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ACA employer compliance requires employers to notify their employees of the health coverage options that are available through the Health Insurance Marketplace (the Exchange). The Department of Labor (DOL) has provided temporary guidance for these requirements within Technical Release 2013-02. To support your ACA administration, we have provided the following summary and links below.

What

Exchange notifications must be distributed to all employees, regardless of plan enrollment status, or of part-time or full-time status.  Model language that may be used for the notification is available from the Department of Labor (DOL) as follows:

• Employers who offer a health plan to some or all employees: Model Notice with Plans
• Employers who do not offer a health plan:  Model Notice without Plans

Information specific to California’s Marketplace, Covered California, is also available for distribution, but not mandated:

Covered California Fact Sheet

Covered California Fact Sheet – Spanish

How

• The notice must be automatically distributed as required without employee request.
• First-class mail or electronically, as long as the electronic delivery meets the DOL’s electronic disclosure safe harbor requirements.

When

Current employees: employers must distribute Marketplace notification to no later than October 1, 2013.

New Hires with a start date October 1 to December 31, 2013: employers must provide Marketplace notification to each new employee at the time of hire

New Hires with a start date January 1, 2014 or later: employers must provide Marketplace Notification within 14 days of the new employee’s start date.

Not sure which notification to distribute?  Please contact your insurance advisor or contact our Administration Team for a recommended solution.

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2012 Additional FUTA Taxes
The IRS has assessed additional FUTA tax on employers in 19 states due to those states inability to repay loans from the federal government. An employer in one of these states will have an additional FUTA liability for 2012 which is due to the IRS January 2013. The additional tax is assessed at the end of the calendar year and the amount will vary from state to state. The affected states are Arizona, Arkansas, California, Connecticut, Delaware, Florida, Georgia, Indiana, Kentucky, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Rhode Island, Vermont, Virgin Islands, and Wisconsin.

California employers will incur an additional .6% on FUTA taxable wages. FUTA tax is calculated on the first $7,000 of an employee’s wages. For example, an additional $42 will be due for each employee that was paid $7,000 or more in 2012. ($7,000 x .6%=$42.00)

FOR OUR CLIENTS ON TAX SERVICE: We will calculate, impound, and pay the additional FUTA tax. You will receive a notification of the amount and debit date before January 21st.

FOR OUR CLIENTS NOT ON TAX SERVICE: We will calculate and generate checks for you to forward to the IRS. You will receive these checks by January 21st.

To learn more about the FUTA credit and the credit per state visit the IRS at

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Payroll Adjustments
The year-end cutoff date for reporting 2012 payroll changes is December 28, 2012 at 1:00 p.m. To ensure accurate and on-time filing of Federal and State returns, all adjustments must be submitted by the cutoff date. We can accommodate adjustments after December 28th if necessary, however, there will be additional fees and/or a delay of your W-2s and tax returns. Also, depending on the changes, tax payments may be made late and incur penalties and interest.

Health Insurance Reporting on W-2s
If the Health Insurance Reporting on W-2s applies to your organization, amounts must be updated before your last payroll is processed for the year. If you issued 250 or more 2011 W-2s, then this new mandate applies to you.

Review W-2 Information
W-2 Edit Reports were mailed with November payroll packages. Review employee names, addresses and social security numbers. Prevent IRS penalties and wage amendments, make your changes before your last payroll in 2012.

FSAs: Remind employees to Use It or Lose It
For those employers on a calendar year FSA plan, employees have until December 31st to obtain services and incur costs against their 2012 FSA account balances.
See FSA Eligible Expenses
Dependent Care Eligible Expenses

IRS and State Tax Notices
The IRS and States mail deposit frequency and change notices to all employers who have a change in their deposit frequency for 2013. The State Unemployment office also mails the rate changes for 2012. If you receive one of these notices, please send us a copy to ensure we have the most accurate information for your tax accounts. We do not automatically receive this information from the IRS and State agencies.

H.S.A.s and Taxability
Employer HSA contributions must be reported through payroll to be taxed and recorded correctly on an employee’s W-2.

Contrary to Federal HSA tax law both employer and employee HSA contributions are subject to the following California taxes:

• Unemployment Insurance (UI)
• Employment Training Tax (ETT)
• State Disability Insurance (SDI)
• CA Personal Income Tax Withholding (PIT)

The best practice is to report contributions with each payroll. To avoid additional costs and amendments, please report all employer HSA contributions prior to processing your last payroll of the year. Specifics are outlined on the EDD website, Taxability of Employee Benefits.

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W-2s and Health Insurance Reporting

Back Ground
A provision of the Affordable Care Act enacted on March 23, 2010, requires employers to report the aggregate cost of employer sponsored group health care coverage on the employee’s W-2. This reporting to employees is for their informational use only and does not cause employer provided health care coverage to become taxable. Recently the IRS issued notice 2012-9 with updated guidance.

