Author: Leon Clinton

ACA Reporting Requirements for Employers

The health care law contains tax provisions that affect employers and it is the size and structure of a workforce that determine which parts of the law apply to which employers. Calculating the number of employees is especially important for employers that have close to 50 employees or whose workforce fluctuates during the year.

Two parts of the Affordable Care Act apply only to applicable large employers. These are the employer shared responsibility provisions and the employer information reporting provisions for offers of minimum essential coverage.

The number of employees an employer has during the current year determines whether it is an applicable large employer (ALE) for the following year. For example, you will use information about the size of your workforce during 2019 to determine if your organization is an ALE for 2020.

Applicable large employers are generally those with 50 or more full-time employees or full-time equivalent employees. Under the employer shared responsibility provision, ALEs are required to offer their full-time employees and dependents affordable coverage that provides minimum value. Employers with fewer than 50 full-time or full-time equivalent employees are not applicable large employers.

Who is a Full-time Employee?

There are many additional rules on determining who is a full-time employee, including what counts as hours of service, but in general:

• A full-time employee is an employee who is employed on average, per month, at least 30 hours of service per week, or at least 130 hours of service in a calendar month.
• A full-time equivalent employee is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee.
• An aggregated group is commonly owned or otherwise related or affiliated employers, which must combine their employees to determine their workforce size.

Figuring the Size of the Workforce

To determine your workforce size for a year, you add your total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year and divide that total number by 12. If the result is 50 or more employees, you are an applicable large employer.

Employers with Fewer than 50 Employees

If an employer has fewer than 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is not an ALE for the current calendar year. Therefore, the employer is not subject to the employer shared responsibility provisions or the employer information reporting provisions for the current year.

Information Reporting (Including Self-Insured Employers)

All providers of health coverage, including employers that provide self-insured coverage, must file annual returns with the IRS reporting information about the coverage and about each covered individual. The coverage is reported on Form 1095-B, Health Coverage and the employer must also furnish a copy of Form 1095-B to the employee by March 2, 2020.

Tax Credits

Certain employers may be eligible for the small business health care tax credit if they:

1. cover at least 50 percent of employees’ premium costs
2. have fewer than 25 full-time equivalent employees with average annual wages of less than $54,200 in 2019 (indexed for inflation)
3. purchase their coverage through the Small Business Health Options Program.

Employers with fewer than 50 full-time employees or full-time equivalent employees are not subject to the employer shared responsibility provisions.

Employers with 50 or More Employees

Information Reporting

All employers including applicable large employers that provide self-insured health coverage must file an annual return for individuals they cover, and provide a statement to responsible individuals.

Applicable large employers must file an annual return–and provide a statement to each full-time employee–reporting whether they offered health insurance, and if so, what insurance they offered their employees.

ALEs are required to furnish a statement to each full-time employee that includes the same information provided to the IRS by March 2, 2020. ALEs that file 250 or more information returns during the calendar year must file the returns electronically.

Employer Shared Responsibility Payment

ALEs are subject to the employer shared responsibility payment if at least one full-time employee receives the premium tax credit and any one these conditions apply. The ALE:

• failed to offer coverage to full-time employees and their dependents
• offered coverage that was not affordable
• offered coverage that did not provide a minimum level of coverage

Questions? Don’t hesitate to call.

• By Leon Clinton
• February 12, 2020

2020 Tax Withholding: the new Form W-4

Form W-4, Employee’s Withholding Certificate has been redesigned for 2020. Previously, income tax withholding was based on an employee’s marital status and withholding allowances or tied to the value of the personal exemption. With the revised Form W-4, however, income tax withholding is generally based on the worker’s expected filing status and standard deduction for the year. Furthermore, workers can also choose to have itemized deductions, the Child Tax Credit and other tax benefits reflected in their withholding for the year.

The redesigned Form W-4 makes it easier for withholding to match tax liability. While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees.

Here’s what taxpayers should know about the new Form W-4 for 2020:

The form is divided into 5 steps. The only two steps required for all employees are Step 1, where you enter personal information such as your name and filing status, and Step 5, where you sign the form – the form is not valid unless it is signed and dated by the employee. Taxpayers should only complete Steps 2 – 4 only if they apply to your tax situation because doing so will make your withholding more accurately match your liability.

All new employees starting employment in 2020 are required to fill out the new Form W-4; however, employees who have furnished Form W-4 in any year before 2020 are not required to furnish a new form merely because of the redesign. Employers will simply continue to compute withholding based on the information from the employee’s most recently furnished Form W-4.

Employees with a change in life events such as marriage, buying a house, or the birth of a child, however, may want to fill out the form, however.

It is important for people with more than one job at a time (including families in which both spouses work) to adjust their withholding to avoid having too little withheld. For most taxpayers, using the Tax Withholding Estimator located on the IRS website is the most accurate way to do this, although they may fill out the Multiple Jobs Worksheet found in the instructions instead.

If a spouse works both should check the box on their respective Forms W-4; however, only one spouse should fill out the rest of the form (i.e., Steps 3 and 4). If not, and both spouses claim the child tax credit, for example, it is possible that not enough will be withheld and they will owe money at tax time.

Withholding will be most accurate if the highest paid spouse completes Steps 3–4(b) on the Form W-4.

As in the past, employees can also choose to have an employer withhold an additional flat-dollar amount each pay period to cover, for example, income they receive from the gig economy, self-employment, or other sources that are not subject to withholding.

If you have any questions about tax withholding, need assistance filling out the redesigned 2020 Form W-4, or would like more information about this topic, don’t hesitate to call.

