Employer health coverage and new regs

Technical topics regarding tax preparation.
#1
LDCPA  
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I have a new S Corp client. The owner is reimbursed for his health insurance by the corp (reported on W-2, deducted on his personal), his 2 other employees are not. My understanding is this an issue with the ACA and non-discrimination rules.
Under the new regs for family affordable coverage starting in 2023, even if the employer offered a plan for the other 2 employees, it would PROBABLY be above the 9.61% threshold of the employees' household income. Therefore, the employees would be able to buy a plan from the exchange and be eligible for the PTC.
I have 2 questions on this:
1. How can the employer determine what the family affordable coverage would be for an employee based on their household income? I understand that this determination is done by the employee to see if they're eligible for the PTC, but if the employer's coverage will be unaffordable and the employee is better off on the exchange, why bother implementing a plan in the 1st place?
2. How does the employer document that any potential plan offered would not be used by the employees short of implementing a plan and incurring admin costs?
 

#2
sjrcpa  
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Owner can get some quotes for employee health coverage.
 

#3
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Wow. See under: why small employers don't offer health care anymore. Duh.
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Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
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#4
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JR1 wrote:Wow. See under: why small employers don't offer health care anymore. Duh.


:shock: See TD9968. DUH
 

#5
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I don't mean to say it's a bad idea. BUT it's another complexity for small employers with traps for errors.
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#6
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I haven't dug into this new reg, but previous guidance provided safe harbors for employers based on their wage alone.
I think it's necessary to separate the consequences/eligibility for employers vs. individuals.
Assuming that the prior safe harbors have not been affected, the employer may still offer "affordable" coverage based on the employee coverage alone. This allows the employer to determine whether they've done enough to avoid a penalty for not offering affordable coverage.

This employee may still be eligible at a state exchange to enroll in coverage there because, after accounting for the cost of family coverage, that employer coverage offered is no longer affordable. This doesn't affect the employer, it only affects the ability of the employee to enroll in the exchange and receive a PTC.

On a separate note and to your first point, the coverage reimbursed to the s-corp shareholder doesn't affect any discrimination rules in the way you've described. As a small employer, they are under no obligation to provide health insurance. Discrimination rules, in this respect, only apply to non-owner employees.
~Captcook
 

#7
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CaptCook wrote:I haven't dug into this new reg, but previous guidance provided safe harbors for employers based on their wage alone.
I think it's necessary to separate the consequences/eligibility for employers vs. individuals.
Assuming that the prior safe harbors have not been affected, the employer may still offer "affordable" coverage based on the employee coverage alone. This allows the employer to determine whether they've done enough to avoid a penalty for not offering affordable coverage.

This employee may still be eligible at a state exchange to enroll in coverage there because, after accounting for the cost of family coverage, that employer coverage offered is no longer affordable. This doesn't affect the employer, it only affects the ability of the employee to enroll in the exchange and receive a PTC.

On a separate note and to your first point, the coverage reimbursed to the s-corp shareholder doesn't affect any discrimination rules in the way you've described. As a small employer, they are under no obligation to provide health insurance. Discrimination rules, in this respect, only apply to non-owner employees.


How would this work in practice?
Let's say the employer meets the safe harbor and offers affordable coverage to the employee alone, but it is not affordable family coverage under the new reg. The employee then gets family coverage from a state exchange.
Does employer's coverage factor in to the cost of employee's policy from the exchange? I'm guessing no, if the coverage is not affordable, the exchange doesn't calculate it based on the difference with the employer's coverage (i may be wrong on this)?
So now the employer is left with a plan which has annual admin costs and won't be used by the employee?
How can this be set up so the owner and the employees are buying their health insurance from the exchange?

Regarding the non-discrimination rule, I meant it could apply to the employees if the owner is covered, but the employees are not. That was my understanding of it.
 

#8
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LDCPA wrote:Regarding the non-discrimination rule, I meant it could apply to the employees if the owner is covered, but the employees are not. That was my understanding of it.


This isn't correct. There is no nondiscrimination issue if only the shareholder/employee is covered. There is no obligation for a small employer to provide coverage to employees. A reimbursement to the SH/EE doesn't affect this obligation.