Who must comply?
2012: Employers issuing 250 or more 2011 W-2s

Notice 2011-28 made this requirement optional for smaller employers until further guidance is released.

What must be reported?
Employers are required to report the total cost of all applicable employer sponsored coverage provided to an employee. The amount includes both the portion paid by the employer and the portion paid by the employee.

Notes:
An employer is not required to issue a W-2 to an individual for reporting health coverage costs that the employer would not otherwise be required to issue a W-2.

Retroactive elections (made in January that affects the previous year premiums) do not need to be reflected on the W-2. The reportable cost for a calendar year is only based upon the information available to the employer as of December 31^st

Where on the W-2:
Box 12, Code DD

Additional Resources:

IRS Video: Health Care: W-2 Health Insurance Reporting

IRS Newsroom: Affordable Care Act Provisions

IRS Newsroom: Questions and Answers

IRS Recorded Webinar

Unsure what is reportable on the 2012 W-2s or if the new health care reporting regulations apply to you? Download our IRS FAQ index, listing types of insurance coverage with a synopsis of reporting guidance.

W-2s and Employer Health Insurance Reporting
 
 

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Why use an HRA to fulfill the San Francisco HCSO?

Employers Save Money: If the funds are not used by employees the employer keeps the unused funds (instead of the City).

Employers Save Time: No manual calculations of earned expenditures. Payroll Systems calculates this for customers based upon payroll hours reported.

Employers Stay in Compliance: Employees receive reimbursements for medical expenses as mandated by the HCSO.

2012 Changes to the Health Care Security Ordinance (HCSO)

• Unused 2011 employee HRA balances carry over into 2012
• Contributions designated to the employee’s HRA remain available for a minimum of 24 months from the date of contribution
• Employees must receive a written summary
  of contributions within 15 days of allocating contributions
• Terminated employees have 90 days to submit claims for unused funds
• Terminated employees must be provided a written notice of account balances within 3 days of termination
• Employers that impose a surcharge on customers must report to OLSE the amounts collected and pay or designate an amount equivalent to the surcharge on employee health care
• Post the required 2012 Official OLSE Notice
• New administrative penalties
• Annual salary exemption is $84,051

Allowable Expenses Best Practices

Per the HCSO the definition of allowable health care services includes medical care, services, or goods that may qualify as tax deductible medical expenses under IRS code Section 213(d). We recommend employers include these allowable expenses in their HRA plan.  For a detailed list please refer to IRS Publication 502.

Reporting and Accurate Records

Employers are required to maintain accurate records of health care expenditures; proof of expenditures made each quarter, surcharge collected (if any) and allow the City’s Office of Labor Standards (OLSE) reasonable access to such records. OLSE is now required to impose administrative penalties upon employers that fail to make the required health care expenditures on behalf of their employees. The maximum penalty is $100 per employee per quarter that the expenditures were not made within 5 days of the quarterly due dates.

Coming Soon in January!

Webinar: Staying in compliance with the HCSO with an HRA

The webinar will review the changes for 2012, items awaiting further guidance, and how to avoid penalties.

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Karla Sanders, our Director of Client Benefits, explained that “There is a misconception that FSA balances are forfeited at the time of termination of employment and thus employees are not given the opportunity to elect COBRA continuation of their FSA plan.”

COBRA compliance can be difficult to administer in the simplest of circumstances and when you add FSA requirements to COBRA administration the potential for noncompliance increases.

Know your FSA COBRA obligations:
The first step is to determine if your FSA plan is an excepted benefit. If the FSA plan does not meet all of the excepted benefit criteria, COBRA must be offered for a full 18 months.

FSA plans are an excepted benefit if it meets all of the following conditions:

a) The Maximum Benefit Condition: the annual FSA election amount does not exceed 2 times the amount contributed by the employee. If the employer does not contribute to the FSA this requirement is met.

b) The Availability Condition: a health insurance plan was available to the FSA participant due to employment. This requirement is usually met if the employer has the same eligibility for the group health plan and the FSA plan and if enrollment in major medical plan is available each year.

c) The Premium Condition: the maximum COBRA premium equals or exceeds the maximum FSA benefit available for the plan year in which the qualifying event occurred. If the employer does not contribute to the FSA this requirement is met.

If the plan is an excepted benefit as determined above then:

a) COBRA is only offered for the remainder of the plan year (not 18 months)

b) COBRA is only offered if the account is underspent. An account is underspent if the FSA balance (annual election less claims) at time of termination is more than the required COBRA premiums.

