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Affordable Care Act Chapter 5 pp. 123-174

Affordable Care Act Chapter 5 pp. 123-174. 2016 National Income Tax Workbook™. p. 123 Affordable Care Act (ACA) . Summary of Employer Mandate Small Employer Responsibilities Summary of Individual Mandate PTC Calculation for Year of Marriage Individual Exchange – Special Enrollment

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Affordable Care Act Chapter 5 pp. 123-174

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  1. Affordable Care ActChapter 5 pp. 123-174 2016 National Income Tax Workbook™

  2. p. 123Affordable Care Act (ACA) • Summary of Employer Mandate • Small Employer Responsibilities • Summary of Individual Mandate • PTC Calculation for Year of Marriage • Individual Exchange – Special Enrollment • ACA – Return Preparer Best Practices • New Guidance

  3. p. 124Summary of Employer Mandate • Applicable large employers, ALEs, (≥ 50 FTEs in prior year) must either • Offer minimum essential coverage (MEC) that is affordable & of minimum value or • Face potential of employer shared responsibility payment (ESRP)

  4. p. 124Summary of Employer Mandate • ESRP - If a full-time employee (EE) received a premium tax credit (PTC) and • No offer of MEC to at least 95% of full-time + dependents Or • Offered coverage was not affordable, did not provide MV, or the employer did not offer coverage to the full-time EE(s) getting PTC

  5. p. 124Summary of Employer Mandate • ACA market reforms • Prescribes benefits to be in coverage • Restricts limits on benefits • An employer of any size offering coverage must meet market reforms • If not, potential excise tax § 4980D

  6. p. 125Determination of ALE Status • Average monthly # of FTEs ≥ 50 FTEs? • Total of full-time and full-time equivalents in preceding year divided by 12 months • Must count all employees working in U.S • Exclude veterans with VA health or TRICARE • Exclude those working under vow of poverty • Determined annually

  7. p. 125Determination of ALE Status • Seasonal workers included in ALE count • If determined to be ALE, average ≥ 50 for ≤ 120 days, and excess over 50 due to seasonal workers, not an ALE • EE/independent contractor decisions critical • Audit activity increasing – could result in ALE status and potential ESRP

  8. pp. 125-126Aggregated ALE Groups • Single employer if 2 or more businesses • Have common owner or • Related under • § 414(b): controlled group of corps • § 414(c): T or Bs under common control • § 414(m): affiliated service groups • § 414(o): as further prescribed in regs.

  9. p. 126Aggregated ALE Groups Parent-Subsidiary Group • Parent owns ≥ 80% of another • Corps: Voting power or value of stock • Trust, estate: Actuarial interest • PS: Profits or capital interest • Can be tiers of entities • Can be various types of entities in group

  10. p. 126Aggregated ALE Groups Parent-Subsidiary Group • Example 5.1 • Clay, Inc. owns: • 100% of Dade, Inc. • 80% of Evans, Inc. • 70% of Franklin, Inc. • Clay, Dade and Evans = one employer • Franklin not part of the parent-sub. group

  11. p. 126Aggregated ALE Groups Parent-Subsidiary Group • Example 5.2 • Grand Company owns 100% Hand, Inc. • Hand owns: 90% of Jenkins, Inc 80% of Kent Corp. • Jenkins owns 95% of Madison, Inc. • Grand, Hand, Jenkins, Kent & Madison = 1 ER • If total ≥ 50 FTEs, each one is an ALE

  12. pp. 126-127Aggregated ALE Groups Brother-Sister Group if: • 5 or fewer persons (individuals, estates, trusts) own directly or indirectly ≥ 80% (controlling) in each organization AND • Common ownership of same persons in each entity totaled exceeds 50% (effective control) • Look to % of voting or value of stock (corp), actuarial interest (trust), profits or capital int. (PS)

  13. p. 127Aggregated ALE Groups Brother-Sister Group • Example 5.3 Figure 5.1 • 4 unrelated shareholders own 80% and 90% • Common ownership not > 50% • Example 5.4 Figure 5.2 • 8 unrelated shareholders • 5 or fewer own > 50% total common ownership but < 80% in ownership of each entity

