There is a heightened risk that real estate companies face in becoming unwitting accomplices in money laundering, particularly in South Florida as foreign buyers pour cash into the area’s housing market. In fact, the South Florida Business Journal recently reported that in the first half of 2013, 73 percent of condo re-sales by dollar volume were cash deals and that nearly 90 percent of all condo buyers were foreign in 2012. The weekly newspaper further noted a surge in Miami-area condo construction projects financed with large buyer deposits, up to 60 percent of unit purchase prices, often funneled through limited liability companies that hide the identity of the buyer. These types of all-cash condominium purchases by foreign buyers may be exposing unaware condo developers to money-laundering schemes.
Real estate companies typically have less exposure to money laundering than real estate lenders. However, while banks have numerous federal regulations and compliance standards, real estate companies have responsibilities to help detect money laundering that cannot be ignored.
Banks have to comply with an array of anti-money laundering regulations that don’t necessarily apply to real estate developers, investors or agents. They must have internal processes to verify the identity of new customers and the source of their funds. Banks must develop a range of likely transaction amounts and types for each customer, known as a transaction profile, to make unusual transactions easier to detect.
In addition, banks must report all suspicious transactions over $5,000 to the Financial Crimes Enforcement Network (FinCEN) in a form called a SAR or Suspicious Activity Report. Under 12 CFR 21.11, national banks are required to report known or suspected criminal offenses, at specified thresholds, or transactions over $5,000 that they suspect involve money laundering or violate the Bank Secrecy Act. Banks have an additional reporting requirement for all transactions involving “currency” (generally classified as cash) exceeding $10,000.
While it is true that real estate companies are not financial institutions and are not bound by the same “know your customer”, transaction profiling and reporting requirements found in the Bank Secrecy Act, real estate companies do have some regulatory requirements when working with all-cash buyers of property. For example, real estate companies do have an obligation to report the receipt of cash payments that exceed $10,000. The form used to fulfill this reporting requirement is IRS Form 8300. The general rule is that companies must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if they receive more than $10,000 in cash from one buyer as a result of a single transaction or two or more related transactions.
Of course, not all cash transactions in excess of $10,000 constitute money laundering, but they all create reporting requirements. Even though the Form 8300 disclosure is a neutral notification rather than a report of suspicious activity, the IRS shares the information in these disclosures with FinCEN.
Real estate companies face substantial risks from unintentional involvement in money laundering. The risks include potential criminal prosecution and/or forfeiture of funds received to purchase real estate, especially if the funds were received in cash. So if they have not done so already, real estate companies should consider working with their accountants, attorneys and other professionals to establish internal compliance programs that minimize the legal risk of entanglement with money launderers.
Without a proper compliance program, a real estate company may struggle to prove its non-complicity in court if one of its customers is charged with using real estate transactions to launder dirty money from illegal drug sales or other illegitimate sources. Additionally, if funds derived from the commission of a specified unlawful offense are used to purchase real estate and are then seized by the government, it would be difficult to prove innocent ownership of the funds (a common defense by claimants in forfeiture proceedings) absent a compliance program that meets the minimum mandatory requirements of the corporate sentencing guidelines.
Some companies in the real estate industry and other sectors of the economy have created internal programs to repel money laundering by referring to the corporate sentencing guidelines set by the United States Sentencing Commission in 1991. These guidelines include seven steps required to create an anti-money laundering compliance program that would meet the legal test for sufficiency. These are the seven steps:
(1) Establish an internal compliance program with reasonable potential to deter attempts to launder money.
(2) Appoint a high-ranking company executive as the compliance officer of the program.
(3) Verify the identity of all customers and avoid delegating this duty.
(4) Allow employees to report possible criminal conduct by co-workers without fear of retribution.
(5) Have employees undergo training to learn how to detect money laundering.
(6) Consistently enforce compliance standards, through employee disciplinary actions, for example.
(7) Respond appropriately to dirty-cash discoveries and promptly amend the internal compliance program if necessary to preclude encounters with money launderers.
The National Association of Realtors (NAR) recommends that real estate agencies use similar guidelines to create internal anti-money laundering compliance programs. The association states on its website that, in general, “the real estate agent’s AML [anti-money laundering] risk is substantially mitigated by the fact that the great majority of real estate transactions involve regulated entities such as banks and non-bank mortgage companies,” which must comply with the Bank Secrecy Act and other federal laws that prohibit money laundering.
