ACA Affordability Percentage for 2020

On July 23, 2019, the Internal Revenue Service (IRS) issued Revenue Procedure 2019-29 which indexes the contribution percentages for 2020 for purposes of determining affordability of an employer’s plan under the Affordable Care Act (ACA). For plan years beginning on or after January 1, 2020, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.78 percent of the employee’s household income for the year for purposes of the employer shared responsibility rules. This is a decrease from the 2019 affordability threshold percentage of 9.86%. The 2020 decrease in the affordability percentage for employer shared responsibility purposes means that employers will have to charge employees a slightly lower price for their health benefits to meet the “affordability” test.

Since an employer would not know an employee’s household income, IRS Notice 2015-87 confirmed that ALEs using an affordability safe harbor may rely on the adjusted affordability contribution percentages if they use one of three affordability safe harbor methods. The three safe harbors to measure affordability are Form W-2 wages from that employer, the employee’s Rate of Pay or the Federal Poverty Line (FPL) for a single individual. The affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that also satisfies the minimum value requirement.

Below is an example of how the percentage change impacts an employer’s monthly affordable amount using the three safe harbor tests. The example assumes an employee earns $11/hour.

*Based on Jan. 2018 FPL of $12,140 for 2019 and Jan. 2019 FPL of $12,490 for 2020

Under the ACA, employees (and their family members) who are eligible for coverage under an affordable employer-sponsored plan are generally not eligible for the premium tax credit from the Exchange. This is significant because the ACA’s employer shared responsibility penalty for applicable large employers (ALEs) is triggered when a full-time employee receives a premium tax credit for coverage under an Exchange.

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House Votes to Repeal the Cadillac Tax

On July 17, 2019, the U.S. House of Representatives voted across bipartisan lines to repeal the ACA’s Cadillac Tax. The final vote in the House was 419-6 in favor of repeal. The tax was designed as a penalty tax on high-value health coverage, to convince health plan sponsors to reduce benefits and keep costs down by discouraging overly generous plans. However, both employers and union groups opposed the tax.
 
This repeal is good news for plan sponsors but the measure still has to pass the Senate. One of the challenges to Senate passage is that the tax was originally included to help finance the ACA. Repealing the tax without replacing it with some other revenue source arguably leaves a sizable hole in the federal budget. It is estimated by the Congressional Budget Office that repealing the tax will cost the government approximately $196.9 billion over 10 years. 
 
The Cadillac Tax, originally slated to go into effect in 2018, has been delayed by Congress repeatedly. After several delays, the 40% excise tax on the cost of health coverage that exceeds predetermined threshold amounts goes into effect in 2022. Currently, those thresholds, which will be updated prior to 2022, are $10,200 for individual coverage and $27,500 for family coverage.
 
Diversified Group will keep you up to date on any additional action on this topic.
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Diversified Group State Mandate Update: New Jersey

Pre-Tax Transportation Fringe Benefits:

On March 1, 2019, New Jersey becomes the first state to require employers to offer pre-tax transportation benefits to employees. A pre-tax transportation fringe benefit is a benefit that allows an employee to set aside wages on a pre-tax basis, which is then only made available to the employee for the purchase of certain eligible transportation services, including transit passes and commuter highway vehicle travel (vanpooling).

  • Every employer in the State of New Jersey that employs at least 20 employees is required to offer transit benefits to all employees who are not currently covered by a collective bargaining agreement (however employers with collectively bargained employees will be required to offer this benefit to them once the bargaining agreement in effect as of March 1, 2019 expires);
  • An employee is identified as anyone hired or employed by the employer and who reports to the employer’s work location. This mirrors the definition used in New Jersey’s unemployment compensation law;
  • There is no exception for non-profits or state and local governmental employers;
  • If an employer has less than 20 employees, there is no requirement to offer the benefit at this time;
  • Employers must provide pre-tax election transportation benefits that provide commuter highway vehicle and transit benefits at the maximum benefit level allowed under federal law (Section 132(f)(2)). For 2019, the maximum benefit level is $265/month for commuter highway benefits and any transit pass combined, as well as $265/month for qualified parking;
  • The law is effective 3/1/19 but penalties for non-compliance will not be assessed until the earlier of March 1, 2020 or the effective date of any implementing rules and regulations;
  • Non-compliance, when enforced, will be a penalty of not less than $100 and not more than $250 for the first violation of failure to offer transit benefits. The employer will then have 90 days to offer the employees the benefit if a penalty is imposed;
  • Associated program costs are not deductible from federal corporate income tax. Employers will need to discuss any New Jersey tax-favored status with their tax advisers.

