Prepare Now for ACA Pay-Or-Play Compliance
JIM QUAID, CPA
The Affordable Care Act’s (ACA’s) shared-responsibility provision, commonly referred to as “play-or-pay,” has been delayed until 2015. Some “transitional relief” will be available. But that does not mean your organization can afford to sit back on its heels. Do you know if pay-or-play covers your organization? Now is the time to determine whether it does and, if so, what it will mean for your bottom line.
Understand What Pay-Or-Play Is — and Is Not
The ACA does not require any employer to provide health insurance coverage to its employees. But “applicable large employers” — generally those employers, private and not-for-profit, with the equivalent of 50 or more full-time employees — may be subject to a penalty if they do not offer their full-time employees “minimum essential health care coverage,” or if they offer coverage that is not “affordable” or does not provide “minimum value.”
A full-time employee is any employee working on average at least 30 hours per week. However, part-time employees must also be factored in by calculating full-time equivalent employees (FTEs).
Test Whether You are a Large Employer
To compute the number of FTEs for a given calendar month, count the total hours of service (not more than 120 hours for any employee) for all part-time employees and divide that number by 120. For example, an employer with 40 part-timers who average 90 hours per month would have 30 FTEs (40 × 90 = 3,600 total hours; 3,600/120 = 30) who must be included when determining whether the 50-full-time-employee threshold is satisfied.
You must determine each year, based on your employees’ actual hours of service, whether your organization will be considered a large employer for the coming year. Under transitional relief, you generally will not be at risk for penalties in 2015 if you have the equivalent of 50 to 99 full-time employees.
Determine Whether Coverage is Sufficient
If you are a large employer, you need to assess whether you are offering minimum essential coverage to at least 95% of your full-time employees. Some transitional relief is also available here: For 2015 only, the 95% requirement drops down to 70%.
Minimum essential coverage is provided by “eligible employer-sponsored plans.” These include plans offered in a state’s small or large group market as well as self-funded plans. But they do not include certain limited-coverage plans, such as dental- or vision-only plans.
Even if you do offer the minimum essential coverage, you could be subject to penalties if the coverage:
- Is not affordable; or
- Does not provide minimum value.
Generally, coverage is not affordable if an employee’s share of the self-only premium would cost more than 9.5% of his or her annual household income. You can assume an employee’s Form W-2 wages represent annual household income.
Minimum value requires that a health plan cover at least 60% of the covered health care expenses provided under the plan. The Centers for Medicare and Medicaid Services offers an online calculator to help you determine whether your organization’s plan provides minimum value.
Calculate Potential Penalties
Large employers that do not offer minimum essential health coverage will be subject to a penalty of $2,000 per year (assessed on a monthly basis) for each full-time employee in excess of 30 if any of their full-timers receive a premium tax credit when buying insurance through a state or federal health insurance marketplace. So, if a not-for-profit has 100 full-time employees, the penalty would be $140,000 ($2,000 × 70).
Large employers that offer minimum essential coverage, but it is unaffordable or it does not provide minimum value, must — if at least one full-time employee receives the tax credit — annually pay the lesser of $3,000 for each full-timer receiving the credit or $2,000 for each full-timer in excess of 30 full-time employees. Like the penalty for failing to provide minimum essential coverage, the penalty payment is calculated separately for each month, taking 1/12 of the annual amount.
Figure It All Out
The regulations surrounding play-or-pay are complicated. Your financial advisor can help you determine now whether your organization will be considered a large employer and, if so, how best to proceed.
In addition, ORBA recently co-hosted a seminar with GCG Financial and Chuhak & Tecson on the Affordable Care Act. For a copy of the presentation and any handouts, please contact Joel Bennett at [email protected].
Sidebar: Small Not-For-Profit Organizations and the Health Care Coverage Tax Credit
The health care coverage tax credit is available to both private and not-for-profit entities. Your not-for-profit organization may be eligible for the tax credit if:
- You employ fewer than 25 full-time equivalent employees;
- Pay at least 50% of employees’ premium cost for health insurance coverage purchased on a federal or state health care marketplace; and
- The annual average wages per employee are less than $50,000 per year.
The maximum credit for not-for-profit organizations was 25% of premiums paid for employee health coverage in 2010 through 2013 and increased to 35% for tax years beginning in 2014 or later. The tax credit is reduced if an employer has more than 10 full-time equivalents (FTEs) or pays average annual wages of more than $25,000. Refund payments processed on or after October 1, 2013, and on or before September 30, 2014, will be reduced by the 2014 sequestration rate of 7.2%.
You can file an amended tax return to claim the credit for previous years. In fact, you can potentially claim the credit for a total of six years — 2010 through 2013, plus any two consecutive years beginning in 2014 or later. Please contact Jim Quaid at [email protected] or call him at 312.670.7444 if you have questions or if you believe this tax credit may apply to you.
Newsbits: IRS Issues Proposed 501(c)(4) Guidance
The U.S. Department of the Treasury and the IRS have issued initial proposed guidance on how applicants qualify for tax-exempt status as a social welfare organization under Section 501(c)(4) of the Internal Revenue Code. The proposed guidance defines the term “candidate-related political activity” as including certain communications, grants and contributions, and activities closely related to elections or candidates. It would change the current regulations to exclude such activities from qualifying as the promotion of social welfare.
Examples of these activities would be expressly advocating for a clearly-identified political candidate or candidates of a political party, grants to section 527 political organizations and other tax-exempt organizations that conduct candidate-related political activities, and preparation or distribution of voter guides that refer to candidates.
The IRS says the proposed rules would reduce the need to conduct fact-intensive inquiries, including probes into whether activities or communications are neutral and unbiased. Future guidance will address other related issues, particularly the proportion of a 501(c)(4) organization’s activities that must promote social welfare. Several more steps in the regulatory process, including the review of comments, must be taken before the IRS will issue final guidance.
Surveys Reveal CEO Pay
The results of two surveys have uncovered some notable trends in executive compensation practices at not-for-profits. The Chronicle of Philanthropy’s most recent annual compensation survey found that CEOs at the nation’s biggest charities and foundations received a median salary increase of 3.1% in 2012.
That increase was half as large as the raises corporate executives received and a drop-off from the previous year’s increase of 3.8%. The median compensation in 2012 for CEOs at all not-for-profits was $417,989.
GuideStar’s 2013 GuideStar Nonprofit Compensation Report examines, among other things, the compensation paid to women not-for-profit executives. It found that the pay for these executives continues to lag behind that of men in comparably-sized organizations. According to GuideStar, the pay gap ranged from 9% less for female CEOs of not-for-profits with budgets of $250,000 or less to 21% less at organizations with budgets between $5 and $10 million.
Notably, the majority of not-for-profits with budgets of $1 million or less had female CEOs in 2011. But the prevalence of female CEOs dwindles as budget size increases: Only 16% of organizations with budgets exceeding $50 million had women in the top spot.
Twitter Input Used to Guide Grant Making
The Intel Foundation, which aims to foster “educational opportunities and quality of life improvements for communities worldwide,” took to Twitter last fall to solicit input on how the foundation should award $100,000 in education grants to celebrate its 25th anniversary. During this crowdsourcing campaign, Twitter users employed the hashtag #Intel100K to suggest programs and organizations that should receive support. A selection committee composed of foundation board members and volunteers reviewed the Twitter-generated submissions and chose the grant winners.
If you have any questions about Newsbits, please contact Paul Stumbaugh at 312.670.7444.