Affordable healthcare insurance is an essential benefit to offer your employees. Because of the Affordable Care Act, it may even be legally required, depending on the size of your business. To maintain legal compliance, you first need to understand what the ACA is, what recent changes have been made to it and how it impacts your business.
What is the Affordable Care Act (ACA)?
The Patient Protection and Affordable Care Act (also known as the Affordable Care Act, PPACA, ACA or Obamacare) is a healthcare reform law that went into effect under President Barack Obama’s administration on March 23, 2010. The primary objective of the Affordable Care Act is to regulate the cost of health insurance and expand Medicaid coverage. Although some aspects have been repealed under President Donald Trump’s administration, much of the Affordable Care Act is still applicable to your business.
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Who benefits from the Affordable Care Act?
The purpose of the Affordable Care Act is to ensure that every American has access to affordable health insurance. Although the ACA presents some challenges for businesses, it benefits several groups, including low-income households, people with preexisting medical conditions and children.
The ACA benefits low-income households, or households with “income limits,” by expanding Medicaid coverage to apply to a larger group of individuals.
“The ACA directly expanded Medicaid eligibility to people falling below 133% of the federal poverty guideline, which in 2020 is $12,760 for a single-person household, $17,240 for a two-person household, and just over $26,000 for the average four-person household,” said Ty Stewart, president and founder of Simple Life Insure.
The ACA directly benefits individuals with preexisting medical conditions who may have previously not had access to affordable healthcare, since it prohibits insurance companies from denying coverage or charging additional premiums due to preexisting conditions.
Children are also allowed to stay on their parents’ health insurance plans until they turn 26 years old, receiving health coverage for several essential services like pediatric and preventive care, lab tests, prescription drugs, and mental and behavioral health treatment.
How the Affordable Care Act impacts your business
Before the Affordable Care Act went into effect, all businesses had the option to offer or not offer health insurance to their employees. The healthcare reform law changed that. The ACA declared that small businesses with fewer than 50 employees can provide their employees with insurance or let their employees sign up for their own insurance coverage separately; however, businesses with 50 or more employees are legally required to offer their employees health insurance.
Reporting health insurance coverage
Rolling out these policies takes effort on your part as an employer. Denise Stefan, president of Engage Insurance Agency at Engage PEO, said that small businesses are required to report the value of the health insurance coverage provided to each employee on annual W-2s, and if you choose health insurance that is considered “self-insured,” then you also have to file an annual report providing certain information for each covered employee.
You may also be required to pay a fee to help fund the Patient-Centered Outcomes Research Trust Fund. “Small employers must also withhold and report an additional 0.9% on employee wages that exceed $200,000 per year,” said Stefan.
Small Business Health Options Program (SHOP) and tax credits
Although the ACA presents a few challenges for small businesses, it also has some benefits for the employer – a primary one being tax credits. Since providing health insurance is not always practical for very small businesses, the Affordable Care Act created the option of affordable health insurance and tax credits for small businesses.
Small businesses with fewer than 50 full-time employees can purchase affordable health insurance through the Small Business Health Options Program (SHOP) – given that they meet the four eligibility requirements. Businesses with SHOP insurance and fewer than 25 employees may qualify for the Small Business Health Care Tax Credit, worth up to 50% of their premium costs. (This may differ by state.)
“Small employers were not mandated to provide coverage, like large employers, but if they had no more than 25 full-time employees, they could take advantage of the tax credit as long as they provided qualifying health insurance for their employees, paid for at least half of the cost of the insurance and paid an average yearly salary of less than $50,000,” said Stefan.
This tax credit is available to eligible employers for two consecutive taxable years and granted based on a sliding scale (i.e., smaller businesses receive larger credits).
Employer mandate penalties
Since the goal of the Affordable Care Act was to reduce the number of uninsured Americans, it originally required everyone who could afford health insurance to either buy it or face a penalty for noncompliance. Although the penalty for individual mandate noncompliance has been lifted, some states may still have penalties in place for qualifying businesses that don’t offer essential health benefits. These penalties often do not apply to very small businesses, though.
“In 90% of cases, small businesses with fewer than 25 employees will not be fined penalties for not offering health insurance, so you can at least breathe easier about that,” said Stewart.
Changes to the ACA in 2020
Many changes have affected the Affordable Care Act over the years, so we spoke with experts to learn the most recent impacts. Stewart said many of the ACA’s largest changes mirror the insurance industry’s broader responses to COVID-19:
More private insurers offering SHOP plans: There has been an uptick in short-term plans being allowed to extend from three months to 12 months, which can save small businesses money if they meet extension qualifications.