  14. p. 128Aggregated ALE Groups Brother-Sister Group • Example 5.5 • Ex. 5.4 Owners but Victoria, Winona, Hope & Lesley own 20%, others own 20% remainder • 5 or fewer own 80% and common > 50% • Athens and Orleans = one employer • If FTEs combined ≥ 50, both are ALEs

  15. p. 128Aggregated ALE Groups Combined Group • 3 or more organizations if • Each is a member of either a parent-subsidiary or brother-sister group • At least one organization is the common parent and also a member of a brother-sister group

  16. p. 128Aggregated ALE Groups Example 5.6 Combined Group • Milligan is parent of Milligan/Pike parent/sub group & is part of brother-sister group w/Norwich • Milligan, Norwich, Pike = one employer • If total FTEs ≥ 50, each entity is an ALE

  17. pp. 128-129Aggregated ALE Groups Attribution Rules • Treating one as owning an interest in a business that is not owned directly • Referred to as “indirect” ownership • Family or business relationships • Figure 5.3 (p. 129)

  18. p. 128Aggregated ALE Groups • Example 5.7 Spousal Attribution • Bart and Shannon – husband & wife • Bart: 100% of medical practice • Shannon: 50% of medical practice w/Joe • Bart fails exception: manages her practice • Shannon meets exception for Bart’s practice • Bart owns a PS 50/50 with Joe • PS and Shannon’s practice = one employer

  19. p. 129Aggregated ALE Groups • Example 5.8 Parent-Child Attribution • Dana mother to 25-year-old Clare • Dana owns 75% XYZ Corp • Clare owns 25% of XYZ corp • Clare’s share attributed to Dana • If Dana operated a business thru a single-member LLC, XYZ Corp & LLC = 1 employer

  20. pp. 129-130Aggregated ALE Groups • Example 5.9 Entity Attribution • Attribution: Lake owned - Jay 35%, Kendall 15% • If Jay also owned 50% of Lake, Lake and any other business Jay owned ≥ 80% = 1 employer

  21. p. 130Aggregated ALE Groups • Affiliated Service Group = Service org. (FSO) & one or more of the following: • A org: Any service org. that is SH/PN in FSO & • Regularly performs services for FSO or • Is regularly associated with FSO in performing services for third persons • B org: Other org. if significant % of business is employee-type services for FSO or A org & ≥10% owned by highly compensated of FSO/A

  22. p. 130Aggregated ALE Groups • Affiliated Service Group • Organization: Corporation, partnership, other organization • Service: Health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting insurance

  23. p. 130Aggregated ALE Groups • Example 5.10 • Allen Able, doctor, Allen Able PC (PC) • PC is partner in Baker Surgical Group (Baker) • PC regularly associated w/Baker in performing services for third parties • Baker = FSO, PC = A org. • Baker and PC → affiliated service group • Baker and PC = one employer, combine FTEs

  24. p. 130Aggregated ALE Groups • Example 5.11 • EFG PS, law partnership • EFG of Capital City, PC is PN in EFG PS • Paralegal & admin services for EFG PS • EEs work only for the PC • EFG PS is FSO, EFG PC is A org. • EFG PS & EFG PC = affiliated service group • PS & PC = one employer, combine FTEs

  25. pp. 130-131Requirement to Offer Coverage 2016: ALE must offer coverage • To ≥ 95% full-time employee (+ dependents) • Spouse, stepchild, foster child not dependents • ER contribution to dep. cost not required • That provides minimum value • 60% (bronze) + inpatient hosp./physician serv. • That is affordable: Self-only cost ≤ % of HHI • 2016: 9.66% (2015: 9.56%, 2017: 9.69%)

  26. p. 131Requirement to Offer Coverage • ER affordability safe-harbors: apply % to • Form W-2 wages • Employee’s rate of pay • Federal poverty line • Safe-harbor shown on line 16, F1095-C • Safe harbors usable only if • MV provided in self-only coverage • Provides FTs/dependents enrollment chance

  27. pp. 131-1322015 Transition Rules Apply to plan-years beg’g in 2015 • 50-99 FTE relief in ALE determination • Offer to 70% (rather than 95%) • Dependent offer not always required • §4980(a) ESRP with reduction of 80 (30) • January start date relief • Option to use only 6 mos of 2014 FTE data

