Affordable care act provisions tax update for our clients who are on group insurance here in Arizona is provided below in a Q&A format. We will be continuing to inform our small business group insurance clients with any group insurance updates. Do keep in mind that the CPA’s are the foremost authority on tax structures for any company, including our own brokerage firm. So we work alongside our CPA with valuable ACA information so we all can find the best solutions on the health care side for our associates and business. Good Neighbor Insurance provides both group and individual health care coverage in Arizona, as well as travel insurance for those vacationing overseas and for expats residing overseas. We are happy to be able to share the following information for our clients who currently offer group coverage to their employees.
Question: Employer Contribution by Years of Service
Can an employer state employee contribution by years of service without facing non-discrimination penalty? Such as:
- Up to 3 years of service – company pays 70% of medical plan premium
- 3-5 years of service – company pays 80% of medical plan premium
- 5+ years of service – company pays 100% of medical plan premium
In this example the employees in 5+ years of service are also the highest wage earners.
Answer: Since the final ruling on non-discrimination has yet to be issued, there is presently no way of knowing how it will be released. However, general understanding is that maximum benefits should not vary based on compensation, age, or years of service.
Statutory vs. Common-law Employees
Question: Can the owners of a business that is an LLC be excluded from the count of full-time employees? I read that the partners of a partnership and any 2% shareholders of an S-corp are NOT considered employees. But the material I read does not address an LLC.
Answer: As long as the LLC owner is a “statutory” employee there is no need to count. If the owner starts performing like a common-law employee they should be counted. However, if the count was close, you’d probably have a valid argument that they are an owner NOT an employee.
Affordable Care Act Tax Provisions
Form W-2 Reporting of Employer-Sponsored Health Coverage
The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan.
Reporting the cost of health care coverage on the Form W-2 does not mean that the coverage is taxable. The value of the employer’s excludable contribution to health coverage continues to be excludable from an employee’s income, and it is not taxable.
This reporting is for informational purposes only and will provide employees useful and comparable consumer information on the cost of their health care coverage.
Employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement. This includes businesses, tax-exempt organizations, and federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families). However, federally recognized Indian tribal governments are not subject to this requirement.
Reporting on the Form W-2
The value of the health care coverage will be reported in Box 12 of the Form W-2, with Code DD to identify the amount. There is no reporting on the Form W-3 of the total of these amounts for all the employer’s employees.
In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. See the chart, below, and the questions and answers for more information.
An employer is not required to issue a Form W-2 solely to report the value of the health care coverage for retirees or other employees or former employees to whom the employer would not otherwise provide a Form W-2.
The chart below illustrates the types of coverage that employers must report on the Form W-2. Certain items are listed as “optional” based on transition relief provided by Notice 2012-9 (restating and clarifying Notice 2011-28). Future guidance may revise reporting requirements but will not be applicable until the tax year beginning at least six months after the date of issuance of such guidance.
The chart reviews the reporting requirements for Box 12, Code DD, and has no impact on requirements to report these items elsewhere. For example, while contributions to Health Savings Arrangements (HSA) are not to be reported in Box 12, Code DD, certain HSA contributions are reported in Box 12, Code W (see General Instructions for Forms W-2 and W-3).
Form W-2 Reporting of Employer-Sponsored Health Coverage
|Coverage Type||Form W-2, Box 12, Code DD|
|Report||Do Not Report||Optional|
|Dental or vision plan not integrated into another medical or health plan||X|
|Dental or vision plan which gives the choice of declining or electing and paying an additional premium||X|
|Health Flexible Spending Arrangement (FSA) funded solely by salary-reduction amounts||X|
|Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefits||X|
|Health Reimbursement Arrangement (HRA) contributions||X|
|Health Savings Arrangement (HSA) contributions (employer or employee)||X|
|Archer Medical Savings Account (Archer MSA) contributions (employer or employee)||X|
|Hospital indemnity or specified illness (insured or self-funded), paid on after-tax basis||X|
|Hospital indemnity or specified illness (insured or self-funded), paid through salary reduction (pre-tax) or by employer||X|
|Employee Assistance Plan (EAP) providing applicable employer-sponsored healthcare coverage||Required if employer charges a COBRA premium||Optional if employer does not charge a COBRA premium|
|On-site medical clinics providing applicable employer-sponsored healthcare coverage||Required if employer charges a COBRA premium||Optional if employer does not charge a COBRA premium|
|Wellness programs providing applicable employer-sponsored healthcare coverage||Required if employer charges a COBRA premium||Optional if employer does not charge a COBRA premium|
|Domestic partner coverage included in gross income||X|
|Governmental plans providing coverage primarily for members of the military and their families||X|
|Federally recognized Indian tribal government plans and plans of tribally charted corporations wholly owned by a federally recognized Indian tribal government||X|
|Self-funded plans not subject to Federal COBRA||X|
|Accident or disability income||X|
|Supplemental liability insurance||X|
|Automobile medical payment insurance||X|
|Excess reimbursement to highly compensated individual, included in gross income||X|
|Payment/reimbursement of health insurance premiums for 2% shareholder-employee, included in gross income||X|
|Other Situations||Report||Do Not Report||Optional|
|Employers required to file fewer than 250 Forms W-2 for the preceding calendar year (determined without application of any entity aggregation rules for related employers)||X|
|Forms W-2 furnished to employees who terminate before the end of a calendar year and request, in writing, a Form W-2 before the end of that year||X|
|Forms W-2 provided by third-party sick-pay provider to employees of other employers||X|
Good Neighbor’s team of qualified and licensed professionals is always here to help you with your questions and needs. We strive to help our clients find good, cost-effective health, travel, and life insurance while providing caring service with integrity. Please call us at 480-813-9100 or email us at firstname.lastname@example.org.