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.

DG Compliance

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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ACA Mandate Penalty Eliminated

The ACA has required people to have what the government has classified as minimum essential coverage, or else pay a penalty which now amounts to 2.5% of modified adjusted gross income over the income tax filing threshold.

While the House version of tax reform did not change the penalty in any way, the Senate version cut the penalty to 0% and in joint conference debates, the reduction was kept in the bill that was just passed by both houses. The Senate provision is not a repeal of the penalty, but instead a reduction, which could be increased by Congress in the future. While lower corporate and personal tax rates will take effect this year, this reduction will not become effective until 2019.

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Doing What We Can

dgb-doing-what-we-can-blogWe often hear of professional athletes succeeding under pressure by staying “in the moment” and remaining focused on the things that are within their control. This challenge can be applied to the uncomfortable position all of us find ourselves in today – somewhere between complying with existing laws and anticipating the unknowns coming from Washington.

While the IRS has relaxed enforcement of the individual mandate and acknowledged problems in the ACA reporting system, it has confirmed that an applicable large employer is still subject to an employer shared responsibility payment if it fails to offer coverage to 95% of its full-time employees. We continue to help large employers offer minimum essential coverage to avoid penalties, when appropriate, and track offers of coverage to comply with reporting requirements on IRS forms 1094 and 1095.

Other matters remain up in the air as well, including the so-called Cadillac tax on high-cost health plans and any changes in maximum contributions that may be made to HSAs, which would require legislative action. While any significant ACA repeal, replace or repair efforts appear to be overshadowed by the Administration’s interest in tax reform, we continue to monitor developments in healthcare reform and keep our clients and partners informed. It’s our way of doing what we can and remaining “in the moment.”

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