Let’s do the math:
An employee makes an annual election of $2,400 ($200 per month) and terminates on October 31st. The employee has contributed $2000 to his/her FSA account and submitted claims of $1500. The account is underspent because the remaining annual limit of $900 ($2400 less $1500) is more than the maximum premium of $400 ($200 x 2 month) than can be charged the remaining of the year

*Employees don’t have to use COBRA for health coverage in order to use it for their flexible spending accounts.

What if an employee wishes to repay the overspent amount?
Occasionally upon termination an employee wishes to repay the overspent amount (and most employers would cheer at this!), however the employer should not accept the additional contributions, even if they are made voluntarily. Such a practice is a violation of the uniform coverage rule.

When are balances forfeited?
Upon termination employees can only access FSA funds for claims incurred prior to the termination date. If the employee does not elect COBRA then any balances are forfeited.

Note that any grace period that applies to health FSA participants will also apply to FSA COBRA participants at the end of a plan year.

Do not leave these compliance issues to just anyone. Our COBRA Compliance Experts can help ensure you are not alone in dealing with these issues.

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City administrators across the nation are watching as the Health Care Security Ordinance (HCSO) transforms doing business and health care in San Francisco. With opinions rampant, here are some facts and history regarding the HCSO:

• February 2006 San Francisco Mayor Gavin Newsom created a Universal Healthcare Council to develop a plan to provide access to health care for San Francisco’s estimated 73,000 uninsured adults.
• July 2006 The Board of Supervisors unanimously passed the Health Care Security Ordinance. This ordinance calls for covered employers to make a health care expenditure for their covered employees and for the Department of Health to create a Health Access Program, now called Healthy San Francisco
• January 9, 2008 the Health Care Security Ordinance goes into effect
• October 2011 Supervisor Campos submits Ordinance revisions causing an outbreak of dissent between SF employers and the Board. Mayor Lee invites leaders from all sectors of the City to come together to reach a consensus.

With the Ordinance once again under scrutiny and pending revisions, many issues have come to light.

The Employer:

Many employers feel the HCSO places an unfair burden on their business by mandating an expense whether employees use the benefits or not.

Employers can choose to pay the mandatory amounts into Healthy San Francisco and in turn the employees receive basic health care at City sponsored clinics, or receive a Medical Reimbursement Account. Some Employers choose to make the funds that they would have paid into the City available to their employees via a Medical Reimbursement Account that the employer or a TPA  (Third Party Administrator) administers. Employer and TPA administered reimbursement accounts do not restrict the care provider only the type of expense. The advantage is that the employer cost is only the amount of employees’ claims and the employee advantage is a wide range of possible eligible expenses that are not dependent on point of service (as with the City’s clinics).

Neither the Healthy San Francisco nor a Medical/Health Reimbursement Arrangement are health insurance. They are a means of receiving a non taxable benefit that can only be spent on health costs.

Do the math (Contributing to the SFHCSO):

A restaurant with 80 employees working 80 hours per month (part time employees)

80 hours x fund rate of 1.37/hr = $109.60 per employee

80 employees x $109.60 = $8,768.00month or $105,216 per year

Each employee can either visit a City clinic for a health care concern (the clinics are only for SF Residents) or can spend that amount on medical/dental/vision expenses via a HRA/MRA

The Employee:

If the employer pays into Healthy San Francisco the employee must apply for Healthy San Francisco, be interviewed, prove identity and city residency, pay quarterly fees and point of service fees (on a sliding scale), and renew his/her application each year.
Alternatively, if the employer or TPA implements a Health Reimbursement Arrangement account the employee uses a debit card at point of sale or submits receipts for reimbursements.

The TPA:

As a TPA and Bay Area business, our President, Tony Bowden, says it best “We are committed to being part of the solution for SF employers and employees.” With an HRA the $105,216 from our example, is retained by the employer. The employer makes funds available  as  the employees submit claims. We provide the service of managing the HRA plan, reimbursements, debit cards, claim questions. An added benefit for our payroll clients is they do not have to submit long lists of employees and hours worked as this is integrated with payroll processing. Currently an HRA satisfies the HCSO requirement and provides employees with readily accessible funds for health care costs.

The HCSO:

This is not the first amendment proposed by the Board of Supervisors and it will most likely not be the last. However the proposed changes have some serious consequences for employers. Supervisor Campos’ proposed amendments mandate an availability of funds to employees, even after termination. The funds would have to be available for a minimum of 18month, but could go on indefinitely depending on usage. Employers must fund the accounts immediately, no accrual of the funds will be allowed. Mayor Lee called for a consensus and brought representatives from diverse sectors to comment. Again the Board of Supervisors will vote this week and then it will pass to Mayor Lee’s desk, where although he hasn’t said he will support or veto the amendment, the Mayoral election is looming and will be bound to influence the decision.

Contact Mayor Lee to voice your opinion on the HCSO: (415) 554-6141 – Email: mayoredwinlee@sfgov.org

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