  28. pp. 132-133Assessing the ESRP • Figure 5.5 – ESRP summary • ESRP not included on any tax return • ER will get certification of EEs rec’g PTC • ER contacted re: potential penalty & given chance to respond • Contact after due dates of 1040 & 1095-C • If ESRP applies, notice & payment demand with payment instructions

  29. pp. 131, 133Market Reforms Coverage offered by employers of anysize must meet market reforms or the employer is potentially subject to the § 4980D excise tax • List p. 131 and p. 133 • Group health plans: Insured or self-insured plans • N/A gov’t plans or plan for < 2 current employees • Relief for some small employer insured plans • No guidance yet on nondiscrimination rules

  30. pp. 134-135Employer Payment Plans (EPP) ER reimbursemt of EE premiums for individual ins. • Notice 2013-54: Does not meet market reforms • Reimb. PN premiums = plan not meet’g reforms • Notice 2015-17: • Small ER relief to 6/30/15 for EPP • 2% S corp SH relief until further guidance • N/A to PN reimbursement plans **Note: H.R. 5447 – small business HRA relief

  31. p. 135Excise Tax - § 4980D • $100/day per employee per failure – Form 8928 • Minimums and caps based on facts • IRS can waive all/part: Reasonable cause (not willful neglect) & penalty excessive as to failure • No tax if no one knew, or exercising reasonable diligence would have known of failure • No tax if reasonable cause & failure fixed w/in 30 days of knowing

  32. p. 136Small Employer Responsibilities Small = Employer with < 50 FTEs in prior yr • ACA reporting requirements • Offers self-insured coverage → Form 1095-B • Providing coverage • Ensure market reforms are met • Small Bus. Health Options Program - SHOP • Available in some states up to 100 EEs

  33. pp. 136-137Small Employer Responsibilities • SHOP • Offer single plan or choice of plans to EEs • Can be health, dental, alone or both • Must offer to all full-time EEs • Usually 70% participation needed to start plan outside the enrollment period (11/15-12/15) • Have office or worksite in state of SHOP used • Separate EIN = separate business

  34. p. 137Small Employer Responsibilities • Small Business Health Care Tax Credit • Employers with • < 25 employees, • Coverage through SHOP, • Average annual wages < $52,000 (indexed) & • Contribute uniform ≥ 50% EE’s self-only • Credit up to 50% of ER’s cost – Form 8941 • Can only claim for two consecutive years

  35. pp. 137-138Self-Employed Taxpayers & ACA • Same rules/restrictions as other employers • Must meet individual mandate for family • If no EEs, can secure thru Marketplace – PTC • If spouse ER offers affordable w/MV: No PTC • If has EEs, can secure thru SHOP if at least one EE (not family) enrolls in SHOP plan • Not eligible for FSA or HRA for EEs • Unless spouse bona fide EE (& not co-owner)

  36. pp. 138-141Summary of Individual Mandate • All US individuals, regardless of age, • Must have minimum essential coverage, • Qualify for a coverage exemption, or • Make an individual shared responsibility payment (ISRP) • MEC list – p. 138 • Exemptions – Fig. 5.6 - show on Form 8965 • Information returns showing MEC – Fig. 5.7

  37. p. 140Summary of Individual Mandate Individual Shared Responsibility Payment • 2016: Greater of: • Flat dollar amount $695/adult, $347.50/child per-month (max $2,085) or • 2.5% of household income in excess of the tax return filing threshold • ISRP capped at national average bronze premium: $223/person/month (max $1,115/mo.)

