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ACA: Testing Your Knowledge Part III

ACA Testing your knowledge is back, and we have several tough scenarios to dissect. Last week, Michelle Barki presented the latest ACA Testing Your Knowledge webinar and posed several questions that left viewers, and Medcom team members, scratching our heads.

Scenario #1: New Payroll Vendor & No Reporting Solution

A new client calls and states they do not have a reporting solution in place for 2022 reporting on the 2021 tax year. They recently changed payroll vendors and realized their new vendor does not offer ACA reporting.

What is the solution?

All employers should know the automatic extension to file and furnish is likely off the table. Any broker or client representative should advise the employer that forms must be furnished to employees no later than January 31, 2022.

If a client fails to meet this deadline, they must file for an extension. The extension letter needs the following information:

  • Filer name, address, TIN, type of return, statement that extension is for providing statements to recipients, reason for delay, & signature of filer or authorized agent
  • Must be postmarked by the statement due date to recipients
  • If your request for an extension is approved, generally, you will be granted a maximum of 30 extra days to furnish the recipient statements

Scenario #2: Seasonal Employees v. Short Term Employee

A client has seasonal employees listed in a measurement period. The 100 additional employees are a result of a large contract and will only be working for six months with the company.

What is the best approach for this employer to protect the company from ACA violations?

The client representative must ask for more information on the contract. There is a difference between a Seasonal Employee and a Short-Term Employee.

  • Seasonal Employee = employee hired into a position where the customary annual employment is six months or less and begins each calendar year at approximately the same time, such as summer or winter.
  • Short-Term Employee = employee hired for a short period of time, but if they work 30 hours a week or more, must receive an offer of benefits no later than the 91st day. 

Scenario #3: Flex Contribution Plans

An ALE (50 or more employees) learned from a business acquaintance they must put a Flex Contribution Plan in place.

The employer gives each employee 15% of the monthly salary each month, and at Open Enrollment, they can use this money to choose from a wide range of benefits, including a choice of three health plans, an FSA, DCAP, and life insurance.  They can pocket the amount remaining. Since they have this 15%, the health plan coverage offer is certainly affordable. 

Is this true regarding affordability?

It is quite possible this added benefit may change the affordability of the plan. Employees can use Flex Contribution Plan money for any benefit, even non-medical, including pocketing the whole amount. If this is the case, the IRS states it will not reduce the employee contribution, which could render the plan unaffordable.

To review further, see IRS Notice 2015-87, question eight: https://www.irs.gov/pub/irs-drop/n-15-87.pdf.

Scenario #4: Hiring Veterans and the ALE Threshold

A client recently went over the ALE threshold after hiring three veterans. The veterans are entitled to VA benefits and services.

How does the client approach reporting for the next tax year as an ALE?

WAIT! The employer may not be an ALE, after all. The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 provides that an employee will not count toward the 50-employee threshold for a month where they have medical care through the military, including Tricare or Veterans’ coverage.

This is solely to determine whether an employer is an “ALE” subject to the employer shared responsibility rules of § 4980H.

Scenario #5: The one that got us too!

A client wants to add in a surcharge for those that are not vaccinated. The surcharge will follow the wellness rules and will not exceed 30% of the total cost of premiums for employee-only coverage.

However, the employer recognized this additional cost to unvaccinated employees would make the plan unaffordable under the ACA affordability safe harbors, and several employees have rejected the offer of coverage.

What is the best approach for the employer?

Abort, abort! It is not worth the potential penalty.

At first, we advised the opposite, but after an amazing question from one of our webinar attendees, we realized the agencies had us fooled. The agencies discussed a scenario where businesses could utilize a wellness program to add surcharges or discounts to employee contributions to premiums if it did not exceed 30%, the same as a tobacco surcharge or discount.

BUT, while discounts are not considered in the ACA affordability scenario, surcharges are. So, if you are adding a surcharge, you must consider the affordability of the plan.

Medcom’s ACA Testing Your Knowledge series proves to help all of us understand the complexity of ACA requirements, deadlines, penalties, and forms. After reading through this blog, if you have concerns about ACA Reporting for your company or your client’s company, reach out to Tom Neal, Medcom’s ACA sales expert. He can walk you through the Medcom process for ACA Reporting. Our deadline for ACA Reporting new business is October 31, so make sure to contact Tom as soon as possible.