Graham-Cassidy Bill Eliminates Premium Tax Credit But Retains ACA Information Reporting Requirements

With the September 30 budget reconciliation deadline looming, Senate Republican leaders recently released the Graham-Cassidy proposal, which would repeal and replace the Affordable Care Act, but retain most of its information reporting requirements.  A departure from previous GOP proposals (see discussions here and here), the Graham-Cassidy proposal would completely eliminate federal premium tax credits by January 2020, and not provide any other health insurance tax credits.  The legislation would instead put in place a system of block grants to the states which states could use to increase health coverage, but would not be required to use for that purpose.  The proposal would also zero out penalties for the individual and employer mandates beginning in 2016.

The information reporting rules under Code sections 6055 and 6056 would be retained under the proposal, but it is unclear what purpose the Form 1095-B would serve after 2019 when there is no penalty for failing to comply with the individual mandate and no premium tax credit or other health insurance tax credit.  The bill likely does not repeal the provisions because of limitations on the budget reconciliation process, which requires that changes have a budgetary impact.  The proposal would also keep in place the 3.8% net investment income tax, as well as the 0.9% additional Medicare tax on wages above a certain threshold that varies based on filing status and that employers are required to withhold and remit when paying wages to an employee over $250,000.

The Senate has until the end of this month to pass a bill with 51 Senate votes under the budget reconciliation process, before rules preventing a Democratic filibuster expire.  A vote is expected next week.

Version III of Senate GOP Health Care Bill Retains Same Health Coverage Reporting Rules

Senate Republicans have just released another update to the Better Care Reconciliation Act, which would repeal and replace the Affordable Care Act.  This updated bill preserves the same health coverage reporting rules under the prior version that was released a week ago on July 13 (discussed here).  Senate Republican leader Mitch McConnell stated that he expects a vote early next week on a motion to start the debate on either a repeal-and-replace bill or a standalone ACA-repeal bill.

Updated Senate GOP Health Care Bill Retains Additional Medicare Tax and Most Health Coverage Reporting Rules

This morning, Senate Republican leaders released an updated Better Care Reconciliation Act that would largely retain the existing health coverage reporting regime enacted as part of the Affordable Care Act (ACA). In contrast to the prior Senate bill (see prior coverage), the updated bill would keep in place the 3.8% net investment income tax, as well as the 0.9% additional Medicare tax, which employers are required to withhold and remit when paying wages to an employee over a certain threshold (e.g., $200,000 for single filers and $250,000 for joint filers). The updated bill is otherwise similar to the prior bill from a health reporting standpoint, as it would keep the current premium tax credit (with new restrictions effective in 2020) and retain the information reporting rules under Code sections 6055 and 6056. (The House bill passed on May 4, 2017 (discussed here and here), by contrast, would introduce an age-based health insurance coverage credit along with new information reporting requirements.) The updated bill would also zero out penalties for the individual and employer mandates beginning in 2016.

In addition to the ACA repeal-and-replace efforts in the Senate bill, the House Committee on Appropriations included in its appropriation bill a provision that would stop the IRS from using its funding to enforce the individual mandate or the related information reporting rule under Code section 6055 for minimum essential coverage (on Form 1095-B or 1095-C). This provision would be effective on October 1 this year. Apart from significantly cutting IRS funding, however, the appropriation bill would not otherwise affect IRS enforcement of information reporting by applicable large employers regarding employer-provided health insurance coverage. Thus, even if both the Senate health care bill and the House appropriation bill were to become law as currently proposed, applicable large employers would still be required to file Forms 1094-C and 1095-C pursuant to Code section 6056 in the coming years.

Senate GOP Health Care Bill Would Retain Most Existing Health Coverage Reporting Rules

Yesterday morning, Senate Majority Leader Mitch McConnell released a draft version of the Better Care Reconciliation Act, which would retain much of the existing health coverage reporting rules enacted as part of the Affordable Care Act.  Unlike the House bill passed on May 4, 2017 (discussed here and here), which would introduce an age-based health insurance coverage credit and corresponding information reporting requirements, the Senate bill would keep the current premium tax credit (with new restrictions effective in 2020), and leave untouched the information reporting regime under Code sections 6055 and 6056.  Thus, Applicable large employers (ALEs) would still be required to file Forms 1094-C and 1095-C pursuant to Code section 6056, even though the bill would reduce penalties for failure to comply with the employer mandate to zero beginning in 2016.  Similarly, the Senate bill does not eliminate the requirement for providers of minimum essential coverage under section 6055 to report coverage on Form 1095-B (or Form 1095-C) despite eliminating the penalty on individuals for failing to maintain coverage. The Senate bill would, however, repeal the additional Medicare tax and thereby eliminate employers’ corresponding reporting and withholding obligations beginning in 2023.

