Affordable Care Act Tax Provisions for Employers
Additional Medicare Tax - See Tax Provisions for Individuals
Employer Shared Responsibility Provision
The Affordable Care Act establishes that certain employers must offer health coverage to their full-time employees or a shared responsibility payment may apply. On Feb. 10, 2014, the Department of the Treasury and the IRS issued final regulations on the Employer Shared Responsibility provisions. For additional information on the Employer Shared Responsibility provisions and the proposed regulations, see our questions and answers. On July 9, 2013, the Department of the Treasury and the IRS announced transition relief from the Employer Shared Responsibility provisions for 2014. For more information, please see Notice 2013-45. For additional transition relief generally applicable to 2015, see the preamble to the final regulations. On Sept. 18, 2014, the Department of the Treasury and the IRS issued Notice 2014-49, which provides guidance on how to apply the look-back measurement method in situations in which the measurement period applicable to an employee changes.
On December 16, 2015, the Treasury Department and IRS issued Notice 2015-87 which provides further guidance on the application of various provisions of the ACA to employer-provided health coverage. Specifically, the notice provides guidance on: (1) certain aspects of the employer shared responsibility provisions (ESRP), including clarifying the identification of employee contributions when employers offer health reimbursement arrangements (HRAs), flex credits, opt-out payments, or fringe benefits payments required under the McNamara-O’Hara Service Contract Act or other similar laws; (2) the application of the adjusted 9.5 percent affordability threshold under the Premium Tax Credit rules to the section ESRP safe harbor provisions; (3) the employer status of certain entities for section ESRP purposes; (4) certain aspects of the application of the ESRP rules to government entities; (5) the information reporting provisions for applicable large employers; (6) the application of the rules for health savings accounts (HSAs) to persons eligible for benefits administered by the Department of Veterans Affairs; and (7) the application of the COBRA continuation coverage rules to unused amounts in a health flexible spending arrangement (health FSA) carried over and available in later years, and conditions that may be put on the use of carryover amounts.
Expatriate Health Coverage – See Tax Provisions for Other Organizations
Expatriate Health Plans – See Tax Provisions for Individuals
Group Health Plan Requirements – See Tax Provisions for Other Organizations
On December 16, 2015, the Department of Treasury and IRS issued Notice 2015-87 which provides further guidance on the application of the market reforms that apply to group health plans under the ACA to various types of employer health care arrangements. This notice supplements the guidance provided in Notice 2013-54, Notice 2015-17 and the final regulations implementing the market reform provisions of the ACA.
Health Coverage for Older Children – See Tax Provisions for Individuals
Health Flexible Spending Arrangements – See Tax Provisions for Individuals
Health Reimbursement Arrangements, Health Flexible Spending Arrangements and Certain Other Employer Healthcare Arrangements - Application of Affordable Care Act Market Reforms
The Affordable Care Act’s market reforms apply to group health plans. On Sept. 13, 2013, the IRS issued Notice 2013-54, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. The notice also provides guidance on employee assistance programs or EAPs and on section 125(f)(3), which prohibits the use of pre-tax employee contributions to cafeteria plans to purchase coverage on an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). The notice applies for plan years beginning on and after Jan. 1, 2014, but taxpayers may apply the guidance provided in the notice for all prior periods. On February 18, 2015, the IRS issued Notice 2015-17 which provides transition relief from the excise tax under section 4980D with respect to failures to satisfy the market reforms by certain small employers reimbursing premiums for individual insurance policies, S corporations reimbursing premiums for 2-percent shareholders, and certain health care arrangements for employees with health coverage under Medicare and TRICARE.
DOL has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03. On Jan. 24, 2013, DOL and HHS issued FAQs that address the application of the Affordable Care Act to HRAs. On Nov. 6, 2014, DOL issued additional FAQs that address the application of the Affordable Care Act to HRAs and other payment arrangements.
Additional information is also available regarding consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace).
On December 16, 2015, the Treasury Department and IRS issued Notice 2015-87 which provides further guidance on the application of various provisions of the ACA to employer-provided health coverage. Notice 2015-87 provides guidance on the application of the market reforms that apply to group health plans under the ACA to various types of employer health care arrangements. The notice includes guidance that covers: (1) health reimbursement arrangements (HRAs), including HRAs integrated with a group health plan, and similar employer-funded health care arrangements; and (2) group health plans under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, such as a reimbursement arrangement described in Revenue Ruling 61-146, or an arrangement under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee (collectively, an employer payment plan). The notice supplements the guidance provided in Notice 2013-54; FAQs about the Affordable Care Act Implementation (Part XXII) issued by the Department of Labor on November 6, 2014; Notice 2015-17; and final regulations implementing the market reform provisions of the ACA published on November 18, 2015.