LDCPA wrote:How would this work in practice?


If the employee is covered under an affordable plan, they are ineligible to get coverage at the exchange.
My understanding is that this new reg allows them the ability to expand the definition of "affordable" to gain eligibility at the exchange. It doesn't affect the employer.
Only a large employer is required to provide coverage. So, the idea that a small employer is left holding the bag with outsized administration costs really isn't a practical issue. To JR's point, they'd drop coverage for everyone at that point.
Some states have the ability to have small businesses buy insurance through the exchange, but I think that was a bit hit or miss as to its effectiveness.
~Captcook
 

#9
LDCPA  
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Thanks for your reply CC.
Maybe I wasn't clear in my OP. In 2021, SH's W-2 reported his health insurance as exempt from FICA & Medicare (health insurance reported in box 1 & 14 only). If the the SH wanted to discriminate, his health insurance can be reimbursed but needs to be treated as wages subject to FICA & Medicare tax. This would of course defeat the purpose of deducting SH's health insurance as the additional payroll tax would negate most tax savings. We're talking relatively small amounts here either way: ~$2k in additional payroll tax if subject to FICA/Medicare or about $2k in tax savings if health insurance is reported as SEHI on the individual at SH's tax rate. He can't both discriminate (get reimbursed for his coverage only without offering coverage to employees) and get a SEHI adjustment on his personal return which was my point on the nondiscrimination issue. Are you saying that I'm not correct on this?
This also feeds into my next point: yes, small employers aren't required to provide coverage, but as I mentioned there's no benefit to my client if he doesn't offer coverage and has to pay the additional payroll tax. The admin cost would come into play if he was to set up a QSEHRA or another compliant plan that offered to reimburse employees.
These aren't new issues and truthfully I haven't looked into them since the ACA was a hot topic, but this new reg got me thinking. It seems like it will push more employees to the the exchange, but it probably doesn't change anything for S Corp shareholders trying to deduct health insurance.
 

#10
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LDCPA wrote: Are you saying that I'm not correct on this?


That's what I'm saying.
~Captcook
 

#11
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I thought that, for health insurance purposes, a >2% s/h is always treated as a partner and not as an employee.
 

#12
taxcpa  
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In notice 2011-1 the IRS held in abeyance the non discrimination rules until regulations could be formulated and issued.

Has that finally happened, or do these new regulations address something else?
 

#13
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taxcpa wrote:In notice 2011-1 the IRS held in abeyance the non discrimination rules until regulations could be formulated and issued.

Has that finally happened, or do these new regulations address something else?


I haven't seen those regs. These regs address a different dynamic.
~Captcook
 

#14
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CaptCook wrote:
LDCPA wrote: Are you saying that I'm not correct on this?


That's what I'm saying.


At most what I could find is the law is not clear on this
https://bradfordtaxinstitute.com/Conten ... r-W-2.aspx
 

#15
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I don't have a log in to the article you linked. So, I can only read the first couple of paragraphs.

In September 2019, the law was clear.

Here's the crux of the issue, when added to the W-2 (exclusive of FICA), the company isn't paying for health insurance for the SH/EE. It's providing additional compensation. That's why the carveout works. At the business level, there hasn't been a medical insurance benefit provided to the SH/EE. Only more wages. Therefore, no health insurance plan exists at the business level, which means discrimination doesn't apply. You can discriminate all you want in paying more or less wages to anyone, including owners.
~Captcook
 

#16
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Generally, the employee assesses their eligibility for the Premium Tax Credit (PTC). If the employer's coverage would likely be unaffordable, some may question the need to implement a plan.

One approach could be to communicate clearly with employees about their options, emphasizing that the offered plan may not be the most affordable for them.
 

#17
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KushinLiger wrote:
Generally, the employee assesses their eligibility for the Premium Tax Credit (PTC). If the employer's coverage would likely be unaffordable, some may question the need to implement a plan.

One approach could be to communicate clearly with employees about their options, emphasizing that the offered plan may not be the most affordable for them.


BTW, you may find more information about oregon small business health insurance and coverage options. It's worth exploring different resources to help you navigate through these complexities. Good luck!
 


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