.

The letters, says the association, appear to be one of the first efforts by the IRS to enforce the employer responsibility requirements of the ACA.

Under the ACA, applicable large employers (ALEs) – those with 50 or more full-time and full-time-equivalent employees – are required to file Forms 1094-C and 1095-C with the IRS. The requirement started in 2016 when those employers for the first time had to file these forms with the IRS.

The letters are for the 2015 policy year and the IRS requires that employers respond to the letter within 30 days. These letters are being sent out because the IRS did not receive the forms from some employers it has deemed as ALEs.


Letter 5699

The document the IRS sends out is Letter 5699, titled “Request for Employer Reporting of Offers of Health Insurance Coverage (Forms 1094-C and 1095-C)”.

The letter, which will be signed by a tax compliance officer, is a notification that the recipient employer is non-compliant with Internal Revenue Code (IRC) Section 6056 because the IRS has not received 2015 returns.

IRC Section 6056 requires applicable large employers to file ACA information returns with the IRS and provide statements to full-time employees relating to the health insurance coverage, if any, that was offered to them.

Employers can respond by attesting that they:

  • Were an ALE for calendar year 2015, and have already filed Form 1094-C and Form 1095-C.
  • Were an ALE for calendar year 2015, and include the forms with the response letter.
  • Were an ALE for calendar year 2015, and state that they will file the forms with the IRS.
  • Were not an ALE for calendar year 2015.
  • Had other circumstances (must explain).


If ALEs do not comply with IRC Section 6056, they can be assessed penalties.


The takeaway

If you have not gotten your paperwork in order and are also prepared to file the required documents for 2016, you should make sure you file on time.

The letters are an indication that the IRS is preparing to assess fines.

The IRS is monitoring non-compliance and has dedicated caseworkers (tax compliance officers) handling this process. The next step will be penalty assessments.

Finally, if you have not yet filed for 2015, you can still do so – and avoid the risk of incurring a late penalty of $530 per form.


Crackdown on Employers Who Shunt Employees onto Medicare

Portrait of two stressful, serious businesspeople. 


The Centers for Medicare and Medicaid Services (CMS) is stepping up efforts to root out employers who have improperly put workers who were eligible for the company’s group health plan into Medicare.

Under the law, employers are prohibited from offering incentives of any kind to a Medicare-eligible individual to enroll in Medicare instead of the employer’s health plan.

Companies with 20 or more employees may not encourage covered employees and/or dependents to make this change in coverage.

The fine for encouraging an employee or dependent to take Medicare is $5,000 per situation, but that’s not the largest potential penalty.

The larger penalty is the bill for any claims that Medicare paid as a primary payer versus what it should have paid as a secondary payer.

This claim can be huge depending on how much care an individual that should have been in a company health plan sought out while on Medicare.

And now the CMS has decided to step up its recovery of these improper payouts.

CMS aims to increase the number of successful recoveries from below 5% to nearly 100%.

It has joined forces with the Internal Revenue Service (IRS) and the Social Security Administration to specifically look for instances where an individual is enrolled in Medicare and is also an employee of a group.

They are checking when someone’s social security number is showing up both on the income tax withholding list for an employer and also on the Medicare rolls.

Recently, many employers have received letters from a Data Matching project sponsored by the Social Security Administration, the CMS and the IRS. The goal of this new project is to increase recovery of improperly paid Medicare benefits.

Whatever you do, don’t ignore this letter. It has a 30-day deadline for you to answer the questionnaire and you should take this exercise seriously. If you take a nonchalant attitude towards filling it out, you could be in for a heaping bill from Medicare later.


Calculating employees

If a company has fewer than 20 employees, it’s generally accepted that Medicare would pay first for a Medicare-eligible employee who is also on a health plan.

Employers on the cusp of this “20 or more” rule should calculate the average number of employees they had in the prior year, according to the CMS.

Under the law, an employer is considered to have 20 or more employees for each working day of a particular week if the employer has at least 20 full-time or part-time employees on its employment rolls each working day of that week.

This condition is met as long as the total number of individuals on the employer’s rolls adds up to at least 20 regardless of the number of employees who work or who are expected to report for work on a particular day.

