IRS Penalties Are Being Issued

healthThe Internal Revenue Service is finally issuing penalty letters to employers who failed to provide health coverage, in compliance with the employer shared responsibility provisions of the ACA, for the 2015 tax year. Some letters may describe a no coverage excise tax while others may assess an excise tax for failure to provide “adequate or affordable” coverage. The notices are catching many employers off guard because issuance of these letters was delayed several times.

Those who receive a letter describing the specific violation, could be liable for penalties ranging from $2,080 to $3,480 per affected employee, depending on the violation and the plan year involved. Regulatory experts recommend that employers refer to the data submitted on forms 1094-C and 1095-C and respond to the IRS on time, even if they don’t believe the tax is owed.

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Deadlines Extended for Furnishing Forms 1095-B and 1095-C in Early 2017

hr-news-alertThe IRS has extended the due dates for furnishing 2016 Forms 1095-B and 1095-C to covered individuals and full-time employees, respectively, from January 31, 2017, to March 2, 2017. In addition, the IRS is also extending good faith penalty relief to reporting entities who can show they made good faith efforts to comply with the calendar year 2016 information reporting requirements.

Who is Required to Report

Applicable large employers (generally those with 50 or more full-time employees, including full-time equivalents or FTEs) must use Forms 1094-C and 1095-C to report information to the IRS and to their full-time employees about their compliance with the employer shared responsibility provisions (“pay or play”) and the health care coverage they have offered in a calendar year. Alternatively, Forms 1094-B and 1095-B are used by insurers, self-insuring employers, and other parties that provide minimum essential health coverage (regardless of size, except for large self-insuring employers) to report information on this coverage to the IRS and to covered individuals. Employers subject to both reporting provisions (generally self-insured employers with 50 or more full-time employees, including FTEs) will satisfy their reporting obligations using Forms 1094-C and 1095-C.

Note: Reporting entities are required to report in early 2017 for coverage offered (or not offered) in calendar year 2016.

Furnishing Deadline Extension

The IRS has extended the due dates for furnishing 2016 Forms 1095-B and 1095-C to covered individuals and full-time employees, respectively, from January 31, 2017, to March 2, 2017. However, the deadline to file 2016 Forms 1094-B, 1095-B, 1094-C, and 1095-C with the IRS was not extended, and remains February 28, 2017 (or March 31, 2017, if filing electronically).

Good Faith Penalty Relief Extension 

Internal Revenue Code sections 6721 and 6722 impose penalties for failing to file and furnish an accurate and complete information return, including Forms 1094 and 1095. However, the IRS is extending penalty relief to reporting entities that can show that they made good faith efforts to comply with the calendar year 2016 information reporting requirements. This relief applies to missing and inaccurate taxpayer identification numbers and dates of birth, as well as other information required on the return or statement.

In determining good faith, the IRS will take into account whether an employer made reasonable efforts to prepare for reporting the required information to the IRS and furnishing it to employees and covered individuals, such as gathering and transmitting the necessary data to an agent to prepare the data for submission to the IRS, or testing its ability to transmit information to the IRS. In addition, the IRS will take into account the extent to which the employer is taking steps to ensure that it will be able to comply with the reporting requirements for calendar year 2017.

Extensions Apply to Calendar Year 2016 Reporting Only

The extensions for furnishing Forms 1095-B and 1095-C apply to calendar year 2016 reporting only and have no effect on the requirements for other years or on the effective dates or application of the pay or play provisions. Specifically, the IRS does not anticipate extending due dates or good faith penalty relief to reporting for calendar year 2017.

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Applicable Dollar Amount Used to Determine PCORI Fee Adjusted to $2.26

The Internal Revenue Service (IRS) recently issued guidance that increases the applicable dollar amount used to determine the Patient-Centered Outcomes Research Institute (PCORI) fee, for plan years that end on or after October 1, 2016 and before October 1, 2017.

Background

PCORI fees are imposed on plan sponsors of applicable self-insured health plans for each plan year ending on or after October 1, 2012 and before October 1, 2019. The fees support research to evaluate and compare health outcomes and the clinical effectiveness of certain medical treatments, services, procedures, and drugs.

