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The Affordable Care Act’s employer reporting requirements will likely survive Republicans’ repeal efforts, tax practitioners said.
A leaked draft of the House repeal bill didn’t touch the requirements, and the Internal Revenue Service will still need detailed information from employers if Republicans move forward on a proposal to cap the tax exemption on employer-sponsored insurance. Beginning in 2015, employers needed to gather detailed information from their employees identifying who was covered and whether the plans met agency requirements—a process that was burdensome and required creating new systems to track it.
“That likely isn’t going anywhere,” Garrett A. Fenton, a member at Miller and Chevalier Chartered in Washington, said March 3 at the Federal Bar Association Tax Law Conference. “If they’re going to cap the exclusion on employer-sponsored coverage, they’re going to need a bunch of information on reporting.”
Form W-2, Wage and Tax Statement, reporting would also likely stick around, because the cost of employer coverage will still be relevant information, Fenton said.
Employers with 50 or more full-time employees—called applicable large employers (ALEs)—in the previous year must use Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, to report health coverage information required under tax code Sections 6055 and 6056. The forms help to determine whether a company owes a payment under the employer shared responsibility provisions of Section 4980H, or if employees are eligible for the premium tax credit.
The penalty attached to the employer responsibility provision, which says certain employers must offer insurance, would be zeroed out in the Republican proposal.
The exemption is capped at the 90th percentile of premiums, according to a draft bill that leaked Feb. 24. While lawmakers have said some details of the draft have evolved over the past few weeks, limiting the exemption and creating a refundable tax credit for individuals to purchase insurance remains House Ways and Means Committee Chairman Kevin Brady’s (R-Texas) preferred option for funding a replacement plan.
An updated draft still contains the income-based tax credit described in the earlier leaked draft, according to a March 3 report from Politico.
Critics of the idea say it is just a revamped version of the “Cadillac tax,” a 40 percent excise tax on the parts of high-cost health plans that exceed the limits. When asked about that comparison on Capitol Hill March 2, Brady said the two are different in about “a dozen ways.”
Laura R. Westfall, a senior associate at King and Spalding LLP’s New York office, pointed out one potentially problematic difference during the panel: the amount of money the provisions bring in.
“A 40 percent excise tax on amounts over the limit could raise a lot more revenue than the additional income tax that you raise from going over an annual limit by getting rid of the exclusions,” she said. Though currently delayed, the Cadillac tax has been projected to bring in $20 billion by 2026.
While no final legislative language has yet been released, at least one panel leading repeal efforts—the Energy and Commerce Committee—is expected to mark up legislation next week. Some Ways and Means members said their markup is also coming soon, but Brady hasn’t committed to a specific date.
House GOP leaders are gunning for a floor vote before the April 10-21 recess.
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