No individual penalty: In previous years, individuals had to pay a penalty come tax time if they were uninsured for longer than three consecutive months. In 2020, that individual mandate penalty has been waived. The only exceptions to this are Rhode Island and California, as legislators in these states decided to continue fining uninsured residents.
Rolling enrollment: The ACA and SHOP plans now offer employee enrollment outside the standard enrollment period.
FSA contribution increases: Employees in most cases can increase their contributions to their flexible spending accounts until 2021.
Additionally, many taxes that were initially designed to help pay for the Affordable Care Act have been repealed by both the House and the Senate, in conjunction with the passage of the December 2019 spending bills.
“The health insurance tax, the Cadillac tax and the medical device tax were all repealed as part of the spending bill,” said Stefan. “The repeal of the health insurance tax was passed after most 2020 insurance premiums were already in place. As a result, the effect of the change in that tax will not be felt until 2021.”
When choosing health insurance for your company, it is best to seek an expert on the health insurance marketplace and state requirements for minimum essential coverage.
“My biggest recommendation is to reach out to a SHOP broker or agent in your state,” said Stewart. “These are experts who can provide the most accurate information on pricing and plans available in your state’s marketplace, as well as your business’s exact liabilities. There is so much marketplace variability across the country, so these SHOP brokers really are your best resource.”
Original Source: business.com
You have just formed your very first Delaware corporation. Congratulations! Although as a busy founder you may not have time to take care of ongoing corporate maintenance, there are some minimum corporate formalities that you should strive to maintain. Below is my list and the reasons why.One of the main benefits that is afforded by corporate structure is the limited liability protection for its owners. This means that the corporation and its stockholders are treated as separate legal entities. The corporation enters into its own contracts, and therefore, it is only the corporation’s assets, and not the assets of its individual stockholders, that are available to pay for judgments and claims of creditors. There are, however, circumstances when a creditor of a corporation can “pierce the corporate veil” to hold the corporation’s stockholders liable for the corporation’s debts and other obligations. When deciding whether to pierce the corporate veil and hold stockholders personally liable, courts consider, among other factors, whether: the corporate formalities have been disregarded;the corporation is a mere façade of its owners; the corporation is inadequately capitalized; the owners use the corporation’s assets and property as their own; the corporation makes undocumented “loans” to the owners or extends credit not on market terms; or the owners simply take money out of the corporation; The following best practices with respect to corporate governance and external appearance of the corporation may strengthen the argument that the corporation exists as a separate legal entity: Stockholder and Board of Directors Meetings. The corporation should hold both annual stockholder and Board meetings (or at least prepare unanimous written consents). In addition, the Board should consider and approve all significant actions of the corporation (such as taking out loans, hiring executive officers, selling securities, entering into any other transaction that is out of the ordinary for such corporation). A majority of disinterested directors or the stockholders should approve all transactions between directors, officers, and the corporation. Delaware Annual Report and Franchise Tax. In order to maintain good standing in Delaware, the corporation has to file an online annual report with the Delaware Division of Corporations and pay the Delaware franchise tax no later than March 1st of each year. Delaware Registered Agent. It is important to renew the services of the mandatory Delaware Registered Agent every year. The fee is about $50/year.Qualifying to Do Business in the Other States. If the corporation is conducting business in another state, it must register there as a foreign corporation and pay tax on the income derived from that state. The definition of “conducting business” varies state by state. So, please reach out to your accountant or lawyer for assistance with this question. Separate Bank Account. The corporation must have its own corporate bank account. All expenses must be paid from that account and all revenue be deposited there. If the founders paid for incorporation expenses personally, they should submit an expense report and be reimbursed by the corporation from the corporate bank account. One of the “red flags” for the “piercing of the corporate veil” argument is the co-mingling of funds between the corporation and its owners. Hiring Employees. The hiring process is complicated and involves setting up payroll, preparing pay notices, registering with appropriate state authorities, complying with federal immigration laws, and obtaining the mandatory insurance policies. Failure to comply with these requirements may result in hefty fines. Debt Guarantees. Stockholders should be careful not to personally guarantee and pay debts of the corporation (at least not on the recurrent basis). Otherwise, the courts may decide that the owners act as “alter egos” of the corporation and the corporation has lost its separate entity status. Board resolutions should be adopted allowing guarantees for specified purposes only. Acting on Behalf of the Corporation. All documents signed on behalf of the corporation must indicate the signing officer’s name and title. For example: XYZ Inc. ________________ Name: John Smith Title: CEO Further, all contracts should be in the name of the corporation, and the insurance policies should name the corporation as the insured. The full corporate name should appear on the website, business cards, letterhead, and checks of the corporation. In conclusion, although this list seems long, it actually doesn’t take much effort to comply with if the proper procedures have already been set up. Your accounting and legal team should work with you on ensuring that your startup follows all corporate formalities.This article is not legal advice and was written for general informational purposes only. It does not express anyone else’s views except for the author’s. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author Arina Shulga.