But the NAR also recommends the voluntary creation of anti-money laundering compliance programs at real estate agencies to help them properly vet all-cash property purchases before the transactions close. The association provides several guidelines for designing a compliance program that addresses the various money-laundering risks that real estate agencies face.
For example, real estate agencies can mitigate risk by checking a list of sanctioned individuals and countries that the U.S. Office of Foreign Assets Control (OFAC) maintains. OFAC, an arm of the U.S. Department of Treasury, enforces selective business sanctions against individuals and companies and comprehensive trade sanctions that apply to entire countries, including Iran, Cuba and Syria.
Among other precautions, real estate agencies should verify the identity of clients by obtaining several forms of ID from them, not just one, or none. Real estate agencies also need to identify the individual owner or owners if a limited liability company or some other type of legal entity is the buyer. Learning about the personal circumstances and professional occupation of a bidder also helps a real estate agent determine whether a planned property purchase appears average or anomalous.
The NAR highlights red-flag signals of money laundering that include all-cash home purchases at prices far above or below appraised value, purchases inconsistent with the occupation and income of the buyer, and purchases with unexplained funding from multiple sources, instead of just one, or from an unrelated third party, rather than a member of the buyer’s family, which is more common.
A real estate company’s accountants and consultants are in a unique position to assist in developing a compliance program that can help mitigate the likelihood of becoming an unwitting accomplice to a money laundering transaction. Because accountants and consultants obtain institutional knowledge of their client’s operations either through tax, audit or consulting services, they are able to address the specific risks associated with their client’s business.
Developing and implementing a compliance program does not guarantee a viable defense to a charge of aiding and abetting or to a forfeiture proceeding, it will, however, severely decrease a real estate company’s vulnerability to these actions.
About the Author: Richard Fechter JD CAMS is an associate director in the Business Valuation and Forensic Services practice of Berkowitz Pollack Brant. For more information, call (305) 379-7000 or e-mail info@bpbcpa.com
http://www.youtube.com/watch?v=Wbu8bTSqKf4
Berkowitz Pollack Brant takes a consultative approach to each client engagement. We are dedicated to helping our clients tap every resource possible to meet their goals.
The Great Recession left a mountain of delinquent loans in its wake. In response, lenders have taken foreclosure actions against borrowers and modified existing loans at a record pace. Restructuring troubled debt enables lenders to protect as much of their initial investment as possible while providing borrowers greater flexibility to meet their financial obligations. However, the requirements for accounting for troubled debt are constantly shifting to meet the demands of a recovering market.
Identifying a Troubled Debt Restructuring (TDR)
A troubled debt restructuring (TDR) occurs when a creditor, for economic or legal reasons related to the debtor’s financial difficulty, grants the debtor a concession that it would not otherwise consider. Proof of financial difficulty includes the following situations:
- Debtor is currently in default or likely to default on the loan in the future
- Debtor has insufficient cash flow to pay the debt under the initial terms
- Debtor has filed or plans to file for bankruptcy
- Debtor is unable to borrow funds from a new creditor at existing market rates
In these situations, a creditor may conclude that repayment of the loan, pursuant to the original contractual terms, is improbable. In order to improve the likelihood that it will recoup all or some of its initial investment, the creditor may make the following concessions:
Modify the loan by:
- Extending the payment period
- Reducing the principal amount
- Reducing the amount of accrued interest Reducing the interest rate
- Settle the debt by accepting an equity interest in the borrower or allowing the borrower to transfer real estate, third-party receivables or other assets to the lender to fully or partially satisfy the debt.
Measuring and Reporting TDR Loans for Borrowers
Accounting for TDRs depends on the type. When a TDR involves modification to debt terms, a borrower may alter the carrying amount of the debt only if it exceeds the maximum future cash payments of principal and interest to be made under the terms of the of the restructured loan. If the maximum future cash payments are less than the carrying amount, the borrower may reduce the carrying amount to a sum equal to all future cash payments and recognize this difference as a gain.
