strategies to navigate the “play or pay” tax presented by: arthur tacchino, jd © 2011, national...
TRANSCRIPT
Strategies to Navigate the “Play or Pay” Tax
Presented By:
Arthur Tacchino, JD
© 2011, National Association of Health Underwriters • www.nahu.org
© 2011, National Association of Health Underwriters • www.nahu.org
“Play or Pay” Penalty Tax
Employer Shared Responsibility Tax
© 2011, National Association of Health Underwriters • www.nahu.org
Play or Pay Tax
• Effective beginning in 2014
• Tax will be applicable to those employers that:
– Fail to offer healthcare coverage (Not Offering
Employer)
– Offer minimum essential coverage that is
“unaffordable” (Offering Employer)
© 2011, National Association of Health Underwriters • www.nahu.org
Who is Subject to this Tax?
• Applicable Large Employers
– 50 or more full-time equivalent employees in preceding
year
• Full-time = works more than 30 hours a week
• Equivalent employees = Non-full-timers hours/120 each month
• Add # of full-timers to equivalent employees = # of FTEs
– If employer was not in existence in previous year then
# of EE’s is based on expected EE’s this year
© 2011, National Association of Health Underwriters • www.nahu.org
Calculating FTEs
• Monthly calculation: average monthly FTEs at the end
of the year
• Example: 45 full-time employees
• 15 part-time employees: working 15 hours a week
• Total of 900 hours for the month/ 120 (statutorily
given)
• 7.5 equivalent employees + 45 full-timers
• =52.5 full-time equivalent employees for the month
© 2011, National Association of Health Underwriters • www.nahu.org
Tax on Employers “Not Offering” Coverage
• Applicable large employers will pay a tax for any month that:
– The employer fails to offer at least 95% of its full-time
employees (and their dependents) the opportunity to enroll in
minimum essential coverage; and
– At least one full-time EE has been certified as having received
subsidized coverage through an Exchange
• Tax is equal to $166.67 per month or $2,000 per year
© 2011, National Association of Health Underwriters • www.nahu.org
Calculating the Tax :Not Offering Coverage• ABC Inc. drops coverage in 2014
• They have 100 full-time employees (*not full-time equivalent
employees)
• At least 1 full-time employee (only takes 1) goes to
exchange, is eligible for subsidy and enrolls in qualified health
plan with subsidy
• Tax is triggered – employer is notified
• Tax calculated on a monthly basis
© 2011, National Association of Health Underwriters • www.nahu.org
• 100 FT – 30 (employee reduction) = 70 FT
• 70 FT * $166.67 = $11,667 monthly penalty
amount owed
• Assuming the same number of full-time
employees throughout the year this would
roughly be $140,000 (NOT DEDUCTIBLE)
© 2011, National Association of Health Underwriters • www.nahu.org
Tax on “Offering Employers”• An “applicable large employer” will pay a penalty tax for
any month that:
– The employer offers to at least 95% of its full-time (and their
dependents) employees the opportunity in minimum essential
coverage under an eligible employer-sponsored plan for that month;
and
– At least one full-time employee of the employer has been certified to
have received subsidized coverage through an Exchange
• The tax is equal to $250 per employee receiving subsidized
coverage through the exchange per month
© 2011, National Association of Health Underwriters • www.nahu.org
“Offering employers”• General Rule: If employer-sponsored coverage is available;
you are NOT eligible to cost-sharing subsidy through exchange
• Exception to Rule: You will be eligible if employer-sponsored
coverage is “unaffordable”
• Coverage will be “unaffordable” if:
– Employer’s plan share of costs is less than 60% OR
– Employees required contribution for lowest cost Employee-Only
coverage is more than 9.5% of the household income (W-2 Safe
Harbor allows employer to rely on W-2 reported compensation)
© 2011, National Association of Health Underwriters • www.nahu.org
Calculating the Tax: Offering Employer• ABC co. offers coverage in 2014: Required employee contribution for
lowest-cost employee only coverage is $4,000
• Rick is full-time and makes $35,000 (i.e. employer plan is more than
9.5% of his wages)
• Rick goes to exchange and receives affordability waiver after proving
employer plan is unaffordable
• Rick is eligible for subsidy based on household income, and enrolls in
qualified health plan
• $250 x 1 full-time employee = $250 monthly penalty for
employer
© 2011, National Association of Health Underwriters • www.nahu.org
Measurement Periods
• Ongoing employee, New Employee,
Variable Hourly employee
• 3 to 12 month length
• Tracking the hours worked by these
employees
• Determines whether they are “full-time” and
thus qualify during tax calculation
© 2011, National Association of Health Underwriters • www.nahu.org
Administrative Period
• Employer chooses 0 to 3 month period
• Total length of measurement and admin
period cannot exceed 13 months
• Time during which employer averages
hours worked by employees
© 2011, National Association of Health Underwriters • www.nahu.org
Stability Period
• The longer of 6 months or the length of the
measurement period
• During this timeframe, any employee that
averaged 30 or more hours worked a week during
measurement period is considered full-time,
regardless of how many hours they are working in
the actual timeframe
© 2011, National Association of Health Underwriters • www.nahu.org
Notes on Play or Pay Tax• Penalty tax is not deductible
• Transitional relief granted to plans that start on fiscal year
basis rather than calendar year
• If a “dependent” of a full-time employee receives subsidized
coverage through an exchange the tax is NOT triggered
• FTE Calculations drop the fraction – 49.8 is really 49 FTEs
• Aggregation rules apply when determining if employer is an
“applicable large employer”, but not for penalty assessment
© 2011, National Association of Health Underwriters • www.nahu.org
• Full-time employees that are not “offered” coverage
b/c they are in their 90 day waiting period do not count
for penalty assessment
• Full-time employees (and their dependents) – means
covering children up to age 26 – does not means
covers spouse
© 2011, National Association of Health Underwriters • www.nahu.org
• “Applicable large employers” will be required to
submit information reports – effective 2015 for 2014
plan year information
• Affordability Safe Harbors (9.5% of W-2 wages)
– W-2 Safe Harbor
– Rate of Pay Safe Harbor
– Federal Poverty Line Safe Harbor
© 2011, National Association of Health Underwriters • www.nahu.org
Strategies
• Continue offering coverage
• Decreasing Employer Contributions
• Stay under 50 FTE’s
• Drop Coverage
– Employee turnover, increased salaries, payroll
taxes, morale, productivity
• Sift full-timers to part-time status