The fate of this draft bill remains uncertain, as several Republican Senators have already expressed unwillingness to support the bill, which is not expected to find any support among Senate Democrats.  We will continue to monitor further developments on the Senate bill and its impact on the information reporting regime for health insurance coverage.

IRS Approves First Group of Certified PEOs under Voluntary Certification Program

Last week, the IRS announced that it issued notices of certification to 84 organizations that applied for voluntary certification as a certified professional employer organization (CPEO), nearly a year after the IRS finished implementing this program (see prior coverage).  The IRS will publish the CPEO’s name, address, and effective date of certification, once it has received the surety bond.  Applicants that have yet to receive a notice of certification will receive a decision from the IRS in the coming weeks and months.

Congress enacted Code sections 3511 and 7705 in late 2014 to establish a voluntary certification program for professional employer organizations (PEOs), which generally provide employers (customers) with payroll and employment services.  Unlike a PEO, a CPEO is treated as the employer of any individual performing services for a customer with respect to wages and other compensation paid to the individual by the CPEO.  Thus, a CPEO is solely responsible for its customers’ payroll tax—i.e., FICA, FUTA, and RRTA taxes, and Federal income tax withholding—liabilities, and is a “successor employer” who may tack onto the wages it pays to the employees to those already paid by the customers earlier in the year.  The customers remain eligible for certain wage-related credits as if they were still the common law employers of the employees.  To become and remain certified, CPEOs must meet certain tax compliance, background, experience, business location, financial reporting, bonding, and other requirements.

The impact of the CPEO program outside the payroll-tax world has been limited thus far.  For instance, certification does not provide greater flexibility for PEO sponsorship of qualified employee benefit plans.  In the employer-provided health insurance context, the certification program leaves unresolved issues for how PEOs and their customers comply with the Affordable Care Act’s employer mandate (see prior coverage).  While the ACA’s employer mandate may become effectively repealed should the Senate pass the new American Health Care Act (AHCA) after the House of Representatives did so last month (see prior coverage here and here), the AHCA would impose its own information reporting requirements on employers with respect to offers of healthcare coverage or lack of eligible healthcare coverage for their employees.  It remains to be seen if the AHCA becomes law, what information reporting requirements will remain, and how PEOs and CPEOs can alleviate these obligations for their customers.

Information Reporting Provisions of AHCA Unchanged from Earlier Bill

Yesterday, the House of Representatives narrowly passed the American Health Care Act (AHCA) on a near party-line vote, 217-213.  The legislation would repeal many provisions of the Affordable Care Act (ACA) but would retain and expand many of the ACA’s information reporting requirements.  After the House failed to pass the AHCA in late March, Republicans have worked to secure additional support for the legislation.

Although Republicans made changes to the legislation to enable it to pass the House, those changes do not substantively effect the information reporting provisions, including the new health insurance coverage credit reporting under section 6050X beginning in 2020, Form W-2 reporting of employer offers of coverage beginning in 2020, and the additional reporting required by providers of minimal essential coverage under Code section 6055.  (See earlier coverage here.)

The legislation faces an uncertain future in the Senate, where budget reconciliation rules and tepid support from some Republicans may make it difficult to secure passage.

House Republicans Pull ACA Replacement Bill

Facing likely defeat, Republicans have pulled the American Health Care Act, which would have made numerous changes to the information reporting provisions and employment tax provisions of the Affordable Care Act (ACA) (earlier coverage).   The legislation would have also created a new information reporting requirement by adding Section 6050X to the Code.  The House was scheduled to vote on the legislation this afternoon, but Republicans have struggled to appease both conservative Republicans, who wanted a more completed repeal of the ACA, and moderate Republicans, who were concerned about the potential loss of coverage that could result from the legislation. The decision to pull the bill increases the likelihood that the ACA’s information reporting regime under Sections 6055 and 6056 will remain in place, along with the additional Medicare tax and other provisions of the ACA.

Revised House ACA Repeal Will Delay Repeal of AMT until 2023

Last night, Republican leadership released a manager’s amendment to the American Health Care Act (AHCA) that would delay the repeal of the additional Medicare tax (AMT) of 0.9% imposed on certain high-income individuals from 2017 until 2023.  The move is an effort to shore up Republican support for the bill in advance of an expected vote late this afternoon or this evening.  The delay comes three days after an earlier manager’s amendment moved up the repeal of the AMT from 2018 to 2017, and added a transition rule related to employer withholding of the tax.  That change was also made in an effort to shore-up Republican support ahead of the House vote, which was originally expected to happen yesterday.  Our earlier analysis of the information reporting and employment tax provisions of the AHCA is available here.

