Officials Clarify Payroll-Related Requirements For Health Care Act, Enforcement at Summit

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Payroll information is critical as employers strive to meet requirements of the Affordable Care Act (Pub. L. 111-148), Treasury Department and Internal Revenue Service officials said at the American Payroll Association's annual Capital Summit March 11 and 12 in Washington.

The ACA's shared responsibility provision (Internal Revenue Code Section 4980H), sometimes referred to as the play-or-pay requirement, takes effect for plan years starting in 2014, and hours-worked reports are necessary to determine compliance. Failure to comply can result in per-employee penalties of $2,000 or $3,000, depending on the circumstances.

Full-time equivalent hours worked must be tracked for two types of coverage, Alan Tawshunsky, a senior counsel at the Treasury Department, told summit participants March 11. Employers with at least 50 full-time employees, including full-time equivalents, are subject to Section 4980H. Part-time, seasonal, and temporary employee hours are included in the calculation of hours worked for reporting purposes.

Those working an average of at least 30 hours a week during a particular period are eligible for employer-provided health care coverage for each month they average more than 30 hours in a workweek. Based on proposed regulations (REG-138006-12) issued in December, there is an option to determine the hours under what Tawshunsky called a “stability-period approach” of up to a 12-month look-back period.

Although a calendar-month system is contemplated for determining the hours worked during the look-back period, Tawshunsky said the measurement period can be moved backward or forward to accommodate payroll-period hours worked. Treasury is trying to put “flexibility in there for people calculating on a payroll period basis,” he said.

Two of the three safe harbors that employers can use to verify that coverage is affordable also involve payroll: one is based on Form W-2 wages, although amounts to be included have not been specified; and the other is based on an hourly rate of pay over a period of time.

Employers are to file an annual health insurance coverage report for each employee by Jan. 31, starting in 2015, Frederick Schindler, director of oversight and exchange at IRS, said March 12.

On Enforcement and Penalties

Whether mistakes that employers make in reporting health care coverage costs on Forms W-2 are subject to penalties is unclear because the figures are disregarded for use by IRS and the Social Security Administration, Mary Hevener of the law firm Morgan, Lewis & Bockius told summit participants March 12. The reporting requirement is to inform employees of the cost of their health plans, and the amounts are not taxable.

Audits for the additional Medicare withholding tax of 0.9 percent implemented this year would not occur until after affected employees file 2013 individual returns, John Tuzynski, chief of employment tax policy for IRS, said March 12.