IRS considers additional employer mandate guidance

More guidance could be forthcoming for employers, insurers, health insurance providers, and other parties working on implementing the Patient Protection and Affordable Care Act (PPACA), IRS officials said during a panel discussion at the 2014 May Meeting of the American Bar Association Section of Taxation in Washington, D.C. As soon as possible the IRS will release draft Forms 1094-C and 1095-C, which are necessary for health insurance providers and employers to comply with the information reporting requirements of Code Secs. 6055 and 6056, said Ligeia Donis, senior technician reviewer, IRS Office of Division Counsel & Associate Chief Counsel, Tax-Exempt and Government Entities (TE/GE). Kathryn Johnson, senior attorney, IRS Office of Division Counsel & Associate Chief Counsel, hinted that the IRS is contemplating the release of additional guidance on the Code Sec. 4980H employer shared responsibility provisions.

In particular, Johnson discussed the possibility of future guidance on the determination of “full-time employee” and “applicable large employer” (ALE) status in the context of a merger. There has been some confusion expressed over what should happen to full-time employees caught up in a merger of two employers that use different measurement methods to determine full-time employee status.

“In a merger and acquisition, when two different employers have been using two different ways to measure who is a full-time employee, what happens when they merge?” Johnson asked by way of a hypothetical. “What happens when an employee has been measured one way, and now the employer that bought his company measures his hours in a different way? Because full-time employee status is so important, and because knowing when someone is a full-time employee is the key to everything, that is a question to talk about it.”

Johnson also stated that some clarification might be necessary on the question of exactly when a business becomes an ALE if it has been created from a merger of entities that hitherto were not applicable large employers. “It’s a little tricky because, for the applicable large employer definition, you have to take into account the predecessor employer rules, but we don’t say what those rules really are,” said Johnson. “This is an area where we are thinking about how to address the questions that are out there on mergers and acquisitions.”

Johnson also noted that, in the preamble of the final regulations under Code Sec. 4980H, the list of workers whose hours would not be counted toward full-time employee status for purposes of determining whether an employer is subject to the employer shared responsibility requirements is not necessarily complete. The IRS still welcomes comments from industry stakeholders who believe the work hours of a certain type of worker should not count toward the number of full-time employees used to determine ALE status, Johnson said.

Additional tips

Practitioners on the panel also provided several helpful tips for their industry colleagues. In particular, they reminded practitioners that similar terms and terminology used throughout the different sections of the PPACA and its regulations did not necessarily mean the same thing. For example, said Julie Burbank, Senior Counsel, Chevron, San Francisco, “minimum essential coverage,” which an ALE is required to offer to 95 percent of its full-time employees to avoid the Code Sec. 4980H(a) penalty, does not mean the same thing as “minimum value,” which is something affordable, offered coverage must have if an ALE is to avoid the Code Sec. 4980H(b) penalty.

Another example is that “seasonal worker” does not mean the same thing as “seasonal employee,” and each definition is used for a different purpose. “A seasonal worker is used in the determination of whether you’re an applicable large employer,” Burbank explained. “But “seasonal employees” come into play for Code Sec. 4980H, and a seasonal employee is defined under the final regs as someone who is in a position that is expected to last less than six months.”

Greta Cowart, Winstead PC, Dallas, also provided advice for employers relating to the recording of employee hours. She explained that the rules in Code Sec. 4980H relate solely to the determination of tax penalties, and therefore it is of paramount importance that employers begin to record their employees’ hours on a monthly basis. “A lot of employers are looking at these as rules for determining eligibility [for health coverage],” Cowart said. “This is really and truly just tax because it is looking at each month, because the taxes are going to be assessed on a month-by-month basis. And, the only way an employer can defend against the taxes that are being assessed is to have a record on a month-to-month basis and be able to say, for example, “Last month, Joe was not included in the plan because, last month, Joe did not work 30 or more hours per week.”

“This is a whole new realm for a lot of employers to start capturing this data so they can be ready to defend against the penalties in the future,” Cowart said. “This is not just a little exercise. This is something you really have to think about.”

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