Questions for the audit committee to consider
- Has management presented the audit committee with a recent evaluation of the impact of the ACA on the company and the company’s potential risk for increased tax liabilities?
- Has management discussed with the audit committee any necessary changes to the company’s benefit plans to meet new coverage standards?
- Are the company’s IT systems configured to comply with new payroll and reporting requirements?
- What are the implications of the changes to the company’s financial reporting and compliance systems and the related internal controls?
Employers will face a host of new reporting requirements under the ACA.
In June, the US Supreme Court upheld the major coverage provisions of the Affordable Care Act (the ACA) as constitutional, prompting a number of companies to re-examine the employer requirements under the law.
Although some uncertainties remain regarding the law or possible changes to it resulting from the 2012 presidential and congressional elections, looming deadlines are driving companies to begin compliance efforts now. Audit committees should understand how management is preparing to comply with the ACA and what these steps will mean to the company.
Employer coverage requirements
The ACA requires, for the first time, that large employers offer health coverage to full-time employees (and their dependents) or pay tax penalties. The law requires coverage to be affordable and of a minimum value for certain employees in order for employers to avoid tax penalties.
Large employers that do not offer coverage to their full-time employees face a penalty of
$2,000 times the total number of full-time employees if at least one employee receives a tax credit to purchase coverage through a state-based health insurance exchange established under the ACA.
If a large employer offers coverage to their full-time employees and their dependents but the coverage is unaffordable to certain employees or does not provide minimum value, employers face a penalty of $3,000 times the number of full-time employees receiving tax credits for exchange coverage (not to exceed $2,000 times the total number of full-time employees).
Under the law, employees with household income between 100% and 400% of the federal poverty level are eligible for tax credits for exchange coverage if they do not have access to affordable employer-sponsored coverage that is of at least a minimum value.
However, recognizing that employers do not have access to information about employees’ household incomes, the Department of the Treasury has proposed a safe harbor that would shield employers from penalties if the employee’s share of the self- only premium for the employer’s lowest-cost, minimum value plan does not exceed 9.5% of the employee’s current W-2 wages.
New employer reporting requirements
Employers also will face a host of new reporting requirements under the ACA. For example, employers that issue more than 250 W-2 forms annually must report the cost of certain group health coverage on employees’ W-2 forms issued after January 1, 2013.
Beginning in tax year 2014, employers will be required to report information to the Internal Revenue Service (IRS) about the coverage offered to full- time employees, and self-insured employers will have to provide information to the IRS about employee enrollment in health insurance coverage. Health insurers will report this information to the IRS for employers that offer fully insured plans.
In addition to the new reporting to the IRS, the ACA also amended the Fair Labor Standards Act to require employers to inform employees about the availability of health insurance exchanges. The law requires employers to provide this information to current employees by March 31, 2013, and to new employees on their hiring date.
In the months ahead, it is critical for companies to watch for upcoming regulations defining key requirements for employers. Companies also will want to assess their potential liability for tax penalties under the ACA. The audit committee should have a clear picture of how and when the ACA requirements will affect benefit plan costs, payroll taxes, administrative functions and other compliance obligations.
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