Transferring assets to fully or partially satisfy a debt requires a borrower to record two transactions. The first is a gain on the extinguishment of debt, measured as the difference between the fair value assets transferred and the carrying amount of the debt. The second transaction is a gain or a loss on the transfer of assets, measured as the difference between the fair value of the transferred assets and their carrying amounts.
Measuring and Reporting TDR Loans for Lenders
In a TDR involving a modification of terms the lender will first measure the value of the restructured loan using either the present value of future cash flows under the new loan terms, or the fair value of the collateral. Once the value is established the lender will record a loss and allowance for loan losses equal to the difference between the carrying amount of the loan and its measured amount.
When a lender accepts assets to fully or partially satisfy a loan the lender should record the assets received at their fair value, less costs to sell if applicable. The lender also recognizes a loss on restructuring measured as the difference between the carrying value of the loan and the fair value of assets received.
New Challenges and Guidance
As the real estate market continues toward recovery, lenders and borrowers will continue to face changes to TDR accounting guidance. For example, the Financial Accounting Standards Board recently proposed guidance to clarify when a lender has received physical possession of real estate property collateralizing a consumer mortgage loan. The proposed guidance also requires enhanced disclosure by lenders of foreclosed residential real estate property.
Keeping up with the ever-changing real estate landscape requires lenders and borrowers to be aware of new guidance that affects the treatment and reporting of troubled debt restructurings.
About the Author:
Christopher Cichoski is a manager in the Audit and Attest practice of Berkowitz Pollack Brant. For more information, call (954)712-7000 or e-mail info@bpbcpa.com.
At Berkowitz Pollack Brant we believe in working hard and celebrating our successes. Our annual end-of-busy season gathering at Joe’s Stone Crabs is a chance for us to spend an afternoon enjoying each other’s company, sharing delicious food and being proud of the work we do for clients.
It is one of the ways we’ve created a strong culture of camaraderie and team work.
http://www.youtube.com/watch?v=XLNbo98Dh_g
In a 5-4 decision, the Supreme Court on June 26 struck down Section 3 of the Defense of Marriage Act (DOMA) as a violation the right to equal protection under the law in the U.S. Constitution. DOMA directed agencies of the United States to enforce regulations hinging on marital status as if “the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.”
When the U.S. Supreme Court declared DOMA unconstitutional, its decision strengthened the legal foundation of same-sex marriage and made headlines nationwide. Somewhat overlooked, however, was the practical tax benefit for the winner in the case of United States v. Windsor.
Edith Windsor claimed a refund for estate tax she paid without the benefit of a standard marital deduction for widows and widower. She paid the tax on assets inherited from her deceased spouse, a woman whom she legally married in Canada, and claimed a refund of about $363,000.
Possible reduced exposure to estate tax is just one reason why same-sex couples should thoroughly review their tax opportunities and responsibilities following the landmark DOMA decision. In August, in response to the DOMA decision, the IRS ruled that, for federal tax purposes, “the terms ‘spouse’ … ‘husband’ and ‘wife’ include an individual married to a person of the same sex if the individuals are lawfully married under state law.”
The IRS said in its 15-page ruling that it will treat same-sex couples as married for federal tax purposes if they got married in a state that legally recognizes their marriage. Furthermore, the ruling applies even to couples residing in “a state that does not recognize the validity of their same-sex marriages.” The ruling doesn’t apply to couples in civil unions, domestic partnerships and other formalized relationships that lack jurisdictional recognition as a marriage.
U.S. Treasury Secretary Jacob J. Lew said same-sex couples who are legally married must list their filing status on Form 1040 federal tax returns as “married filing individually” or “married filing separately,” starting with returns for 2013. Lew also said in an August 29 press release that legally married same-sex spouses will have to change certain dollar amounts on their federal income tax returns to reflect the change in their filing status to married from single.
Marital status affects dollar amounts of such Form 1040 line items as the personal and dependency exemptions, the standard deduction, the earned income credit and the child tax credit. In addition, he said, the IRS ruling “assures legally married same-sex couples that they can freely move throughout the country knowing that their federal filing status will not change.”