  38. p. 141Summary of Individual Mandate Individual Shared Responsibility Payment • Computation worksheet in Form 8965 instructions (not filed with return) • Report ISRP on line 61, 38, or 11 of return • IRS cannot take enforcement action on ISRP • Can collect by refund offset or request for payment

  39. p. 141Summary of Individual Mandate Premium Tax Credit (PTC) • Assistance based on income and family size on insurance purchased thru Marketplace • Choose PTC amount to receive in advance • Reconcile or claim PTC on Form 8962 • Cap on repayment if income < 400% of FPL • No APTC if prior year reconciliation not made • Pub 974 – Premium Tax Credit (PTC)

  40. p. 142PTC Calculation Year of Marriage Alternative method available if: • Each spouse unmarried on January 1 • Were married as of December 31 • File a joint return • Member of tax family enrolled in QHP before first full month of marriage • APTC was paid for member of in tax family • Excess APTC on W/S 3 or HHI ≥ 401% FPL

  41. p. 142PTC Calculation Year of Marriage Alternative PTC Method: • To reduce payback of APTC received prior to marriage • NOT to determine PTC if no APTC received during the year • Couples most likely to benefit: • Married late in the year • Different incomes & lower one had the APTC

  42. pp. 142-143PTC Calculation Year of Marriage • Complete Part I, Form 8962 • If line 5 ≥ 401%, taxpayers eligible • If line 5 ≤ 400%, to W/S 3 in Form 8962 Inst. • Combines all #’s from Forms 1095-A • If total APTC > PTC, taxpayers eligible • Any shared-policy allocations are made before applying the alternative method • Determine alternative family size for each

  43. p. 143PTC Calculation Year of Marriage • Up to 8 possible steps in calculation • Which steps are completed depends on who enrolled any member of the household • Steps direct TP to complete Worksheets • Must determine alternative family size for taxpayer and spouse • Cannot duplicate members • If dependent of both, either may include

  44. pp. 143-144PTC Calculation Year of Marriage • W/S I: Taxpayer’s alternative monthly contribution using ½ of household income • W/S II: Taxpayer’s alternative monthly credit amounts for premarriage months using W/S I • W/S III: Spouse’s alternative monthly contribution using ½ of household income • W/S IV: Spouse’s alternative monthly credit amounts for premarriage months using W/S III

  45. p. 144PTC Calculation Year of Marriage • W/S V: Totals alternative credit amounts from W/S II and W/S IV and total credit amounts in the regular calculation on month-by-month basis (premarriage months) If total alternative credit amounts > total regular credit amounts, alternative calculation is beneficial (continue to steps 6-8)

  46. p. 144PTC Calculation Year of Marriage • Complete Part V, Form 8962, lines 35 and 36 • Complete Form 8962 lines 12-23 using a combination of alternative and regular amounts • (a) & (b): totals of 1095-A amounts • (c): W/S for pre-marriage, 8b for other mos. • (d): (b) minus (c) • (e): W/S V amts. for pre-marriage, smaller (a) or (d) for other months • Complete lines 24-29 as appropriate

  47. pp. 145-149PTC Calculation Year of Marriage Example 5.12 • Paulette and Quentin married July 18, 2015 • Paulette: QHP 1/1-7/31, F1095-A, Fig. 5.8 • Quentin (+2): QHP 1/1-7/31, F1095-A, Fig. 5.9 • Paulette/Quentin (+2 kids) 8/1-12/31, Fig. 5.10 • Household income: $75,000

  48. p. 149-150PTC Calculation Year of Marriage • Eligible for alternative method? • Completed lines 1-8, Form 8962 - Fig. 5.11 • Answered Table 4 questions - Fig. 5.12 • Line 5 Form 8962 < 401 - W/S 3 - Fig. 5.13 • Excess APTC → Eligible for method • Alternative family size? • Paulette: One • Quentin: Three

  49. p. 151-152PTC Calculation Year of Marriage • W/S I – Paulette Figure 5.14 • Same calculation as lines 1-8 Form 8962 • Monthly contribution: $299 • W/S II – Paulette Figure 5.15 • Pre-marriage months only • Calculation of alternative PTC: $134/month • W/S III – Quentin Figure 5.16 $182/month • W/S IV – Quentin Figure 5.17 $651/month

  50. p. 153-154PTC Calculation Year of Marriage • W/S 5 – January thru July • A: Total of Alternative PTC from W/S II & IV • B: Total of regular PTC from Worksheet 3 (100% of HHI and family of 4) • Alternative credit total > regular credit total → method beneficial • Complete Part V, Form 8962 – Figure 5.19

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