Staffing Agency and Temp Workers and Your ACA Obligations

Medical questions

If you use a staffing agency or temp workers, there is an added complexity to how you calculate your employees for the sake of the Affordable Care Act “pay or play” rules.

As you know, if you have 50 or more full-time or full-time equivalent employees, you are required to secure health insurance for your employees or face penalties of about $2,000 a head. As the Internal Revenue Service will be scrutinizing employers in this regard, you need to know the rules of the road if you are using staffing companies for your workforce.
The IRS has indicated that it intends to use a fact-based “common law” definition of employee to determine who is a full-time employer under the ACA.

When an employer uses a staffing agency to supply workers, making the determination as to who is a common law employee becomes more complex. However, the final rules allow for some relief for an employer who might otherwise incur the pay-or-play penalties with respect to workers hired through staffing agencies that are reclassified by the IRS as common law employees of the client employer.

Generally, a worker providing services to an employer is a common law employee if the employer has the authority to direct and control the manner in which services will be performed.

The IRS sets out three main categories of facts that it will consider to determine whether a person is a common law employee or an independent contractor:

  • Behavioral control;
  • Financial control; and
  • Facts about the relationship.


Staffing agency conundrum

But the line blurs when contracting with a staffing agency. In many of these contracts, the workers are often characterized as employees of the staffing agency or jointly employed by the staffing agency and the company client.

The IRS has stated in a Q&A section on its website that the terms used by the parties to such a contract are only one of many facts that will be examined to determine who is the common law employer for ACA purposes.

Because employers do not offer health coverage to workers supplied by staffing agencies, if the IRS decides to classify them as common law employees it could trigger liability ACA penalties.

For example, an employer who offers coverage to 96 out of 100 full-time employees would not owe a penalty under the 95% rule. But if just five additional workers provided by a staffing agency are later determined to actually be common law employees of the employer, the employer could owe a penalty of $150,000 ($2,000 multiplied by 75, which is the number of full-time employees, less 30).


What you should do
One bit of good news is that final ACA regulations allow employers to take credit for an offer of coverage made by a staffing agency only if the firm pays the staffing agency more for a worker who accepts the offer of coverage than the employer would pay if the worker did not accept the offer.

If you have not done so, make sure that your staffing agency contract explicitly addresses this issue in a line item.

The typical staffing agency contract prior to the ACA did not include provisions for distinguishing offers of coverage.

You will want to consider how many staffing agency workers typically are part of your workforce to determine whether ACA penalties may be triggered.

Finally, you should review and, if necessary, amend your agreements with staffing agencies to take advantage of the protection offered by the ACA regulations.

Top 10 Laws and Regulations Affecting Business in 2016 (Part 1)

Top 10 gold

AS WITH every New Year, businesses are faced with a slew of new laws and regulations. We’ve condensed them into a list of the top 10 most likely to affect your operations.


  1. New teeth to gender equal pay laws

A new state law adds teeth to the laws on gender pay equality.

Before SB 358, employees seeking to prove pay discrimination had to demonstrate that they are not paid at the same rate as someone of the opposite sex at the same establishment for “equal work.”

Under the new law, the requirement of “same establishment” has been deleted, and the employee need only show he or she is not being paid at the same rate for “substantially similar work.”

Substantially similar work means a composite of skill, effort and responsibility, performed under similar working conditions.

Employment law attorneys say the employer has the burden to affirmatively demonstrate the pay difference being complained about is based on any or all of these specific factors:

  • A seniority system,
  • A merit system,
  • A system that measures earnings by quality or quantity of production, or
  • Another factor, such as education, training or experience.


  1. Minimum wage increase

On Jan. 1, the state minimum wage increased to $10 an hour, the last of two incremental increases since legislation was passed in 2013. The first came on July 1, 2014, which moved the rate up to $9 an hour, where it has been until now.


  1. Employer mandate part II

At the end of 2015, the Affordable Care Act reprieve for business with 50 to 99 full-time or full-time equivalent employees ends.

Employers of this size are required to provide health insurance to at least 95% of their full-time employees and dependents up to age 26 starting this year.