The unfolding implications of the DOMA decision and the related IRS ruling extend well beyond estate tax, the issue in the Windsor case, to tax on income and gifts as well. U.S. Treasury Secretary Jacob J. Lew said in a press release issued August 29, the same day as the IRS ruling, also it also applies to line items in Form 1040 income tax returns that can change in dollar amount with a change in marital status. These include the personal and dependency exemptions, the standard deduction, contributions to an Individual Retirement Account, the earned income credit and the child tax credit. [Redundant]
Lew said same-sex couples who are legally married must list their filing status on Form 1040 federal tax returns as “married filing individually” or “married filing separately,” starting with returns for 2013. He also said legally married same-sex spouses have the option of filing amended tax returns to claim refunds of taxes paid in previous years without the benefit of a married filing status.
The standard statute of limitations for claiming tax refunds is three years, so taxpayers currently can file amended returns for 2012, 2011 and 2010 (unless they have a special agreement with the IRS allowing for possible refunds on taxes paid in 2009 or earlier). Taxpayers must file Form 1040X to claim an income tax refund, and they must file Form 843 for an estate-tax or gift-tax refund.
Employers also may be eligible for tax refunds under the new IRS ruling. The agency plans to develop streamlined procedures for employers to claim refunds of payroll taxes withheld on medical insurance and other benefits that they have provided to same-sex spouses of their employees.
The IRS and the Treasury Department also are developing guidelines for the tax treatment of same-sex spouses of employees who benefit from such tax-favored arrangements as cafeteria plans and qualified retirement plans. In addition, the Treasury Department said “other [government] agencies may provide guidance on other federal programs that they administer that are affected.”
A few cloudy issues remain, though. Some unanswered questions, for example, pertain to state taxes. In a recent advisory published on its website, law firm Holland & Knight said it’s unclear whether states that don’t recognize same-sex marriage will allow same-sex spouses to “file jointly for federal [tax] purposes and singly for state purposes.”
If you have questions about filing status, refund claims or amended returns, please don’t hesitate to contact us.
About the Author: Edward N. Cooper CPA is a director in the Tax Services practice of Berkowitz Pollack Brant and a member of the firm’s LGBT Businesses and Families group. For more information, please call (305) 379-7000 or e-mail info@bpbcpa.com.
Among the tax changes that went into effect on Jan. 1, 2013, is a new 3.8 percent surtax on net investment income of individuals, trusts and estates and personal service corporations. Also referred to as the Medicare Contribution Tax, it affects many high-income tax filers, including those operating pass-through businesses, such as S corporations, partnerships and LLCs, as well as those earning interest income, dividends, and capital gains through investments in businesses and/or rental real estate that are not a part of their ordinary course of business.
To reduce taxpayers’ exposure to the new surtax and improve their ability to shelter income earned from businesses in which they are passive investors, the IRS allows taxpayers to group together and reclassify their participation in these activities.
Grouping Passive Activities to Offset Passive Income
Maximizing losses from passive business activities requires an understanding of Section 469 of the Internal Revenue Code, which outlines the limits of Passive Activity Losses (PAL) that a taxpayer can deduct against his or her earned or ordinary income. The ambiguity of the PAL rules can easily complicate taxpayers’ compliance with them.
Sec. 469 defines passive activities as those in which the taxpayer does not “materially participate” on a regular and continuous basis. If a taxpayer can prove that he or she materially participated in a given business investment, he or she may be able to deduct losses incurred from those businesses.
Among the seven tests required to prove material participation is the demonstration of a minimum of 500 hours of time spent on a given entity during the tax year. To satisfy this test, taxpayers may elect to group together their time on various passive activities into a lesser number of activities that, when combined, exceeds the 500-hour statutory threshold. To do so, the activities being grouped must share “appropriate economic units” (AEUs), which include rental activities or trade or business activities that share similarities in their types business, the control or ownership over the entities, the geographic location of the businesses and/or the dependence of each entity on the other.
For example, a taxpayer who devotes 100 hours of his or her time during a tax year to each of 10 separate investment activities that are throwing off losses will not have enough hours amassed in each separate activity to constitute material participation. However, if that same taxpayer could identify an AEU for which he or she can group those separate activities together into one, he or she would be able prove his or her active participation in the businesses and satisfy the 500-hour hurdle.
As a result, the taxpayer would be able to deduct losses derived from those activities against other sources of income, including wages, interest income, dividend income and capital gains.