Original Source: businesslawpost.com
By Kimberly Loocke, Eric Wall, Julia Riechert, and Richard D. Harroch
In the wake of the COVID-19 pandemic and shelter-in-place orders, businesses are considering ways to assist employees and other workers who are financially burdened by the crisis. One simple and tax-favorable action is to make disaster relief assistance payments under Section 139 of the Internal Revenue Code.
Under Section 139, payments for personal, family, living, or funeral expenses incurred as a result of the COVID-19 pandemic are both tax-free to the individual recipients and tax-deductible expenses for the business. Payments are free of IRS reporting requirements and a plan can be quickly adopted with minimal expense.
Businesses large and small can take advantage of this favorable tax treatment to help their workers during these challenging times. With careful planning, even businesses that have had to reduce salaries or adopt furloughs may be able to implement such a financial assistance plan to help their hardest hit workers from the COVID-19 pandemic.
Section 139 payments are highly tax favorable
Section 139 payments are excluded from the recipient’s federal gross income and not otherwise treated as compensation or income from self-employment, and are deductible by the business for federal income tax purposes (except to the extent self-employed individuals and other owner-employees receive a benefit as a recipient of a qualified disaster relief payment).
A broad variety of expenses may be covered by Section 139
Qualified disaster relief payments include any amount paid to or for the benefit of an individual to reimburse or pay reasonable and necessary personal, family, living. or funeral expenses incurred as a result of a qualified disaster. Qualifying payments may be structured as a reimbursement of actual expenses incurred by the recipient or as payments determined by the business to be in proportion to the recipient’s reasonable and necessary expenses incurred.
There is no dollar cap on qualifying payments, but they cannot be (1) made for nonessential, luxury or decorative items or services; (2) made for expenses which are otherwise compensated for by insurance or other sources; or (3) intended to replace lost wages or income.
Section 139 payments have low administrative and compliance requirements
Payments made pursuant to Section 139 are not required to be reported on a Form W-2 or Form 1099. These payments are not subject to any federal wage or other employment tax withholding obligations. Businesses should reach out to their tax advisors to confirm any state tax and withholding obligations.
A formal plan or policy to govern Section 139 payments is not required and a business is not required to obtain proof of the actual expenses incurred by the recipients as long as the business reasonably expects the amounts to be commensurate with the amounts of the individual’s unreimbursed reasonable and necessary expenses incurred as a result of the COVID-19 pandemic.
However, we recommend adopting a plan that describes the parameters and eligibility requirements for payments under the plan. Best practices also include obtaining an affirmative statement from the recipient that the funds received are necessary for expenses associated with COVID-19 and that such expenses will not be reimbursed by insurance.
Sample Employee Financial Assistance Plan
A variety of different approaches may be used to provide tax-favored financial assistance. Here is a sample Employee Financial Assistance Plan for a policy that provides reimbursements for documented COVID-19 expenses. This sample includes the recommended practices described above and should be tailored to your business’s particular situation:
COVID-19 Reimbursement Policy
This temporary policy establishes guidelines for Company reimbursements of employee expenses incurred due to the COVID-19 pandemic in accordance with Section 139 of the Internal Revenue Code. Subject to the conditions below, all Company employees who have incurred reasonable and necessary Covered Expenses within the Covered Period as a result of the COVID-19 pandemic may receive reimbursements of such expenses of up to $____ per employee.