On December 13, 2016, Congress enacted the 21st Century Cures Act, which permits an eligible employer to provide a qualified small employer health reimbursement arrangement (QSEHRA), which is not a group health plan and thus is not subject to the requirements that apply to group health plans. An eligible employer is an employer that is not an applicable large employer and that does not offer a group health plan to its employees. A QSEHRA is an arrangement that meets the following criteria: (1) the arrangement is funded solely by an eligible employer, and no salary reduction contributions may be made under the arrangement; (2) the arrangement generally is provided on the same terms to all eligible employees of the employer; (3) the arrangement provides, after the employee provides proof of coverage, for the payment or reimbursement of medical expenses incurred by the employee or the employee’s family members; and (4) the amount of the payments and reimbursements for any year do not exceed $4,950 for employee-only arrangements or $10,000 for arrangements that provide for payments and reimbursements of expenses of family members. These maximum dollar amounts are adjusted for inflation after 2016. For QSEHRAs provided in 2017, the maximum dollar amount for employee-only arrangements remains $4,950, and the maximum dollar amount for arrangements that provide for payments and reimbursements for expenses of family members increases to $10,050.
An eligible employer generally must furnish a written notice to its eligible employees at least 90 days before the beginning of a year for which the QSEHRA is provided (or, in the case of an employee who is not eligible to participate in the arrangement as of the beginning of the year, the date on which the employee is first eligible). The written notice must include: (1) a statement of the amount that would be the eligible employee’s permitted benefit under the arrangement for the year; (2) a statement that the eligible employee should provide that permitted benefit amount to any health insurance exchange to which the employee applies for advance payments of the premium tax credit; and (3) a statement that if the eligible employee is not covered under minimum essential coverage for any month, the employee may be liable for an individual shared responsibility payment under section 5000A for that month and reimbursements under the arrangement may be includible in gross income. For years beginning after December 31, 2016, a penalty is imposed on eligible employers that fail to timely furnish eligible employees with the required written QSEHRA notice. However, an eligible employer that provides a QSEHRA to its eligible employees during 2017 will not be treated as failing to timely furnish the initial written notice if the notice is furnished to its eligible employees no later than 90 days after the enactment of the Cures Act. The 90th day after the enactment of the Cures Act is March 13, 2017. On February 27, 2017, the Treasury Department and the IRS issued Notice 2017-20, which provides transition relief for 2017. Specifically, an eligible employer that provides a QSEHRA to its eligible employees during 2017 is not required to furnish the initial written notice to its eligible employees until after further guidance has been issued regarding the contents of the written notice. That further guidance will specify a deadline for providing the initial written notice that is no earlier than 90 days following the issuance of that guidance. No penalties will be imposed for failure to provide the initial written notice before the extended deadline specified in that guidance. Employers that furnish the QSEHRA notice to their eligible employees before further guidance is issued may rely upon a reasonable good faith interpretation of the statute to determine the contents of the notice.
High Cost Employer-Sponsored Health Coverage Excise Tax
Section 4980I, which was added to the Code by the Affordable Care Act, applies to taxable years beginning after December 31, 2019. Under this provision, if the aggregate cost of applicable employer-sponsored coverage provided to an employee exceeds a statutory dollar limit, which is revised annually, the excess is subject to a 40 percent excise tax. On February 23, 2015, the IRS issued Notice 2015-16, which is intended to initiate and inform the process of developing guidance about the excise tax on high cost employer sponsored health coverage. Notice 2015-16 describes potential approaches that could be incorporated in future guidance and invites comments on these potential approaches and other issues under section 4980I.
On July 30, 2015, the IRS issued Notice 2015-52, which is intended to continue the process of developing regulatory guidance regarding the excise tax on high cost employer-sponsored health coverage under section 4980I. The notice supplements Notice 2015-16 by addressing additional issues under section 4980I, including the identification of the taxpayers who may be liable for the excise tax, employer aggregation, the allocation of the tax among the applicable taxpayers, the payment of the applicable tax and further issues regarding the cost of applicable coverage that were not addressed in Notice 2015-16.
The Consolidated Appropriations Act, 2016 (Pub. L. 114-113), signed into law on Dec. 18, 2015, delayed the effective date of the excise tax on high cost employer-sponsored health coverage from taxable years beginning after Dec 31, 2017, to taxable years beginning after Dec. 31, 2019.
Information Reporting on Health Coverage by Employers (Section 6056)
On March 5, 2014, the Department of the Treasury and IRS issued final regulations on employer health insurance coverage information reporting by applicable large employers to the IRS and its employees. The information reporting relates to health insurance coverage that is offered by certain employers, referred to as applicable large employers, and reporting is to be provided by each member of an applicable large employer. Additionally, on July 9, 2013, the Department of the Treasury and the IRS issued Notice 2013-45, announcing transition relief for 2014 from this annual information reporting. For additional information on the employer health insurance coverage information reporting see our questions and answers and this fact sheet issued by the U.S. Department of the Treasury.