House Republicans’ ACA Repeal-and-Replace Bill Would Change Health Coverage Reporting Requirements

A House Republican bill, entitled the American Health Care Act, would repeal many provisions of the Affordable Care Act (ACA) but retain and expand the information reporting rules.  Released on March 6, the proposal consists of two parts: (1) a bill drafted by the House Ways and Means Committee, to eliminate the ACA’s taxes and income-based subsidies, zero out penalties for the individual and employer mandates, and establish a new individual tax credit; and (2) a bill drafted by the House Energy and Commerce Committee, to freeze and reform Medicaid.

The Ways & Means bill would help taxpayers pay for health insurance by expanding health savings accounts, and by providing an advanceable, refundable tax credit—the “health insurance coverage” credit—for purchasing state-approved, major medical health insurance and unsubsidized COBRA coverage.  Unlike the leaked bill obtained by Politico on February 24, the bills do not cap the tax exclusion for employer-provided health insurance.  Although the legislation is unlikely to pass in its current form, as it is headed for markup by the two Committees later this week, it does provide insight into the thinking of House Republicans.

Those hoping for a full repeal of the ACA’s reporting provisions will be disappointed as the ACA’s reporting regime would largely survive, at least temporarily.  Applicable large employers (ALEs), for instance, would still be required to file Forms 1094-C and 1095-C pursuant to Code section 6056, even though the bill would reduce penalties for failure to comply with the employer mandate to zero beginning in 2016.  Similarly, the Ways & Means bill does not eliminate the requirement for providers of minimum essential coverage to report coverage on Form 1095-B (or Form 1095-C) despite eliminating the penalty on individuals for failing to maintain coverage.

However, the Ways & Means bill would alter health insurance reporting in three ways.  First, the bill would establish new information reporting rules under Code section 6050X for the health insurance coverage credit beginning in 2020.  Second, the bill would expand information reporting under Code section 6055 regarding the ACA’s premium tax credits used for qualifying off-Exchange coverage in 2018 and 2019.  Third, the bill would repeal the additional Medicare tax and thereby eliminate employers’ corresponding reporting and withholding obligations beginning in 2020.

New Reporting Rules for Health Insurance Coverage Credits Beginning in 2020

The bill would replace the ACA’s premium tax credit with the health insurance coverage credit for purchasing eligible health insurance—state-approved, major medical health insurance and unsubsidized COBRA coverage—starting in 2020.  Generally, an individual is eligible for this credit only if he or she lacks access to government health insurance programs or offer of employer coverage.  The credit amount varies from $2,000 to $4,000 annually per person based on age, and phases out for those earning over $75,000 per year ($150,000 for joint filers).  The credit maxes out at $14,000 per family, and is capped by the actual amount paid for eligible health insurance.  Treasury would be required to establish a program for making advance payments of the credit, on behalf of eligible taxpayers, to providers of eligible health insurance or designated health savings accounts no later than 2020.

Reporting for Health Insurance Coverage Credit.  To administer the health insurance coverage credit, the bill would create Code section 6050X that would require providers of eligible health insurance to file information returns with the IRS and furnish taxpayer statements, starting in 2020.  The return must contain the following information: (a) the name, address, and taxpayer identification number (TIN) of each covered individual; (b) the premiums paid under the policy; (c) the amount of advance payments made on behalf of the individual; (d) the months during which the individual is covered under the policy; (e) whether the policy constitutes a high deductible health plan; and (f) any other information as Treasury may prescribe.  The bill does not specify how often providers would be required to file returns reporting this information with the IRS, but it would authorize Treasury to require a provider to report on a monthly basis if the provider receives advance payments.  A provider would also be required to furnish taxpayers, by January 31 of the year after the year of coverage, written statements containing the following information: (a) the name, address, and basic contact information of the covered entity required to file the return; and (b) the information required to be shown on the return with respect to the individual.

Employer Statement for Advance Payment Application.  The advance payment program would require an applicant—if he or she (or any qualifing family member taken into account to determine the credit amount) is employed—to submit a written statement from the applicable employer stating whether the applicant or the qualifying family member is eligible for “other specified coverage” in connection with the employment.  Other specified coverage generally includes coverage under an employer-provided group health plan (other than unsubsidized COBRA continuation coverage or plan providing excepted benefits), Medicare Part A, Medicaid, the Children’s Health Insurance Program, and certain other government sponsored health insurance programs.  An employer shall provide this written statement at the request of any employee once the advance payment program is established.  This statement is not required if the taxpayer simply seeks the credit without advance payment.

