November 2, 2015 by Tony Novak
This year small business tax return preparers need to determine – for the first time ever – whether the client must file a Form 8928 for violating market reform provisions of the Affordable Care Act. This is not an easy task because the triggers for the new tax penalty are complex, not easy to spot and there are exceptions to the general rules. Section 4980D excise tax liabilities are payable in addition to taxes that may be triggered by other health plan failures.
Some warning signs of a problematic small business employer health plan are:
- The client is unable to produce a health plan document or refers to the insurance policy as the plan document.
- The client thinks that the health insurance company is responsible for the health plan document.
- The health plan document has not been updated since before implementation of the Affordable Care Act.
- The health plan document does not reference the group health insurance policy.
- Claims for the health reimbursement plan are handled by a different firm than the primary health insurance carrier.
- Plans promoted by Zane Benefits (see the comment to this article) or using some name like “Section 105 plan”.
- Client has no procedure for notifying employees of their health insurance options.
- There is no group health insurance policy.
- Client pays for or reimburses the cost of individual health insurance.
- Client is providing health benefits to an employee covered by a spouse’s policy.
- Client is reimbursing health benefits payments directly to an employee.
- Client is directly administering claims for their own Health Reimbursement Arrangement.
Keep in mind that these are warning signs but do not necessarily indicate violations. If violations exist, the penalties are not confined to Code Section 4980D but this law is the source of the largest small business health plan taxes. There are exceptions including:
- One employee businesses can use individual insurance and one person health plans are not subject to the ACA market reform requirements and penalties that apply to other employee health benefit plans.
- Insurance-only plans do not need a separate plan document.
- S corporation shareholder employees are subject different rules.
- Union employee plans and church plans have different rules.
- Self-administered HRAs are allowed but the employer may have difficulty meeting HIPAA privacy standards.
Businesses with non-compliant health plans must self-report excise taxes payable under IRC 4980D. Violations under other tax code sections are more commonly discovered and enforced upon examination. This article does not cover the calculation of the excise tax penalty. See this post for more information on the calculation of the excise penalty tax.
A listing of resources related the Freedom Benefits small business health plan toolkit product other related blog posts is published on the business web site at http://freedombenefits.org/small-business-health-plan-compliance-toolkit.html