You’ve probably never received a Valentine’s Day gift from the IRS, but this year you did! On Monday, the IRS issued final regulations on Obamacare’s employer shared responsibility payment provision, otherwise known as the “pay or play” provision. Like many things the IRS announces, there’s quite a bit a fine print. This time is no exception. Check out some of the highlights of the final regulations and learn what you need to know moving forward.
There’s now a limited one-year delay on “pay or play” penalties for companies with 50-99 full time or full-time equivalent (FTE) employees.
The “pay or play” penalty provision will now go into effect starting in 2016 for these companies (for business with 100+ employees, it still starts in 2015). But, hold on – it’s not as easy as that. In order for you to be considered for this one-year delay you must:
- File 6056 informational reporting for the 2014 tax year, which requires various data collection and analysis on your coverage and your employees (due in January 2015);
- Not reduce your workforce to fit into this 50-99 category during 2014;
- Not reduce or drop insurance coverage in 2014;
- File a certification form in January 2015 that asserts that you meet all of these requirements.
General penalty relief is granted for businesses subject to pay or play in 2015.
Businesses will now only be subject to the $2,000 per employee penalty if they fail to offer coverage to 70 percent (down from 95 percent) of your full-time employees, for 2015 only. If you have more than 100 employees, you won’t be subject to a penalty for your first 80 employees (up from 30) when you calculate the $2,000 per employee penalty, for 2015 only. Basically, your first 80 employees are free!
This provision offers renewed transitional relief.
You can now use a consecutive six-month testing period during 2014 for determining if you are a large employer (previously you had to use the full 12 months of 2014). This provision also delays the required offering of coverage to children of employees until 2016.
Unfortunately, there’s no specific guidance for governmental entities.
The IRS’ final regulations don’t provide specific guidance on the aggregation of governmental employers. As an example, school districts still do not have guidance as to whether they must group employee counts with anyone else. However, we do know that bona fide volunteer hours do not count for purposes of large employer or penalty testing. This basically allows individuals who get reimbursements and other benefits from 501(c) entities and government agencies to volunteer without being counted toward large employer or penalty testing.
There are some quality of life modifications to prior guidance.
- For both measurement periods and large employer testing, you may use payroll periods instead of calendar months. Previously, you had to use calendar month data (which was a problem if you had the common every two-week pay period – pay periods can straddle months) There are new rules on how to use this testing with the common two-week pay period fact pattern.
- The first IRS pay or play penalty notices will be distributed after April 15, 2016.
- If you’re a new large employer (you were never above 50 full time/FTEs), you won’t face a penalty for that following January-March period – but only if you then offer coverage by that April 1st. If you don’t provide coverage, you would start accruing penalties January 1.
Other miscellaneous areas to note from the IRS’ final regulations include:
- If you require any of your employees to be “on-call,” their time on-call must be counted as hours worked if you:
- Pay them for the time they are on-call
- Require them to be on company property while they are on-call
- Substantially restrict to what they can do when they are on-call
- The “pay or play” penalty is still not tax deductible.
With these final regulations, you may have a ton of questions and wonder just how these changes might impact you and your business. If you find yourself in this boat, contact Rea & Associates. Our team of Ohio tax professionals can help you make sense of these final IRS regulations and help you determine how you can ensure your business is in compliance.
Author: Joe Popp, JD, LLM (Dublin office)
Want to gain some more insight on Obamacare and how it may impact your business? Read these other article authored by Joe Popp:
- Health Insurance Options: SHOP, Drop, Roll, or Self-insure?
- Peeling Back The Onion: Answering 3 Popular Obamacare Questions
- How Will ACA Federal Exchange Premiums Affect Ohio Small Businesses and Consumers?