The 2015 Forms 1095-C and 1094-C and instructions that employers will use to report on health coverage that they offer to their employees are available. On December 28, 2015, IRS issued Notice 2016-4, which extends the due dates for the 2015 information reporting requirements, both furnishing to individuals and filing with the Internal Revenue Service (Service), for insurers, self-insuring employers, and certain other providers of minimum essential coverage under I.R.C. § 6055, and the information reporting requirements for applicable large employers under I.R.C. § 6056. Specifically, this Notice (1) extends the due date for furnishing the 2015 Form 1095-B, Health Coverage, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from January 31, 2016, until March 31, 2016, and (2) extends the due date for filing with the Service the 2015 Form 1094-B, Transmittal of Health Coverage Information Returns, the 2015 Form 1095-B, Health Coverage, the 2015 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and the 2015 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage from February 29, 2016, to May 31, 2016 if not filing electronically, and from March 31, 2016, to June 30, 2016 if filing electronically. This Notice also provides guidance to individuals who, as a result of these extensions, might not receive a Form 1095-B or Form 1095-C by the time they file their 2015 tax returns.
On November 18, 2016, IRS issued Notice 2016-70, which extends the due date for the 2016 requirement to furnish ACA-related statements to individuals for insurers, self-insuring employers, and certain other providers of minimum essential coverage under I.R.C. § 6055, and for applicable large employers under I.R.C. § 6056, and extends good-faith transition relief from section 6721 and 6722 penalties to the 2016 information-reporting requirements under sections 6055 and 6056. Specifically, this Notice (1) extends the due date for furnishing the 2016 Form 1095-B, Health Coverage, and the 2016 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from January 31, 2017, until March 2, 2017, and (2) extends good-faith transition relief from section 6721 and 6722 penalties to the 2016 information-reporting requirements under sections 6055 and 6056. This Notice also provides guidance to individuals who, as a result of these extensions, might not receive a Form 1095-B or Form 1095-C by the time they file their 2016 tax returns.
Information Reporting on Health Coverage by Insurers (Section 6055) – See Tax Provisions for Other Organizations
On April 26, 2012, the Department of the Treasury and IRS issued Notice 2012-31, which provides information and requested public comment on an approach to determining whether an eligible employer-sponsored health plan provides minimum value. Additionally, on April 30, 2013, the Treasury Department and the IRS issued proposed regulations relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. Starting in 2014, whether such a plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment.
On November 4, 2014, the Department of the Treasury and IRS issued Notice 2014-69, which provides additional guidance regarding whether an employer-sponsored plan provides minimum value coverage if the plan fails to substantially cover in-patient hospitalization services or physician services.
Reporting Employer Provided Health Coverage in Form W-2
The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.
The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee's income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits.
More information about the reporting can be found on Form W-2 Reporting of Employer-Sponsored Health Coverage.
Retiree Drug Subsidies – See Tax Provisions for Other Organizations
Small Business Health Care Tax Credit
This credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees. It is specifically for employers with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. On June 26, 2014, the Department of Treasury and the IRS issued final regulations on the credit, which include information on the requirement to purchase health insurance coverage through the Small Business Health Options Program (SHOP) Marketplace. The final regulations are applicable for taxable years beginning in or after 2014. Additionally, IRS Notice 2014-06 provides transition relief for employers in certain counties in Washington and Wisconsin with no SHOP coverage available in 2014, IRS Notice 2015-8 provides similar relief for employers in certain counties in Iowa with no SHOP coverage available in 2015 and IRS Notice 2016-75 provides similar relief for employers in certain counties in Wisconsin with no SHOP coverage available in 2016. For taxable years beginning in 2010 through 2013, taxpayers can rely on the guidance in the proposed regulations, Notice 2010-44 and Notice 2010-82. Learn more by browsing our page on the Small Business Health Care Tax Credit for Small Employers.
Effect of Sequestration on Small Business Health Care Tax Credit
Pursuant to the requirements of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended, refund payments issued to certain small tax-exempt employers claiming the refundable portion of the Small Business Health Care Tax Credit under Internal Revenue Code Section 45R, are subject to sequestration. This means that refund payments processed on or after Oct.1, 2015, and on or before Sept. 30, 2016, to a Section 45R applicant will be reduced by the fiscal year 2016 sequestration rate of 6.8 percent, irrespective of when the original or amended tax return was received by the IRS. Affected taxpayers will be notified through correspondence that a portion of their requested payment was subject to the sequester reduction and the amount. The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise impacts the sequester, at which time the sequestration reduction rate is subject to change. Note that the Congressional Budget Office estimates that a sequestration for fiscal year 2016 will not be required.
Tanning Tax - Excise Tax on Indoor Tanning Services
A 10-percent excise tax on indoor UV tanning services went into effect on July 1, 2010. Payments are made along with Form 720, Quarterly Federal Excise Tax Return. The tax doesn't apply to phototherapy services performed by a licensed medical professional on his or her premises. There's also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee. For more information on the tax and how it is administered, see the Indoor Tanning Services Tax Center.
Transitional Reinsurance Program - See Tax Provisions for Other Organizations