Employer Coverage Reporting on Form W-2.  The bill would require reporting of offers of coverage by employers on the Form W-2 beginning with the 2020 tax year.  Employers would be required to report each month in which the employee is eligible for other specified coverage in connection with employment.  This requirement would likely demand a substantial revision to the current Form W-2, which is already crowded with information.  The Form W-2 reporting requirement appears to be intended to replace the reporting rules under Section 6056 based on a statement in the Ways and Means Committee summary.

Although the budget reconciliation rules limit Congress’s ability to repeal the current coverage reporting rules, the Ways and Means Committee states that Treasury can stop enforcing any reporting not required for tax purposes.  Given the elimination of penalties for individuals who fail to maintain minimum essential coverage and ALEs that fail to offer coverage, this statement may serve as a green light to undo many of the Form 1095-B and 1095-C reporting requirements once the ACA’s premium tax credits are eliminated and Form W-2 reporting is in place in 2020.

Reasonable Cause Waiver.  The bill would make these new information returns and written statements subject to the standard information reporting penalties under Code section 6721 (penalties for late, incomplete, or incorrect filing with IRS) and Code section 6722 (penalties for late, incomplete, or incorrect statements furnished to payees).  The bill also extends the reasonable cause waiver under Code section 6724 to information reporting penalties with respect to the new health insurance coverage credit returns, so that the IRS may waive such penalties if the failure is “due to reasonable cause and not to willful neglect.”

Transitional Reporting Rules for Premium Tax Credits in 2018 and 2019

The Ways & Means bill would allow the ACA’s premium tax credits to be used for off-Exchange qualified health plans in 2018 and 2019 before eliminating the credits in 2020.  The premium tax credit is a refundable, income-based credit that helps eligible individuals and families pay premiums for coverage under a “qualified health plan,” which, under current law, only includes plans sold on ACA Exchanges, and does not include catastrophic-only health plans.  The bill, however, would expand the definition of qualified health plan to include off-Exchange and catastrophic-only health insurance plans that otherwise meet the requirements for a qualified health plan, so that these types of plans would also be eligible for the premium tax credit.  Advance payment of the credit is only available for coverage enrolled in through an Exchange.

To aid in the administration of the expanded credit, the bill would amend Code section 6055(b) to require providers of minimum essential coverage to report certain information related to premium tax credits for off-Exchange qualified health plans.  Because employer-sponsored coverage does not qualify for the credit, employers sponsoring self-insured plans generally would not be required to report additional information on the Form 1095-C beyond that already required under Code sections 6055 and 6056.  Health insurance issuers who provide coverage eligible for the credit would be required to report annually to the IRS: (a) a statement that the plan is a qualified health plan (determined without regard to whether the plan is offered on an Exchange); (b) the premiums paid for the coverage; (c) the months during which this coverage was provided to the individual; (d) the adjusted monthly premium for the applicable second lowest cost silver plan for each month of coverage; and (e) any other information as Treasury may prescribe.  These new reporting requirements would apply only in 2018 and 2019, before the premium tax credit is scrapped and replaced by the health insurance coverage credit in 2020.

Repeal of Additional Medicare Tax

The bill would also repeal the additional Medicare tax under Code section 3101(b)(2), beginning in 2018.  This 0.9% tax is imposed on an employee’s wages in excess of a certain threshold (e.g., $200,000 for single filers and $250,000 for joint filers).  Under current law, employers are required to withhold and remit additional Medicare taxes when it pays wages to an employee over $200,000.  The additional Medicare tax has complicated the process for correcting employment tax errors because unlike other FICA taxes (and more like income tax withholding) the additional Medicare tax is paid on the employee’s individual income tax return.  As a result, the employer cannot make changes to the amount of additional Medicare tax reported after the end of the calendar year.  The elimination of the additional Medicare tax will likely be welcomed by employers and employees affected by it.  In addition, the bill would also repeal the net investment income tax that expanded the Medicare portion of FICA taxes to non-wage income for individuals with incomes in excess of certain thresholds.

What to Expect Next

The fate of the legislation is uncertain, and it will likely undergo substantive changes before House Republicans move the bill to the floor.  A key issue that House Republicans are reportedly debating is how to structure the health insurance coverage tax credit.  Additionally, the decision to eliminate the cap on tax breaks for employer-provided health insurance that was included in the draft language leaked in late February may mean that the legislative proposal will need to be amended to include another funding source.  However these issues are resolved, the legislation makes it clear that a health insurance reporting regime is likely to survive Republicans’ ACA repeal-and-replace efforts.  We will continue to monitor further developments on the proposal and its impact on the information reporting regime for health insurance coverage.