For employers who don’t provide coverage, the fee is $2,000 per full-time employee (minus the first 30 full-time employees).

Companies with 100 or more full-time employees were required to cover their workers, starting in 2015.


  1. Health coverage reporting

Starting in 2016, employers with 50 or more full-time or full-time equivalent employees are required to make additional filings with the IRS, as well as supply their staff with forms.

Applicable large employers (with 50 or more full-time and full-time equivalent employees in the preceding calendar year) will use Form 1094-C and Form 1095-C to satisfy reporting requirements.

If filed on paper, these forms must be put in the mail no later than Feb. 28. If filing is done electronically, the due date is March 31.

You must provide 1095-C to your employees before the end of January, along with their W-2 forms


  1. Leeway to avoid frivolous lawsuits

AB 1506 gives employers 33 days to fix technical violations on an itemized wage statement before an employee can pursue civil litigation under the Private Attorneys General Act.

The California Chamber of Commerce championed the bill, which took effect on Oct. 2, 2015, saying it will greatly reduce frivolous litigation over an issue for which “injury” is hard to prove.


You can find out about the next five laws in our Thursday blog entry.

IRS extends ACA reporting deadline for employers


The IRS has extended the deadline for reporting health plan information for 2015 under the Affordable Care Act.

Starting this year, applicable large employers (those with 50 or more full-time or full-time equivalent employees) must report whether an individual is covered by minimum essential coverage and that an offer of minimum essential coverage that provides minimum value was made to each full-time employee. This is done in form 1095-B and 1095-C.

Under a notice issued on Dec. 28, the deadlines for furnishing employees with the 2015 Form 1095-B (Health Coverage) and Form 1095-C (Employer Provided Health Insurance Offer and Coverage) have been extended from Feb. 1, 2016, to March 31, 2016. These forms explain to the employees their health benefits that you provide, if any.

The same notice also extended the deadline for filing with the IRS Form 1094-B (Transmittal of Health Coverage Information Returns), Form 1095-B, Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns) and Form 1095-C.

The deadline for filing electronically has been moved to May 31 from Feb. 29. If filing by paper, the deadline has been moved to June 30 from March 31.

Cadillac Tax Gets Push-back from Employers, Benefits Consultants

Even though the “Cadillac tax” on high-cost health plans is due to take effect in 2018, employer groups and benefits consultants have asked the IRS to postpone the implementation.

They say that employers need time and flexibility to implement changes to health benefit plans and their internal administrative systems to prepare for the 40% tax on group health care premiums.

Under proposed regulations, starting in 2018, the IRS will tax at a rate of 40% the portion of any plan that exceeds $10,200 in premium for individual coverage and $27,500 for family coverage. These thresholds are predictions. There is a formula in place for calculating the threshold based on a number of statistics, which change year to year.

The excise tax rules require health insurers to pay the tax, which they are expected to pass on to employers.

Benefits consultants are also asking that some health benefit costs not be included when tabulating the premium for purposes of the Cadillac tax.

In a letter to the IRS, international consulting firm Mercer LLC urged the agency:

  • To exclude in its forthcoming proposed regulations non-core medical benefits – such as workplace wellness programs and on-site medical clinics – from the calculation of coverage costs.
  • To provide employers with enough flexibility to calculate coverage costs consistent with reasonable actuarial principles, and
  • To postpone its implementation of the excise tax, or at least provide a “good faith” compliance period.


Meanwhile, an employer benefits lobbying group known as the ERISA Industry Committee has asked for a two-year transition period to allow employers time to restructure their health benefit plans, administration systems and employee communications to comply with the reform law.

It also asked for exemption from the excise tax for programs designed to lower health care costs, such as health savings accounts, on-site medical clinics and wellness programs.


How Cadillac tax works: examples based on current threshold amounts


Self-only coverage

A $12,000 individual plan would pay an excise tax of $720 per covered employee:

 $12,000 – $10,200 = $1,800 above the $10,200 threshold

Tax due: $1,800 x 40% = $720


Family coverage

A $32,000 family plan would pay an excise tax of $1,800 per covered employee:

 $32,000 – $27,500 = $4,500 above the $27,500 threshold

Tax due: $4,500 x 40% = $1,800