By Amy Robinson
The implementation of the Patient Protection and Affordable Care Act ("PPACA"), also sometimes referred to as "Obama Care," is heading into the new year at full steam now that it has the green light from the U.S. Supreme Court. As you may already know, PPACA will ultimately require large employers (those with 50 or more full-time equivalent employees1) to offer affordable health care coverage to their full-time employees or pay a penalty (the "Play or Pay" scenario). In addition, it also requires each state to establish a health insurance exchange to act as a marketplace of health insurance plans for individuals and small businesses. If a state has not done so by 2014, then the federal government may step in and do so instead. Washington and Oregon have both opted to establish an independent state exchange, as have many other states.2
While much of the rules and guidance are still being developed, and many of PPACA's components aren't triggered until 2014 or later, here is a snapshot of the 5 key changes affecting employers that become effective in 2013, including links to some helpful online resources3:
- Larger employers must report the value of health care coverage on employees' 2012 W-2 forms.
As of now, employers that issued 250 or more W-2s in the prior tax year now have to report the cost of health care coverage on employees' W-2 forms.4 This means that employers that issued 250 W-2s in 2011 must include this additional information on the 2012 forms that are due January 2013. This reporting is optional for employers that issued fewer than 250 W-2s in the prior tax year.
The IRS has published a chart that details what must be reported, what must not be reported, and what is optional.
- Increased Medicare tax withholding rates apply to certain higher earning employees.
Certain employees are now required to pay increased Medicare taxes (.9%) on earnings after December 31, 2012, and employers need to be prepared to appropriately withhold and report these additional employee taxes.5 Those additional taxes are triggered once an employee's taxable income reaches the following threshold amounts:
Filing StatusThreshold AmountMarried filing jointly$250,000Married filing separately$125,000Single$200,000Head of household (with qualifying person)$200,000Qualifying widow(er) with dependent child$200,000
The IRS has published a helpful "Question and Answer" about the additional Medicare tax.
- Flexible Spending Account ("FSA") contributions are capped at $2,500.
A $2,500 FSA cap is effective for plan years starting January 1, 2013. For more information, see the IRS Guidance.
- Certain health care plans must cover women's preventative services at no additional cost.
Non-grandfathered health plans must cover women's preventative services (i.e., contraception, cancer screenings, mammograms, prenatal care, etc.) without co-pay, co-insurance, or deductible in the first policy year that begins on or after August 1, 2012. For calendar-year plans, that means January 1, 2013.
For a list of what is considered "preventative services" under PPACA, and other information about this particular subject, see the Women's Preventive Services: Required Health Plan Coverage Guidelines.
- Existing employees and new hires must receive a mandatory notice about health care beginning March 1, 2013. (Note: Please see Health Care Notice Deadline Postponed!)
Employers governed by the Fair Labor Standards Act ("FLSA"), the federal minimum wage, overtime, and child labor laws will want to be prepared to send a required healthcare exchange notification to employees and new hires beginning on March 1, 2013.6 According to PPACA, the notice will need to provide information to employees about: (a) state exchange basics; (b) the employee's potential eligibility for health premium tax credits; and (c) the tax implications that may occur if the employee elects to purchase coverage through a state exchange.
The Department of Labor is expected to issue a model notice that employers may use to comply with this requirement but has not yet done so or released its proposed regulations as of now.7 Given that, many expect that the mandatory notice date may be extended, its application narrowed in scope much like the W-2 disclosure was, or the required contents modified in whole or in part. It will therefore be important to watch for further information and updates as the notification deadline approaches.
Find further information on the Oregon state health insurance exchange. For information on Washington state, see Washington state Health Benefits Exhange.
Of course, if you have a specific question about any of the requirements included in this article or individual compliance requirements applicable to your business, please consult your legal counsel or qualified tax professional. Feel free to call us as always.
Best wishes for a prosperous and productive new year!
1. Full-time equivalent employees (also known as FTEs) are defined as those who work an average of 30 hours per week per month. See IRS guidance document "Determining Full-Time Employees for Purposes of Shared Responsibility for Employers Regarding Health Coverage (§ 4980H)" on how to define "full-time employee" including a lookback/stability period that would apply to fluctuating/variable work schedules.
2. See State Actions to Address Health Insurance Exchanges.
3. See timeline prepared by the federal government showing what's changing and when.
4. The 250-limitation derives from interim guidance from the IRS that interpreted the language in PPACA to exclude employers required to file fewer than 250 W-2 Forms for the preceding calendar year. See IRS Notice 2011-28, April 18, 2011, updated by IRS Notice 2012-9, January 1, 2012. Given the IRS's reasoning, and the fact that it was only intended to serve as interim guidance, many expect this will change and may apply to more employers in the future.
5. These taxable earnings may include wages and other compensation, as well as self-employment income, and certain investment income. Please consult your tax professional to make sure you are properly prepared to withhold and report these additional taxes. See the full text of the final rules published by the IRS on December 5, 2012.
6. Find helpful information about covered employers under the FLSA. For a formal determination of whether the FLSA applies to your businesss, consult a qualified legal professional.
7. For proposed regulations and other model notices, go to the Department of Labor Resource page and see ACA Implementation Frequently Asked Questions.