For plan years ending on or after October 1, 2015 and before October 1, 2016, the fee for an employer sponsoring an applicable self-insured plan was $2.17 multiplied by the average number of lives covered under the plan. Details on how to determine the average number of lives covered under a plan, as well as various examples, are included in final regulations.

Fee Increase
Pursuant to IRS Notice 2016-64, for plan years ending on or after October 1, 2016 and before October 1, 2017, the fee is $2.26 (multiplied by the average number of lives covered under the plan).

For plan years ending on or after October 1, 2017 and before October 1, 2019, the fee will be further adjusted to reflect inflation.

Be sure to check out our PCORI Fees for Self-Insured Plans section for more information.

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IRS Releases Final 2016 Forms 1094 and 1095

hr-news-alertThe Internal Revenue Service (IRS) has released the final forms and instructions for Forms 1094 and 1095 for calendar year 2016 reporting. Employers are required to report in early 2017 for calendar year 2016.

Who is Required to Report
Applicable large employers (ALEs)—generally those with 50 or more full-time employees, including full-time equivalents (FTEs)—must use Forms 1094-C and 1095-C to report information to the IRS and to their full-time employees about their compliance with the employer shared responsibility provisions (“pay or play”) and the health care coverage they have (or have not) offered in a calendar year. Forms 1094-B and 1095-B are used by insurers, self-insuring employers, and other parties that provide minimum essential health coverage (regardless of size, except for large self-insuring employers) to report information on this coverage to the IRS and to covered individuals.

Employers subject to both reporting provisions (generally self-insured employers with 50 or more full-time employees, including FTEs) will satisfy their reporting obligations using Forms 1094-C and 1095-C.

2016 Forms and Instructions
The following calendar year 2016 reporting forms and instructions are now available:

Information Reporting Deadlines
ALEs must furnish a Form 1095-C to each of its full-time employees by January 31, 2017. Forms 1094-C and 1095-C are also required to be filed with the IRS by February 28, 2017 (or March 31, 2017, if filing electronically).

Filers of Form 1095-B must furnish a copy of that form to the person identified as the “responsible individual” by January 31, 2017. The responsible individual is the person who, based on a relationship to the covered individuals, the primary name on the coverage, or some other circumstances, should receive the statement. Forms 1094-B and 1095-B are also required to be filed with the IRS by February 28, 2017 (or March 31, 2017, if filing electronically).

Please be advised that Forms 1095-B and 1095-C must be electronically filed if the reporting entity is required to file at least 250 of the specific form.

Visit our Information Reporting section for more on the information reporting requirements.

3 Tax Recordkeeping Tips for Employers

paperworkKeeping good records not only makes tax filing easier and faster, but it can also help you monitor the progress of your business, prepare your financial statements, and support items reported on your tax returns. Here are three simple tips from the IRS to help you get organized:

1. Save Certain Business Records
The following are some of the types of records you should keep:

      • Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts.
      • Purchases are the items you buy and resell to customers. Your supporting documents should show the amount paid and that the amount was for purchases.
      • Expenses are the costs you incur (other than purchases) to carry on your business. Your supporting documents should show the amount paid and that the amount was for a business expense.
      • Assets are the property, such as machinery and furniture, that you own and use in your business. You need records to compute the annual depreciation and the gain or loss when you sell the assets.

2. Keep Employment Tax Records
The following information should be available for IRS review:

    • Your employer identification number (EIN);
    • Amounts and dates of all wage, annuity, and pension payments;
    • Amounts of tips reported;
    • The fair market value of in-kind wages paid;
    • Names, addresses, social security numbers, and occupations of employees and recipients;
    • Any employee copies of Forms W-2 that were returned to you as undeliverable;
    • Dates of employment;
    • Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them;
    • Copies of employees’ and recipients’ income tax withholding allowance certificates;
    • Dates and amounts of tax deposits you made;
    • Copies of returns filed;
    • Records of allocated tips; and
    • Records of fringe benefits provided, including substantiation.

