IRS Information Letters Address Lodging, ACA Reporting Issues

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By Keith M. Hill

Thirty information letters released by the Internal Revenue Service address a variety of issues, including employment taxes, health coverage and reporting requirements.

Letters released for the quarter ended Sept. 30 responded to queries regarding health savings and flexible spending account rules, taxation of retirement and deferred compensation plan payments, COBRA coverage and insurance deductions and a range of other issues.

The information letters provide general statements of well-defined law without applying them to a specific set of facts. The IRS considers information letters to be advisory only, with no binding effect on the IRS; many letters respond to a member of the House or Senate who has made an inquiry on behalf of a constituent.

Employment Taxes

The IRS in one letter (INFO 2016-0069) described differences in Self-Employment Contributions Act and Federal Insurance Contributions Act taxes, noting that Congress enacted certain deductions for self-employed taxpayers in an effort to achieve parity between the two systems.

A different tax structure under SECA was required when Congress extended coverage under Social Security and Medicare to the self-employed because no employer-employee wage paying structure existed, the letter said. Under SECA, the tax rate is based on net self-employment income rather than wages, it added.

A self-employed person may deduct 7.65 percent when computing net earnings from self-employment subject to SECA which reflects that an employee does not pay FICA tax on their employer's portion of FICA tax for wages paid to an employee, the letter said. The person can also deduct one-half of the SECA tax when computing their income subject to income taxes, the letter noted.

Employee Lodging

An IRS letter ( INFO 2016-0046) said that although lodging furnished by an employer to an employee may be taxable compensation, an exclusion exists if the lodging is provided on the employer's business premises, it is provided for the employer's convenience and the employee must accept the lodging as a condition of employment.

“Whether a benefit is excludable from income depends on the particular facts and circumstances under which the taxpayer gets the benefit,” the letter said.

ACA Information Reporting

Three letters discussed information reporting requirements under the Affordable Care Act.

The first letter ( INFO 2016-0053) described requirements for furnishing Form 1095-C, Employer-Provided Health Insurance Offer and Coverage Insurance, to full-time employees.

An employer raised concern that its payroll service provider may not have filed all information returns required under the ACA and that this failure to file may subject its employees to IRS penalties.

Employees would not be subject to tax penalties in connection with any failure to file Form 1095-C because the employer with filing responsibility under Section 6056 would owe the penalty, the letter said.

The second letter described waivers available for Form 1095-C and Form 1095-B, Health Coverage, late filing penalties (INFO 2016-0057). A town was having difficulties complying with the June 30 deadline for filing the returns with the IRS.

Filers missing the deadline will not generally be assessed late filing penalties if they made legitimate efforts to register with the Affordable Care Act Information Returns (AIR) system and file its information returns and if they continue to make efforts and complete the process as soon as possible, the letter said.

A third letter (INFO 2016-0070) described efforts to address the reporting requirements with software developers and electronic filers.

A software developer raised concerns about changes made near the filing deadline to the IRS systems requirements for electronically filing information returns to report on health insurance coverage.

The developer also was concerned about the time and expense needed to modify systems to comply with changes made to the IRS electronic transmission system and the exposure to penalties if the information returns were not filed in a timely manner.

The letter noted that the Treasury and the IRS extended the due dates for electronic filing of certain ACA-related information returns to June 30, 2016, from March 31, 2016, to give employers additional time to implement systems and procedures to report the information required.

The IRS also provided extensive information about the Affordable Care Act Information Returns program and held monthly webinars to assist software developers and electronic filers in complying with the electronic reporting requirements for 2015, the letter said.

In determining whether to ease penalties, the IRS “would consider whether an employer made reasonable efforts to prepare for reporting the required information to the IRS and the extent to which the employer took steps to comply with the reporting requirements for 2016,” the letter said.

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