One important caveat to the grouping of activities is the requirement that once a taxpayer makes a grouping, this grouping remains in effect for all subsequent tax years. While taxpayers may easily add new entities to an existing group, they may not reverse a previously established grouping. The only way to change a pre-existing grouping is to file additional written disclosures explaining why the original categorization was inappropriate and detailing the material changes in fact and circumstances that led to the reclassification of activities.
Along the same lines, taxpayers should take extra steps to avoid grouping activities now that may better serve them in the future. For example, the owner of an S corporation with five separate businesses, each operating in the black, should hold off on grouping their activities until they need to do so to offset income with losses.
Getting Help
Maximizing taxpayers’ deductions on passive activity losses while minimizing their exposure to the new 3.8 percent Medicare tax is a complex endeavor can involve an elaborate analysis of all entities in which taxpayers own interest. It requires the expertise of a trusted accountant who understands the nuances of the tax code and can identify appropriate opportunities for taxpayers to treat losses properly and group activities in such a way that they do not inadvertently trigger a different tax burden or penalty down the road.
About the Author: Steven G. Messing JD CPA is a director in the Tax and Real Estate Services practice of Berkowitz Pollack Brant. For more information, please call (305) 379-7000 or e-mail smessing@bpbcpa.com.
The Internal Revenue Service has released its plans for dealing with the government shutdown. While some functions have been suspended, tax filing and processing will continue and the October 15 deadline for extensions remains a hard date.
The underlying tax law remains in effect and individuals and businesses should keep filing their tax returns and making deposits with the IRS as they are required to by law. The IRS will continue to accept and process returns but will suspend the issuance of refunds.
If you are working with your accountant toward the October 15 deadline, please continue to respond to his or her requests for information or signatures. Assume that the IRS will levy fines and penalties for taxpayers who miss the extension deadline.
If you have any questions ro concerns, please do not hesitate to call us
The Patient Protection and Affordable Care Act (PPACA), also referred to as the Affordable Care Act (ACA), Healthcare Reform and Obamacare, represents one of the most extensive changes to the nation’s healthcare system. In its most basic terms, the law aims to rein in healthcare costs and expand individual access to affordable health care coverage. Despite this simplistic definition, the details contained in the law can be quite confusing, especially for the nation’s employers who face some of the law’s most complex compliance challenges.
With compliance comes considerable financial and operational implications for businesses large and small that must now share in the responsibility of providing employees with varying degrees of healthcare benefits. As a result, reform will ultimately force employers to make significant changes to the ways in which they conduct their businesses. They will need to gain a thorough understanding of their new responsibilities under the law and take the necessary steps to carefully plan and implement mandated strategies.
Moreover, they will need to educate employees about new benefit options and coordinate all activities with various internal business functions, as well as governmental organizations such as the Internal Revenue Service and business partners that include insurance brokers and tax and accounting professionals.
Understanding the Basics
Since the PPACA was signed into law in 2010, it has already provided millions of Americans with healthcare benefits that were not previously available to them. These include the expansion of coverage to dependent children, the elimination of cost-sharing requirements for preventative-care services and the exclusion of lifetime limits on the amount insurers will pay for an individual’s medical care. To continue realizing these and other intended benefits of reform, the PPACA will impose on insurers, healthcare providers, businesses and consumers a series of regulations that will be introduced in stages over the next few years.
At its core, healthcare reform requires all U.S. citizens and legal residents to buy and maintain health insurance. At a minimum, this must include essential coverage for ambulatory and emergency services; hospitalization; chronic disease and preventive and wellness care; maternity and newborn care; mental health, substance abuse and rehabilitation treatment; and prescription drug, vision and dental care.
Failure to secure appropriate and essential healthcare insurance by January 1, 2015, can result in financial penalties. This deadline was pushed back in mid-2013 from its original start date of 2014 to give companies more time to research their options and comply with the new rule. However, most aspects of the Affordable Care Act are still in place with their original deadlines.
