We have been receiving a lot of questions in our office about the ACA forms due October 1 to be distributed to all employees. We would like to take a moment to answer those questions and others with our own FAQ on the ACA forms and deadlines:
1. Do these forms need to be distributed to all employees including owners and subcontractors?
Yes, for owners if they are considered employees. If an owner of a company draws a paycheck and receives a W-2, they should also send themselves the ACA form and keep it on file. We have seen owners who are also employees get fined for things like not having an I-9 on file for themselves.
No, for subcontractors or anyone you issue a 1099 to unless you also issue them a W-2 for other services. Subcontractors and 1099 recipients are not employees and should not receive ACA forms regarding your company health insurance plan. If you have a subcontractor that you consider to be an employee, please contact us for help. You may be setting yourself up for some serious payroll tax and employment audit headaches.
2. The Department of Labor has a FAQ that suggests no penalties will be assessed for failing to provide these forms. Do I still need to do it?
YES! This has caused some confusion, however the FAQ is not legally binding. The written law is. While the Department of Labor may not be intending to assess penalties at the outset, the requirement to distribute these forms extends into the future for new hires. We do believe that the DOL will enforce these penalties at some point, and the best way to avoid penalties is to simply comply with the law on a timely basis. The FAQ cannot be legally relied on for protection from the penalties and the Department of Labor lacks the authority to override legislation as it was passed.
3. Is the “model notice” sufficient to send to the employees?
Yes, the model notices are designed to meet the informational requirements of the law. If you don’t offer health insurance, choose the model notice for companies that don’t offer health insurance. On this notice, you only have to fill out the second page. For companies that do offer health insurance, use the model for companies offering health insurance. On this form, you are only required to fill out the second page, but you can fill out the optional third page as well. Click here for more information on the model notices and links to the notices that you can fill out and distribute.
4. We don’t have a company insurance plan per se, but we do reimburse employees in order for them to purchase their own health insurance. Which model form should we use?
You should use the one that indicates you do not offer health insurance. If it is not a company plan, your payments to employees to reimburse their health insurance costs should be treated simply as ordinary wages. Although this does not carry the same tax advantages as offering a company plan, we will often see this in instances where the rates for individual plans are much cheaper than company plans.
5. I have fewer than 50 employees. Am I still required to send out these ACA forms?
YES! The requirement is for all employers regardless of how many employees they have. This includes companies where just the owner is on payroll.
6. What about the requirement to provide health insurance? I have more than 50 employees. Am I required to provide health insurance?
The employer mandate penalty has been postponed until 2015. However in 2015 you will need provide affordable health insurance or pay a penalty ranging between $2,000 and $3,000 per employee per year.
7. For the employer mandate penalties, I should be all set because I am making my employees all part time. Right?
Beware, the 50 employee rule counts for full time and full time equivalents (FTEs). Also, under ACA the new definition of full time is 30 hours a week. So if you have two employees who each work 15 hours a week, that equals one full time equivalent.
8. Here’s a better idea, I split my company into two separate companies with 25 employees each. Will that protect me from the mandate penalties?
No. If you have an interest in multiple companies, you may have a controlled group. In other words, even if you are not 100% owner of each company, depending on your ownership percentage all the employees from every company you have an interest in may be netted together as a controlled group to put you over the 50 employee limit. Controlled groups can also affect separate companies owned by separate family members. This part of the law gets real complicated. Make sure you consult with your CPA or tax adviser and get this settled before 2015.
9. For the purpose of the employer mandate penalties, what does it mean to offer “affordable health insurance”?
The employee’s insurance costs should be less than 9.5% of their total household income. Obviously it is difficult for you to calculate their total household income because you would need to determine how much their spouse makes as well. However, the IRS has provided some safe harbor rules to avoid asking your employees how much their spouses make or for other personal information like copies of their tax returns. Click here for a separate post describing the IRS safe harbor rules.
I hope you find this information helpful. If you have any questions, please don’t hesitate to contact us.