IRS Prohibits End-Run around ACA Rules

(AccountingWeb, By Terry Sheridan; Published June 2014)

Employers who figure they’ll pay workers upfront for health insurance on the state or federal exchanges rather than provide coverage themselves are going to run smack into the Internal Revenue Service juggernaut.

The agency made clear in its Notice 2013-54 that such maneuvers, considered employer payment plans, are tantamount to an end run around the intent of the Affordable Care Act (ACA).

In a recently updated Q&A advisory, the IRS said that these employer payment plans generally don’t include arrangements where employees either can have an after-tax amount applied to health coverage or can take that amount in cash. These plans are considered group health plans subject to the market reforms under the ACA. Those reforms ban annual limits on essential health benefits and require that certain preventative measures, such as mammograms, are free.

And employers’ group plans can’t merge with individual coverage to satisfy the ACA provisos.

The upshot is a fine of $100 per day excise tax per employee, or $36,500 a year per employee under Section 4980D of the Internal Revenue Code.

The Department of Labor (DOL) issued Technical Release 2013-03 that is almost identical to the IRS notice, and the Department of Health and Human Services (HHS) is expected to release a similar proviso.

Andrew R. Biebl, a partner at accounting firm CliftonLarsonAllen in Minneapolis, Minn., told the New York Times late last month that the IRS ruling could upend tactics used in many businesses.

“For decades, employers have been assisting employees by reimbursing them for health insurance premiums and out-of-pocket costs,” Biebl said. “The new federal ruling eliminates many of those arrangements by imposing an unusually punitive penalty.”

Here are highlights from the IRS notice about employer payment plans and reimbursement accounts. (The ruling also covers flexible spending accounts.)

  • According to Ruling 61-146, an employer who pays an employee’s premiums for non-employer sponsored insurance must exclude the payments from the employee’s gross income. Same goes if the payments are made to the insurer.
  • Employers can forward post-tax employee wages to an insurer at the employee’s direction without establishing a group health plan, if certain DOL regulations are met.
  • The IRS, DOL and HHS will amend three regulations to allow that benefits under an employee assistance program will be considered excepted benefits—only if the program doesn’t provide benefits like medical care and treatment. Excepted benefits aren’t subject to the ACA’s market reforms and aren’t considered minimum essential coverage. Until final rules are in place and likely through the remainder of this year, the agencies will consider employee assistance plans to mean excepted benefits only if they don’t provide medical care or treatment. It’s up to employers to use a “reasonable, good faith interpretation” of whether their plans provide that care or treatment.
  • An employer’s health reimbursement account (HRA) can’t be merged with individual coverage or with the employer’s individual policies. So, an HRA used to buy individual coverage violates the ACA’s ban on annual dollar limits.

Peak Education Senior Reception -A BIG success!!

Honored seniors, happy families and mentors, and proud Peak Education staff and board members enjoyed a delightful afternoon at The Mining Exchange on May 4th. The purpose of this celebration was to honor our graduating high school and college seniors and to thank our Ambassador Circle donors for their investment in our students’ lives.

reception

BiggsKofford’s Associate Nick Phillips pictured-Peak Education Mentor

 

The REAL World – A Dose of Reality for Peak Education Students

 

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Good grades = More Education = More money = Better lifestyle.

The students learned some valuable lessons on May 1st at the Real World. From budgeting for food and shelter to deciding if they should buy a new or used car, they experienced the additional expenses that make the real world the real world.

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BiggsKofford’s Senior Associate Angela Lindblad helping students balance their checkbooks for the Peak Education Reality Fair.

 

Deborah Helton

Deborah Helton

Director

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Austin Buckett

Austin Buckett

Manager

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BiggsKofford was recently featured in an article in Physician Money Digest, where Deborah Helton and Austin Buckett talked about the strategic benefit that the relationship with your CPA can have for a medical practice. Read the article here.

For more information, e-mail Deborah or Austin.

Austin Buckett

Austin Buckett

Manager

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Right now, we are well into the second quarter of the year.  Have you evaluated your Q1 performance against your original budget?  The budget process should be an ongoing event, not a once-a-year chore.  To make the most of your budget process, an evaluation should be made at least quarterly to determine if the budget that was created originally needs updating to remain relevant and useful. 

Failing to update a budget appropriately, especially when large difference accumulate during the year, will normally result in negative consequences.  As an example, exceeding a budget significantly can lead to complacency (especially among sales teams) and not fulfilling your company’s potential for the year. On the flip side, not adjusting a budget to reflect some reduced performance can lead to bad morale and a self-fulfilling prophecy until a new year comes around. 

Here are some things to consider when comparing your actual performance to your budget and possibly making changes for the remainder of the year:

  • The process of reviewing any variances between budget and actual performance is much more important than setting the budget and seeing how close you came.  This review process will ensure you spend time ‘on’ your business and step back to consider what is happening to your business so you can make adjustments throughout the year and not miss opportunities.   
  • If a revised budget is necessary, make sure you keep an original budget in play, especially if it is tied to bonus plans or personal performance reviews.  The revised budget becomes the one that everyone uses for future operations only. 
  • If your budget is only slightly different than actual performance, leave the original budget in effect.  However, run ‘scenario’ budgets for your own benefit to determine a more likely result in case the original budget does not get back on track. 
  • Many events will occur during the year that impact your business, make sure these are considered and your budget is updated to account of these situations so you can be prepared for the resulting financial impact. 
  • Understand the reasons variances occurred before adjusting future targets?  For example, if revenue is up for the year but no one can point to specific reasons why, do not make an assumption that the trend will continue and adjust sales targets to a much higher level. Rather, reset the annual expectation to account for actual performance to date and leave the rest of the year at the original target. 
  • How do the variances in your budget compare to your Key Performance Indicators (KPIs)?  For example, if revenue is up but your number of customers has reduced, then you may be too reliant on a handful of customers to drive your growth.  Not that you would want to turn their business away but you would want to understand why other customers are not growing proportionately or why your customer base is shrinking.

The overall objectives of budgets are to motivate your team and minimize financial surprises. You want to make sure your budgets remain achievable and realistic throughout the year, striking the right balance between optimizing your company’s performance and keeping your employees motivated.  Careful review of your budget vs. actual performance on a quarterly basis will ensure you accomplish this and drive your business forward.

For questions, contact Austin Buckett here.