3. Store and Organize Your Records
Business owners should generally keep all employment-related tax records for at least 4 years after the tax is due, or after the tax is paid, whichever is later. The length of time you should keep other documents depends on the action, expense, or event the document records.

You can review our section on Employee Records and Files for information on other federal recordkeeping responsibilities for employers.

Applicable Dollar Amount for Calculating PCORI Fee Adjusted for Inflation

The IRS has issued guidance which increases the applicable dollar amount used to determine the Patient-Centered Outcomes Research Institute (PCORI) fee. For plan years ending on or after October 1, 2015 and before October 1, 2016, the fee is $2.17 (multiplied by the average number of lives covered under the plan).

Background
PCORI fees are imposed on plan sponsors of applicable self-insured health plans for each plan year ending on or after October 1, 2012 and before October 1, 2019. The fees support research to evaluate and compare health outcomes and the clinical effectiveness of certain medical treatments, services, procedures, and drugs.

For plan years ending on or after October 1, 2014 and before October 1, 2015, the fee for an employer sponsoring an applicable self-insured plan is $2.08 multiplied by the average number of lives covered under the plan. Details on how to determine the average number of lives covered under a plan, as well as various examples, are included in final regulations.

Fee Increase
Pursuant to IRS Notice 2015-60, for plan years ending on or after October 1, 2015 and before October 1, 2016, the fee is $2.17 (multiplied by the average number of lives covered under the plan).

For plan years ending on or after October 1, 2016 and before October 1, 2019, the fee will be further adjusted to reflect inflation in National Health Expenditures (which will be published in future IRS guidance).

Our PCORI Fees for Self-Insured Plans section features additional information on calculating and paying the fee.

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401(k) Contribution Limit Remains Unchanged at $18,000

RetirementThe IRS has announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2016. Highlights include:

  • The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), and most 457 plans remains unchanged at $18,000.
    •  The catch-up contribution limit for those aged 50 and over remains unchanged at $6,000.
  • The limit on annual contributions to an individual retirement arrangement (IRA) remains unchanged at $5,500.

The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, unchanged from 2015.

  •  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range remains unchanged at $98,000 to $118,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $184,000 and $194,000, up from $183,000 and $193,000.

Additional information on the adjusted and unchanged limitations is available in the IRS cost-of-living adjustment table.

Some Tax Benefits Increase Slightly, Others Unchanged

paperworkThe Internal Revenue Service (IRS) has announced a number of inflation-adjusted tax items for 2016, some of which remain unchanged. Among other items, the annual dollar limit on employee contributions to employer-sponsored health flexible spending arrangements (FSAs) remains unchanged (at $2,550).

Other Items of Interest

Other inflation-adjusted items for tax year 2016 that may be of interest to employers and employees include the following:

  • Qualified Transportation Fringe Benefits. For tax year 2016, the monthly limitation for the qualified transportation fringe benefit remains at $130 for transportation, but rises to $255 for qualified parking (up from $250 for tax year 2015).
  • Archer MSAs. The 2016 limits for annual deductibles and maximum out-of-pocket expenses for high deductible health plans (HDHPs) are as follows:
    • Self-only coverage. The plan must have an annual deductible that is at least $2,250 (up from $2,200 for 2015); but not more than $3,350 (up from $3,300 for tax year 2015). The annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits cannot exceed $4,450 (unchanged from 2015).
    • Family coverage. For tax year 2016, the floor for the annual deductible remains at $4,450, however the deductible cannot be more than $6,700 (up $50 from 2015). The annual out of-pocket expenses required to be paid (other than for premiums) for covered benefits cannot exceed $8,150 (unchanged from 2015).
  • Earned Income Credit. The maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have 3 or more qualifying children (up from a total of $6,242 for tax year 2015). IRS Revenue Procedure 2015-53 includes a table that provides maximum credit amounts for other categories, income thresholds, and phase-outs.

For More Information
Details on these inflation adjustments and others are contained in Revenue Procedure 2015-53.