• By Leon Clinton
• February 9, 2020

Tax Extenders, Retirement Plan Changes, and Repeals

In addition to averting a government shutdown, the Further Consolidated Appropriations Act, 2020, signed into law on December 20, 2019, extended a number of expired tax provisions for business and individuals through 2020. It also included several retirement plan changes and repealed three health care taxes. Here’s what you need to know.

Individual Tax Extenders

Mortgage Insurance Premiums. Homeowners with less than 20 percent equity in their homes are required to pay mortgage insurance premiums (PMI). For taxpayers whose income is below certain threshold amounts, these premiums were deductible in prior tax years as well as now being extended through 2020. Mortgage insurance premiums are reported on Schedule A (1040), Itemized Deductions, under “Interest You Paid.”

Exclusion of Discharge of Principal Residence Indebtedness. Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, homeowners whose homes have been foreclosed on or subjected to short sale are able to exclude from gross income up to $2 million of canceled mortgage debt. This tax provision has been extended through 2020.

Qualified Tuition and Expenses. The deduction for qualified tuition and fees was also extended through 2020 and is an above-the-line tax deduction. In other words, you don’t have to itemize your deductions to claim the expense. Qualified education expenses are defined as tuition and related expenses required for enrollment or attendance at an eligible educational institution. Related expenses include student-activity fees and expenses for books, supplies, and equipment as required by the institution.

Taxpayers with income of up to $130,000 (joint) or $65,000 (single) can claim a deduction for up to $4,000 in expenses. Taxpayers with income over $130,000 but under $160,000 (joint) and over $65,000 but under $80,000 (single) are able to take a deduction of up to $2,000. Taxpayers with incomes above these threshold amounts are not eligible for the deduction.

Medical Expense Deduction Threshold. The 7.5 percent of adjusted gross income floor for the deduction of medical expenses was scheduled to revert to 10 percent but is extended through tax year 2020.

Energy Saving Home Improvements. This nonbusiness energy property improvement credit is worth up to 10 percent of the cost (excluding installation) of qualified improvements to a taxpayer’s main home to make it more energy-efficient such as insulation materials, energy-efficient exterior windows and doors, and certain types of roofs, e.g., metal roof or asphalt roofs specifically designed to reduce the heat gain of your home. This credit reduces the amount of tax owed as opposed to a deduction that reduces your taxable income.

This tax credit is cumulative and has been around for more than 10 years. As such, if you’ve taken the credit in any tax year since 2006, you will not be able to take the full $500 tax credit this year. For example, if you took a credit of $150 in 2016, the maximum credit you could take this year (2017) is $350.Furthermore, taxpayers should also note that they can only use $200 of this limit for windows.

Credit for Health Insurance Costs of Eligible Individuals. The Health Coverage Tax Credit (HCTC), a Federal tax credit administered by the IRS, and has been extended for all coverage months beginning in 2020. As such, eligible individuals can receive a tax credit to offset the cost of their monthly health insurance premiums for 2020 if they have qualified health coverage for the HCTC. Please note that a qualified health plan offered through a Health Insurance Marketplace is not qualified coverage for the HCTC.

Business Tax Extenders

The following business-related tax credits and provisions were extended through 2020 as well:

Work Opportunity Tax Credit. Extended through 2020, the Work Opportunity Tax Credit has been modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire.

Employer Credit for Paid Family and Medical Leave. Employers who provide paid family and medical leave to their employees may claim a credit for tax years 2018, 2019, and 2020. The Employer Credit for Paid Family and Medical Leave is a business credit based on a percentage of wages paid to qualifying employees while they’re on family and medical leave.

Certain Provisions Related to Beer, Wine, and Distilled Spirits. Under the Craft Beverage Modernization and Tax Reform Act of 2019, certain provisions, which expired at the end of 2019, have been extended through 2020, including reduced excise taxes for brewers, small distilleries, and small wine producers, as well as extending the exemption for the aging period of beer, wine, and spirits from certain capitalization rules.

Retirement Plan Changes

The Further Consolidated Appropriations Act, 2020 included the SECURE (Setting Every Community Up for Retirement) Act, which went into effect on January 1, 2020, and includes major changes for 401(k) plans and IRAs. Some of the highlights are listed below:

• Increase in the age for required minimum distributions (RMDs) to the year a taxpayer turns age 72. Applies to IRAs and 401(k) plans. Please note, however, that the age for qualified charitable distributions remains age 70 1/2.
• Penalty-free withdrawal from IRA for amounts up to $5,000 for birth or adoption of a child.
• Age restriction for contributions to IRAs is eliminated. Prior to the SECURE Act, the age limit was 70 1/2. There is no age restriction for Roth IRA contributions.
• Long-term, part-time employees, age 21 and older who work at least 500 hours per year for three consecutive years are now able to participate in an employer’s 401(k) plan.
• Distribution periods for non-spouse inherited IRAs are limited to a 10-year maximum and all money must be withdrawn within that time period. Individuals who inherited an IRA prior to 2020 are still subject to the old rules.
• Certain home healthcare workers are now able to contribute to a defined contribution plan or IRA.
• Credit limitation for small employer pension plan start-up costs increases to the greater of (1) $500 or (2) the lesser of (a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan or (b) $5,000. The credit applies for up to three years.
• New small employer automatic enrollment credit of up to $500 per year to employers to defray startup costs for new section 401(k) plans and SIMPLE IRA plans that include automatic enrollment.

Health Care Taxes Repealed

Three healthcare-related taxes enacted to fund the Affordable Care Act were repealed. In prior years, the three taxes had been delayed or suspended.

• Medical device excise tax
• Annual fee on health insurance providers
• Excise tax on high cost employer-sponsored health coverage (“Cadillac tax”)

Don’t Miss Out

Tax law is complicated, but help is just a phone call away. If you have any questions, don’t hesitate to contact the office.

• By Leon Clinton
• February 6, 2020