Monthly Archives: February 2015
$100 Per-Day Per-Employee Penalty Delayed (but not by much)
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Over the past several months, we’ve written about the $100 per-day per-employee penalty for employers who reimburse or 
directly pay for their employees’ individual health insurance policies. This penalty was to be effective for 2014 and later years. The IRS recently issued Notice 2015-17 that provides employers a little more time before this penalty becomes effective.
Background
For years, many employers have provided health coverage to their employees by either directly paying for or reimbursing employees for their individual health coverage. These payments were deductible to the employer and tax-free to the employee. Under the Affordable Care Act market reforms, if these plans covered more than one employee, the plan would be considered a group health plan. As such, the plan must not have annual or lifetime limits on coverage. These plans were deemed to have limits equal to the premium the employer paid on behalf of the employee. Because of this, the employer would be subject to a $100 per-day per-employee penalty (i.e., $36,500 per employee per year).
The Relief
The IRS and the Department of Labor recently realized (eventually they catch on) that some employers that have offered these plans may need additional time to obtain group health coverage or adopt a suitable alternative.
The latest guidance provides that the penalty will not be applied for 2014 for employers that are not Applicable Large Employers for 2014. An Applicable Large Employer is an employer with 50 or more full time employees (including full time equivalents) during the prior year. The penalty also will not apply for January 1, 2015 to June 30, 2015 for employers that are not ALEs for 2015. After June 30, 2015, all non-compliant employers will be subject to the penalty.
This relief applies only for payment of or reimbursement of health insurance. The relief does not apply to health reimbursement accounts or other arrangements that reimburse employees for medical expenses other than insurance premiums.
Guidance for S Corporations
The IRS and the Department of Labor are contemplating additional guidance on how these rules apply to S corporations. Until such guidance is issued, and at least through the end of 2015, the penalty will not be asserted against an S corporation for a plan that provides individual health coverage to S corporation shareholder-employees. Basically, the penalty will not apply to S corporation shareholders through the end of 2015, but it may apply to other employees after June 30, 2015. If a plan covers 1 shareholder and 1 employee, the plan covers two employees and is a group health plan and the penalty would apply to the 1 employee (after June 30, 2015).
Quick (but expensive) Fix
One way around this penalty is for an employer to increase an employee’s taxable compensation, but not to condition the increase on the purchase of health insurance. If the increase is conditioned on the employee using the increased compensation to purchase health insurance coverage, the penalty will apply (after June 30, 2015.) Basically, the employee must pay income and FICA tax on the income, and the employer will pay payroll taxes on the payment.
If you have questions on how this relief applies to you, give us a call.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
Penalty Relief for Paying Back the Obamacare Premium Tax Credit
Background
Individuals who signed up for health insurance through an exchange may have been eligible for a Premium Tax Credit to help them pay for health insurance. The credit was paid directly to the health insurance provider during the year. The amount of the credit was based on estimated household income for 2014. Now that 2014 is over, and actual household income is known, the amount of the credit must now be reconciled based on actual household income.
If a taxpayer received a higher Premium Tax Credit that she was supposed to receive (i.e., her actual household income was higher than her estimated household income), she will have to pay the excess credit back when she files her 2014 tax return.
The payment of the excess credit to the IRS is treated as an additional tax. Since it is treated as an additional tax, there are two issues:
- whether taxpayers will be subject to late payment penalties if they cannot afford to pay back the amount of the additional tax by the due date of their returns.
- whether taxpayers will be subject to underpayment penalties because their estimated tax payments and tax withholding were insufficient to cover this additional tax
Luckily, the IRS just issued guidance stating that taxpayers will not be subject to either penalty if they meet certain conditions. This relief is only available for 2014 tax returns, so if taxpayers expect any of their 2015 Premium Tax Credit will be paid back, they will have to increase their 2015 federal income tax withholding or estimated tax payments to avoid these penalties.
This relief does not apply to the Shared Responsibility Penalty (the penalty for not having health insurance) because the penalties do not apply to the Shared Responsibility Penalty anyway.
Avoiding the Failure to Pay Penalty
To avoid the penalty assessed for failing to pay tax due by the due date of the return, taxpayers must:
- be current with their filing and payment obligations
- have a balance due for the 2014 year due to the excess Premium Tax Credit and
- report the amount of the excess Premium Tax Credit on their timely filed 2014 tax return, which may be extended
Avoiding the Underpayment Penalty
To avoid the penalty for under-withholding and underpayment of tax estimates due to the excess Premium Tax Credit, taxpayers must:
- be current with their filing and payment obligations and
- report the amount of the excess Premium Tax Credit on their timely filed 2014 tax return, which may be extended
Taxpayers will be treated as being current with their filing and payment obligations if, as of the date they file their 2014 tax returns, they:
- have filed, or filed an extension for, all currently required federal tax returns
- paid or have entered into an installment agreement (which is not in default), an offer in compromise, or both to satisfy a federal tax liability
While this guidance allows taxpayers to avoid penalties, taxpayers must still pay interest on the excess Premium Tax Credit until it is paid back in full.
Claiming Relief from Failure to Pay Penalty
The IRS will send a notice assessing the penalty. Taxpayers should submit a letter to the IRS that contains the statement, “I am eligible for relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.”
Taxpayers who file by April 15, 2015 will be entitled to relief even if they have not fully paid the underlying liability by the time they request relief.
Taxpayers who file after April 15, 2015 must fully pay the underlying liability by April 15, 2016 to be eligible for relief.
Claiming Relief from Underpayment Penalties
Taxpayers should check box A in Part II of Form 2210, complete page 1 of the form, and include the form with their tax return, along with the statement, “Received excess advance payment of the premium tax credit.”
If you have questions on how this relief applies to you, give us a call.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