Covered Expenses. “Covered Expenses” are expenses that are reasonable and necessary personal, family, living, or funeral expenses incurred as a direct result of the COVID-19 pandemic, reimbursement for which qualify as qualified disaster relief payments under Section 139 of the Internal Revenue Code, and which are not otherwise compensated for by insurance or otherwise. The Company will not reimburse costs of nonessential, luxury, or decorative items or services or make payments that are considered by the Company as replacement for lost wages, sick leave, or other income. Examples of expenses resulting from the COVID-19 pandemic that the Company will consider for reimbursement include:
Medical expenses not compensated for by insurance incurred as a result of a COVID-19 diagnosis or suspected COVID-19 infection
Precautionary health expenses, including hand sanitizer, face masks, gloves, and disinfectant cleaning supplies
Increased costs related to telecommuting due the COVID-19 pandemic, including initial and ongoing home office expenses, which are not otherwise reimbursed or covered by the Company
Increased travel and commuting costs incurred as a result of the necessity to use alternative travel and commuting arrangements due to the COVID-19 pandemic
Increased costs of child-care and educational expenses for immediate family members due to the COVID-19 pandemic
Reimbursement Procedures. Reimbursement requests must be submitted to ___________________ within 60 days of the date incurred, along with appropriate supporting documentation (e.g., a copy of receipts and a detailed itemized list of expenses incurred) and a certification that the expenses were reasonable and necessary expenses incurred as a result of the COVID-19 pandemic and are being requested in compliance with the conditions of this policy. Expenses for items or services the Company deems in its own discretion as nonessential, luxury, or decorative, or not incurred as a result of the COVID-19 pandemic will not be reimbursed. The Company will determine whether to reimburse for submitted expenses in its sole discretion. The employee must return to the Company any amounts received in excess of the substantiated expenses within 60 days from the date of reimbursement.
Payment Details. Reimbursement payments will be made as part the Company’s regularly scheduled payroll after receipt of the required documentation and completion of the Company’s approval process. The Company intends to treat qualifying reimbursements as non-taxable for federal employment and income tax purposes under Section 139 of the Internal Revenue Code, and the reimbursements will not otherwise be treated as compensation for purposes of the Company’s other benefit and incentive programs.
Covered Period. The “Covered Period” for this policy is March 13, 2020, through the date at which the COVID-19 pandemic is no longer considered a federally declared disaster or when the Company ends the policy, in its sole discretion. The Company reserves the right to modify or cancel this policy at any time.
Employee Expense Certification
Employee Name: _____________________________________________
Requested Reimbursement Amount: ________________________________
Expense Documentation Attached: YES
I certify that the requested reimbursement amount is for reasonable and necessary expenses incurred by me or my immediate family on or after March 13, 2020, as a direct result of the COVID-19 pandemic and is being requested in good faith pursuant to the Company’s COVID-19 Reimbursement Policy. I also certify the requested reimbursement amount is not intended to compensate for lost wages, sick leave, or income, and I did not and will not receive reimbursement or payment from any other source for the claimed expenses.
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About the Authors:
Kimberly Loocke is an experienced tax attorney in the San Francisco office of Orrick, Herrington & Sutcliffe. Kimberly focuses her practice on the tax aspects of corporate and real estate transactions, sales and use taxation, as well as tax controversy and operational matters. She has been recognized as a Rising Star by Super Lawyers from 2015-2019. Kimberly holds a Certified Public Accountant license and worked as a senior tax associate for Deloitte Tax, LLP. She can be reached through Orrick’s website.
Eric Wall is a partner in the San Francisco office of Orrick, Herrington & Sutcliffe, and is a member of its Tax Group. His practice encompasses a wide variety of federal and state tax issues, including domestic and cross-border mergers and acquisitions, executive compensation matters, real estate matters, and taxation of pass-through entities. He can be contacted through Orrick’s website.
Julia Riechert is an employment law partner and trial lawyer in the Silicon Valley office of Orrick, Herrington & Sutcliffe. She helps companies navigate and resolve challenging workplace issues and has extensive expertise in litigating and defeating employment claims. She can be reached through Orrick’s website.
Richard D. Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, a venture capital fund in the San Francisco area. His focus is on internet, digital media, and software companies, and he was the founder of several internet companies. His articles have appeared online in Forbes, Fortune, MSN, Yahoo, FoxBusiness, and AllBusiness.com. Richard is the author of several books on startups and entrepreneurship as well as the co-author of Poker for Dummies and a Wall Street Journal-bestselling book on small business. He is the co-author of the 1,500-page book “Mergers and Acquisitions of Privately Held Companies: Analysis, Forms and Agreements,” published by Bloomberg. He was also a corporate and M&A partner at the Orrick law firm, with experience in startups, mergers and acquisitions, and venture capital. He has been involved in over 200 M&A transactions and 250 startup financings. He can be reached through LinkedIn.
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Original Source: allbusiness.com