Later in 2013, a variety of healthcare options will be introduced to meet the needs of various consumers, whether they are unemployed, self-employed or working for other businesses. For example, new federal- and state-run competitive healthcare marketplaces, also referred to as Health Insurance Exchanges (HIEs), will provide individuals with an online resource where they may review a range of plans and purchase one that meets their specific healthcare needs and financial situation. Similarly, beginning in 2014, small businesses with 50 or fewer employees will have access to Small Business Health Option Programs (SHOP) through which employers may offer their employees approved health plans with a range of benefit levels and cost-sharing arrangements.
However, to achieve the ultimate goal of affordable and attainable healthcare for all, large businesses will need to take on a significant portion of the financial and administrative burdens associated with paying for PPACA implementation. For example, beginning in 2015, large businesses, defined as those with 50 or more full-time equivalent (FTE) workers, must choose between offering health insurance to their employees or paying a financial penalty. Conversely, businesses with more than 200 FTE employees will not have the option to pay a penalty; they will have no other choice but to enroll all of their workers in company-sponsored medical plans.
Regardless of the size of a businesses or whether or not it selects to offer employee health coverage, all U.S.-based employers will need to establish systems and processes for tracking employees’ hours, maintaining detailed records, meeting stringent IRS reporting requirements and leading the charge to educate the workforce about their rights and responsibilities under healthcare reform.
Deciding to Play or Pay
Large businesses with 50 or more employees must take the time now to assess their options and decide whether they will “play” by the rules of the PPACA and offer health insurance to their full-time employees (including dependents under the age of 26), or decline to provide company-sponsored coverage and instead “pay” an assessment of $2,000 per full-time worker per year.
Playing by the rules of reform further requires employer-sponsored plans be “affordable” and cover at least 60% of employees’ annual healthcare costs while ensuring employee costs for premiums do not exceed 9.5% of their pre-tax household income. This affordability requirement does not extend to coverage offered to an employee’s dependents, who, as a result, may face additional expenses should an employer choose to pass along a portion of increased premium costs to them.
Employers opting to pay the Employer Shared Responsibility assessment may do so if at least one of their FTE employees qualifies for a tax credit from the government to purchase individual coverage through a public exchange.
When deliberating whether they will play or pay, employers should review a range of cost calculations and considerations to determine the pros and cons of providing their workers with medical care coverage. For example, businesses may deduct on their corporate returns the costs they spend to provide employee health benefits. Conversely, employers that opt to pay the shared responsibility assessment may not deduct that payment from their corporate taxes.
Getting Started
In order to properly prepare for and implement strategies to comply with the provisions of healthcare reform, businesses should first become familiar with the law’s related deadlines. They must set aside the time to fully understand and prepare for the consequences that compliance may have on the financial and administrative aspects of their organizations. To do so, they may require the assistance of outside professionals, such as insurance brokers, lawyers and accountants, who not only understand all of the complexities associated with compliance but can also provide guidance that is tailored to meet a business’s specific needs and desires.
Healthcare reform is a reality. No longer can employers sit back and take a wait-and-see position. Astute business executives have already started the planning process, weighed the various options available to them and decided how best to proceed. While the true costs and challenges of reform may not be known for some time, the one certainty is that both employers and employees alike will need to take appropriate actions to adapt to the changes that lie ahead.
About the Authors
Whitney Schiffer is an associate audit director and leader of the Healthcare Services Practice and Adam Cohen is an associate tax director with Berkowitz Pollack Brant. For more information, call (305) 379-7000 or e-mail wschiffer@bpbcpa.com or acohen@bpbcpa.com.
About Berkowitz Pollack Brant Advisors and Accountants
For nearly 30 years, the professionals of Berkowitz Pollack Brant have solved problems, provided knowledge and helped clients build their companies. The firm and its affiliates Provenance Wealth Advisors and BayBridge Real Estate Group have offices in Miami, Ft. Lauderdale and Boca Raton, Florida.
Berkowitz Pollack Brant has been named one of the top 100 firms in the U.S. by both Accounting Today and INSIDE Public Accounting. One of the largest firms in South Florida, it is comprised of talented and resourceful professionals who provide consulting services with an entrepreneurial focus. Specialty areas include tax planning and compliance, corporate and commercial audits, forensics and litigation, business valuation, and wealth management and preservation.