For now, employers should monitor developments and news regarding the program. The New Jersey Transit Corporation, in conjunction with the New Jersey Turnpike Authority and the South Jersey Transportation Authority will be conducting public awareness campaigns encouraging the public to contact employers about the benefit. Additionally, employers may want to start talking to third party administrators who can administer the transportation fringe benefit program.

Diversified Group can assist you in the administration of Section 132 Parking and Transportation benefits. Please call Jamie Fazio for a quote at 800-322-2524 Ext. 391.

Health Insurance Mandate:

In 2018, New Jersey Governor, Phil Murphy signed into law The New Jersey Health Insurance Market Preservation Act. This law requires all New Jersey residents to have health insurance or pay a penalty. Lawmakers in New Jersey drafted this legislation in response to the decision to eliminate the ACA individual mandate with the passage of the Tax Cuts and Jobs Act of 2017. Although the law focuses primarily on the individual market, there will be reporting requirements on employers that provide health insurance coverage to New Jersey residents staring for the 2019 tax year. Visit www.nj.gov for instructions on reporting (anticipated to be posted by mid-2019).

Individual penalties will mirror the ACA individual mandate penalties; the greater of 2.5% of an individual’s income or $695. The penalty will be capped at the average annual premium for bronze level plans in New Jersey (currently $3,012 per year). Revenue collected (estimated to be between $90M and $100M annually) will be used to fund New Jersey’s reinsurance pool.

The New Jersey law will require certain entities—employers that offer job-based coverage, insurers, and the New Jersey Department of Human Services—to comply with new reporting standards. Under the law, entities that provide MEC to a New Jersey resident will be required to submit a return to the state treasurer. Employers must provide the same information (Form 1094-C and Form 1095-C or Form 1094-B and Form 1095-B) for New Jersey that they currently provide to taxpayers and the IRS. Employers who already use Forms 1094-C or B, and Forms 1095-C or B, to report health coverage information federally, will be required to remit copies of these documents to the New Jersey Division of Taxation on or before February 15th following the close of each calendar year, beginning in 2020.

Out-of-State Employers of New Jersey Residents
Out-of-State employers that withhold and remit New Jersey Gross Income Tax for New Jersey residents have the same filing requirements as businesses located in New Jersey.

Adult Children
Under the federal Affordable Care Act, adult children up to the age of 26 may be covered by their parents’ health plan. New Jersey does not require Forms 1095-B or 1095-C be provided separately to children who are covered by their parents’ health plans, regardless of their residency, beyond the current requirement under 26 U.S.C. s.6055, as that section was in effect and interpreted on December 15, 2017. It is recommended employers advise employees to provide a copy of any Form 1095-B or 1095-C containing coverage information to their children residing in New Jersey.

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IRS Penalties Are Being Issued

capitalThe 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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Commonsense Reporting Bill Introduced

dg-commonsense-reportingIn October, a bipartisan group of senators introduced a bill that would ease the ACA reporting mandates for employer-sponsored health plans. The bill would roll back the reporting requirements of Section 6056 and replace them with a voluntary reporting system. The bill would also allow payers to transmit employee notices electronically rather than having to send paper statements by mail.

While self-funded health plans must now comply with Sections 6055 and 6056, it is not yet clear how the bill would affect Section 6055 requirements. Senators Rob Portman of Ohio and Mark Warner of Virginia, sponsors of the bill, say their proposal would give the government a more effective way of applying premium tax credits to consumers who purchase insurance through an Exchange, something the administration has been trying to accomplish.

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