Look for business executives to consume large volumes of antacid between now and tax day. The first filing season under the employer mandate of the Patient Protection and Affordable Care Act is causing some indigestion.
“People really don’t understand PPACA all that well,” says Bob McNett, owner of The McNett Agency in Tulsa, Oklahoma. “Everybody is still tentative, scared of making a mistake and getting fined for something they did or something they forgot to do.”
Accountants also are scrambling to provide up-to-date information.
“I’m in the industry, and I’m overwhelmed at times,” says Kathy Hettick, principal of Hettick Accounting & Tax LLC in Enumclaw, Washington. “For the first year, it’s extremely confusing; not so much for the average person who works for a large employer but people who work for smaller companies.
“Take for example IRS form 1095-A, which shows how much companies paid employees for insurance,” she continues. “I just read that some forms are incorrect and that some states are still struggling to get information out.”
Brian Thompson, principal at Bailey & Thompson Tax & Accounting in Little Rock, Arkansas, sees the same problems. “Most of our small business clients were in no way, shape or form educated about this,” he says. “All of the information they get is coming from us. When we tell them, it is a total surprise.”
This type of confusion is not simply anecdotal, as ADP found in a recent survey.
“Frankly, we see a lot of apprehension, and we have quantified it,” says Christopher Ryan, vice president of strategic advisory services. “We did a survey not long ago. One of the key findings is that roughly 50 percent of companies have concerns or trepidations, primarily focused on some of the key details around preparing to file taxes, such as having all of the background information to fill out the forms. You have to make sure you have a defendable data set in case you are audited or need to respond to an inquiry from a state exchange.”
Employers with more than 100 full-time workers are required to offer health insurance and will face penalties if they do not cover at least 70 percent of their eligible employees. In 2016, the threshold will increase to 95 percent. The devil, of course, is in the details. Several experts addressed the biggest challenges they are seeing from their clients in this tax season.
Moving targets. ”The ACA has been evolving as new regulations are published,” Ryan says. “The final 1094-C and 1095-C forms have not been around for a very long period of time.”
Reimbursement instead of coverage. “Especially with smaller businesses, compliance on the W-2s is where we have had the biggest challenge,” Thompson says. “A lot of small businesses don’t go to the trouble of getting a group policy for three or four employees but simply reimburse employees for their insurance. They can no longer do that under the ACA. We had to educate our clients that it was urgent to reclassify those payments as income to avoid massive penalties.”
Adequate data collection. “There are between 50 and 175 different fields you may need to comply with,” Ryan says. “Make sure you have the data and that it is credible and auditable, in case there is an audit 18 months from now. Have a strategy on how to save the data, and not just if the IRS calls you up. You may receive a notice from the state exchange to respond. Employers should have the correct 1094-C and 1095-C data to sign off on. Ask yourself, ‘If I were audited, how would I respond?’”
Data correlation. “Data requirements come from many different record systems, such as time-management, payroll and benefits systems,” Ryan says. “Often in HR departments, this information may be manual or kept on separate systems. Absence management often is kept on a spreadsheet. Date of hire, most recent date of hire, date of termination, ACA status and effective date for that status must be tracked. You also need to consider such things as the FMLA, jury duty, veteran status, proof of offering insurance and proof that employees actually enrolled.”
Variable hours. “The most complex challenge I am seeing is with variable-hour employees,” McNett says. “Doing look-back is really complicated for a typical business with 150 or so employees. Variable-rate employees may work 30 hours for a couple of weeks, then 15 hours and then 40. It’s really hard to keep track of whether they qualify for insurance.”
Domino effect. “Something like a Department of Labor inquiry about family medical leave could trigger an IRS audit, and vice versa,” Ryan says. “Typically, employers are much better off having an integrated system all operating together.”
Changing role of broker
Compliance can be daunting for a large business, let alone a small or mid-sized one. However, a dependable broker can be a big help.
McNett says though brokers have always had a consultative role, PPACA has largely increased it.
“We certainly have a more complex role now under the ACA, helping our clients comply with the law. I now have a blog, and much of the content is about the ACA. We receive a number of calls from clients who want to be sure they are doing things right. Brokers often can be the best resource, because they look at the whole picture.”
Conscientious brokers are doing their homework to be able to assist their clients. “It takes us a lot of time to get up to speed ourselves,” McNett says. “I try to learn through webinars and seminars put on by various sources, such as benefits attorneys.”
He already is finding that this self-education is paying off.
“I’ve heard from several clients who received advice from their accountants that I know is wrong,” McNett says. “One came back from a seminar and told a client with fewer than 25 employees that they had to comply, which is not correct.”
Thompson agrees that brokers bring valuable expertise to the table. “I think brokers could provide education to whomever they are insuring,” he says. “If nothing else, clients can learn what questions they should be asking.”
The more wise counsel a business can obtain, the better. “I think brokers could be more helpful,” Hettick says. “Bringing the broker and accountant together would be beneficial for any business.”
Ryan couldn’t agree more.
“Historically, payroll and benefits people don’t even talk to one another,” he says. “They need to sit down and talk. What I look for when I’m talking to a client is clear teamwork among HR, payroll and finance.”
Although April 15 is on everyone’s mind, April 16 also is an important date. That’s because the best time to plan for next year is when this year is still fresh in people’s minds.
“After we have done it once, we will be better prepared the second, third and fourth times, although regulations likely will keep changing,” McNett says.
A timely meeting between an HR staff and insurance brokers, tax attorneys and other professionals can pay dividends. “A lot of people got caught off-guard this year,” Thompson says. “We all know the rules now. You can prepare earlier for compliance, on a monthly instead of annual basis.”
Along with anxiety, PPACA can generate strong emotions. One thing everyone agrees on, however, is that it is unlikely the Supreme Court or Congress will toss out PPACA. “Work with the laws that are in place, not what you think may happen down the road,” Ryan says.
This means brokers and their clients need to remain on top of their game.
“PPACA has made our business a lot more complicated,” McNett says. “As a benefits brokers, if you want to stay in business, you need to stay abreast of PPACA. It’s not going to go away.”