For more information about the firm or its affiliates Provenance Wealth Advisors and BayBridge Real Estate Group, visit www.bpbcpa.com
Patient Protection and Affordable Care Act
Timeline of Provisions
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2013
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Distribute Summary of Benefits and Coverage (SBC) to Employees
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Employers must provide employees with printed or electronic documentation describing the health-plan benefits they offer, including cost-sharing responsibilities of employers and employees, or risk a penalty of $100 to $1,000 per employee. SBCs must be issued:
- when employees apply for coverage,
- every year when coverage is renewed,
- within seven days of an employee’s request for it, and
- at least 60 days before significant changes in coverage take effect.
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Notify Employees about Competitive Health Care Marketplaces / Health Insurance Exchanges (HIEs)
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By October 1, 2013, employers must provide employees with written notification detailing:
- the availability and services of insurance exchanges beginning on January 1, 2014, and
- the qualifications required for employees to receive premium assistance tax credits or cost-sharing reductions.
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Report the Value of Group Health Benefits on Employees’ W-2s
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Employers who issue 250 or more W-2s must report the total cost of group health benefits they provide to employees, including total premiums paid by employer and employee, in Box 12, code DD, of each employee’s W-2.
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Apply New Medicare Tax Rates to High-Income Earners
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Employers must deduct an additional 0.9 percent Medicare surtax from the paychecks of high-income taxpayers, including individuals with earnings of more than $200,000 or married couples filing jointly with earnings exceeding $250,000.
In addition, high-income taxpayers will be assessed a new 3.8% Medicare contribution tax on the amount by which modified AGI exceeds $200,000 for individuals or $250,000 for married filing jointly, whichever is less.
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Limit Employees’ Contributions to Flexible Spending Accounts
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Employees may not exceed a $2,500 pre-tax annual contribution to Flexible Spending Accounts (FSAs) under employers’ cafeteria plans. |
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Issue Medical Loss Ratio (MLR) Rebates to Employers
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Employers are entitled to receive a rebate from insurance companies that do not spend between 80 and 85 percent of their premium on clinical services and activities intended to improve healthcare quality.
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2014
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Decide to Play or Pay
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Employers must decide whether they will provide employees with “affordable” health insurance or pay a $2,000 shared responsibility assessment per year for each full-time worker that opts out of employer-sponsored plans and qualifies for a federal tax credit to purchase health insurance through a competitive healthcare marketplace option. This mandate will commence on January 1, 2015, and employer-shared responsibility penalties will not apply until 2015.
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File Information Reports with the IRS
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Employers must begin filing with the IRS reports describing the types of health coverage they will provide to employees beginning after December 31, 2014. Reported information will include whether the employer offered its full-time employees and their dependents coverage; whether the plan includes essential coverage; the plan’s waiting period, monthly premium and employees’ share of total allowable cost of benefits; number of full-time employees; and each employee’s name, address and Social Security Number or tax ID number.
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Alert Employees of Coverage Options
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Employers must supply their employees with written descriptions of the coverage they will provide to employees and employees’ dependents, and direct employees to competitive healthcare marketplaces, which are scheduled to go live on January 1, 2014.
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Abide by Plan Exclusion Limitations
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Employer-provided health plans may not refuse coverage to adults with pre-existing conditions, nor impose waiting periods of more than 90 days, nor may deductibles for small business exceed $2,000 for individuals and $4,000 for families. Limits on out-of-pocket expenses for high-deductible health plans will remain in effect at $6,250 for individuals and $12,500 for families.
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Abide by Dependent Coverage Guidelines
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Employers must extend healthcare coverage to employees’ dependent children under the age of 26. The guidance does not include an employee’s spouse in its definition of dependents and therefore excludes spouses from coverage requirements.
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Apply Applicable Tax Credits
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Small businesses with fewer than 25 employees may qualify for a tax credit of up to 50% of their contributions to employees’ health insurance. |
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Contribute to Transitional Reinsurance Program
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Sponsors of self-insured group health plans must begin making contributions of $5.25 per covered individual per month to the Transitional Reinsurance Program, which will be used to pay premiums for high-risk individuals in the competitive healthcare marketplaces. |
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Expect an Increase in Health Plan Costs
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Health insurers are almost certain to pass onto their customers the costs they incur from a new tax intended to help pay for reform. |
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