New Administrative Requirements for the Affordable Care Act

Nov 16, 2012

Now that the Patient Protection and Affordable Care Act has the U.S. Supreme Court’s stamp of approval, constitution wise, various provisions poised to take effect cannot be ignored any longer. These provisions mean more administrative chores for business owners. Here is a timetable that you can use to comply with new requirements.

Adopt new FSA limits
In October or November of this year, you’ll have to communicate with staff on changes to their FSAs. Starting in 2013, if your company has or is planning to adopt a flexible spending account (FSA), the most that employees can contribute on pre-tax basis is $2,500. Until now it was up to you to set the contribution limit; the average for most companies’ FSAs has been about $5,000.

Note: Technically, you have until the end of 2014 to amend your plan documents to reflect the new salary reduction contribution limit, but you must start operating the plan with the new limit in 2013.

W-2s
When you prepare employees’ W-2 forms in January 2013, you have to report the value of their health coverage. This doesn’t change the tax treatment of this tax-benefit to employees; it remains tax free. However, now employees will know how much the business pays for coverage on their behalf.

Note: The IRS has exempted small employers (those who issue fewer than 250 W-2s in the previous calendar year) from this reporting requirement on 2012 W-2s. The IRS has not yet indicated when mandatory reporting for small employers will begin.

Summary plans
Employers must provide employees with a new Summary of Benefits and Coverage (“SBC”) no later than the first day of the first open enrollment period that begins on or after September 23, 2012. This is a standard statement of health benefits under a plan that enables employees to compare their coverage with other plans. The SBC must use uniform definitions. While the insurance company will prepare the SBC for employers to hand out, employers remain liable for any failure to give the SBC to employees. In fact, a willful failure results in a penalty of $1,000 per failure.

Withholding for additional Medicare tax
Starting in 2013, employers must withhold an additional 0.9 percent Medicare tax from wages that exceed $200,000. This is so even though married persons do not owe the tax until their combined earnings exceed $250,000. Employers do not, and in fact cannot, inquire about a married person’s spouse wages. There is no comparable payment by employers. Likely, this provision will not impact small companies until late in the year (no withholding is necessary until that income threshold is crossed), and perhaps not at all.

Employees can choose to have more income tax withheld from their pay, which they can apply toward the additional Medicare tax when they file their 1040s. This means submitting revised W-4s to employers for this purpose. Find more IRS guidance on employer obligations for the additional Medicare tax here.

While the new administrative chores don’t entail additional payments for benefits or taxes, there is still a cost involved in compliance. It takes money (perhaps additional charges by outside payroll companies), or at least your time, to avoid penalties that the Affordable Care Act can impose for failing to comply. Budget accordingly. And work with a knowledgeable tax advisor to ensure you have met all of your obligations.

Barbara Weltman is an attorney, author (with such titles as J.K. Lasser’s Small Business Taxes and The Complete Idiot's Guide to Starting a Home-Based Business), and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® at www.barbaraweltman.com, and host of Build Your Business radio. Follow her on Twitter: @BarbaraWeltman.

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