A highly overlooked aspect of the health care reform, Patient Protection and Affordable Care Act, is the expanded 1099-MISC reporting requirements. The 1099-MISC reporting is being expanded in two different ways. The first expansion requires businesses to include payments made to corporations, and the second expands reporting to include payments of property.  The definition of “property” is still unclear, but IRS Commissioner Douglas Shulman recently made reference to “goods” instead of property which would suggest the IRS is looking at using a larger, more comprehensive definition.

This increased reporting requirement being placed on all businesses seems to be substantially burdensome in my opinion. How many businesses in this country will have to send 1099s to companies such as their local office supply store, and how many office supply stores want to receive potentially hundreds of thousands of 1099s from their customers? Businesses of all sizes will be required to report hundreds of 1099-MISC reports for any individual or corporation for which it pays $600 or more to in the year. Currently the requirement only applies to payments made to individuals, which makes sense, since individuals have the higher risk of not fully reporting income.  However, businesses already have reason to fully report their income to offset expenses and show owners and investors a return on their investment, not to mention potential SEC requirements and the fear of audits.

The AICPA, American Institute of Certified Public Accountants, is currently trying to influence Congress to repeal this section of the new health care law. If we are lucky, Congress will see the problems with this section and repeal it, however businesses in the mean time should review their systems to begin preparing for additional reporting burdens coming in 2012.

The expanded 1099 reporting provision of the PPACA has been repealed as of April 14, 2011. For additional information please proceed to our recent post: Two Provisions of Health Care Reform Recently Repealed.

The IRS announced today, October 12, 2010, that it will defer the health insurance reporting requirement for employers, making reporting by employers optional for 2011. The Affordable Care Act requires that the aggregate cost of employer-sponsored health coverage must be reported on a Form W-2.  For this purpose, the aggregate cost is to be determined under rules similar to the rules for COBRA continuation coverage.  This rule was to be effective for taxable years beginning on or after January 1, 2011, but will now be voluntary for 2011.

The IRS and Treasury Department decided this relief to be necessary to give employers time to make changes to their payroll systems or procedures to be compliant. The IRS announced it will be publishing guidance on this requirement later this year. The IRS also stressed that although amounts are to be reportable come 2012, the amounts reported are not taxable and are for informational purposes only.

The IRS announcement can be found at IR-2010-103.

Multiple government agencies responsible for implementation of the new health care reform bill (PPACA), including the Internal Revenue Service and Health and Human Services, recently announced an amendment to the rules governing the grandfathered status of group health plans. The amendment allows group health plans to change policies, contracts, or carriers and keep their grandfathered status, provided the coverage does not violate one of the other rules for maintaining grandfather status (e.g. not increasing co-insurance, deductibles, co-pays above certain thresholds, etc.). This amendment to the interim final rules is effective November, 15, 2010.

Several concerns were raised concerning the prior interim rules which lead way to the creation of this amendment. One of those concerns which this amendment corrects was that self-insured group health plans were being treated differently than fully-insured programs. Self-insured plans were allowed to change third party administrators without affecting grandfathered status. Now that this amendment has been put in place, this change will equalize the treatment of the two different plans.

The full amendment can be found here.

Over the last couple of weeks two separate provisions of the Health Care Reform Act (PPACA) have been repealed. 

On April 14, 2011, the first provision of the PPACA to be repealed was the onerous expansion of 1099 reporting. This provision would have made it mandatory for businesses to significantly expand their reporting of 1099s to any vendor they pay $600 or more for goods and services. As we reported in an earlier blog, this would have increased administrative costs for all businesses immensely.  The repeal of this provision was expected from the inception of the PPACA.

The second repealed provision, which came as a pleasant surprise, is the “free choice voucher” program. The repeal was finalized on April 15, 2011 as part of the Fiscal Year 2011 Spending Plan. The voucher provision would have required employers to offer “free choice vouchers” to employees who chose not to enroll in the employer’s health plan, and would be used to purchase health coverage through one of the state “Exchanges” created by the PPACA.

Employer groups argued that vouchers would contribute to “adverse selection” to their group health plans. They explained that vouchers could encourage healthy employees to waive coverage under the group plan in favor of purchasing cheaper coverage through an Exchange. The remaining employees in the group plan would be less healthy or be in a classification, such as age, that would cause the premium cost of the group plan to increase. Additional concerns were voiced by employers over the increased burden and cost to administer the free choice vouchers. The vouchers were to be given only to employees with household income below 400% of the federal poverty level and whose required contribution for the group coverage would have been between 8% and 9.8% of their total household income.

Late last week a memorandum was released detailing the reasons why the White House will not currently implement the Class Act.  The Class Act was the long-term care services (or LTC) portion of the Affordable Care Act.  A voluntary, national LTC insurance program was to be established and was required to be funded entirely through enrollee premiums without taxpayer subsidies.  The Affordable Care Act also set forth various enrollment and benefit rules which would have fostered adverse selection.  The memorandum states that the program would be financially unstable and require taxpayer funding to keep viable if it was implemented under the current version.  Due to the lack of long-term viability of the CLASS Act, HHS decided not to implement the program.

The full memorandum can be read here.

The IRS recently announced that a little more than 228,000 taxpayers had claimed the Small Business Health Care Tax Credit for tax year 2010. As of Mid-May, these taxpayers received a total amount of more than $278 million. This amount is significantly lower than the estimated Credit for tax year 2010 of $2 billion. Why is the difference between the estimate and actual so large?

The Treasury Inspector General for Tax Administration (TIGTA) audited the plan to determine if the IRS “adequately implemented and accurately processed the Credit”. TIGTA found that the Credit was “mostly successful, but some improvements are needed”. TIGTA reports that the IRS did timely complete the actions related to the Credit and put more of the responsibility on the taxpayers making mistakes on the form used to request the Credit (Form 8941). I do not agree with their assessment of the discrepancy.

I believe the problem is that the Credit was over-estimated due to the Full-Time Employee and the Average Annual Wage restrictions. Most small employers that provide health insurance provide them to full time employees, and most of those full time employees, at least here in Colorado, make more than $25,000 per year. What we found with our clients was that only about a third of them could claim some part of the Credit, and of them only one could claim the full Credit. The third that could take a portion of the Credit had to decide if the Credit was more than what they would have to pay their tax accountant to claim it. If the IRS and TIGTA want to know what they can do to get more small business to claim the Credit, then they need to look at and change the Full-Time Employee and Average Annual Wage restrictions.