On February 18^th, the IRS issued Notice 2015-17 providing transition relief from the 4980D excise tax for small employers who reimburse or pay individual insurance premiums for their employees. Employers with fewer than 50 employees have transition relief through June 30, 2015.

In addition, the notice clarifies the application of compliance with Affordable Care Act (ACA) market reforms when a 2-percent shareholder and non-shareholder employees are reimbursed individual insurance premiums. For more information, contact Michele Graham, CPA at 800.880.7800.

A recent Indiana Tax Court decision could ultimately impact all Indiana companies and contractors entering into real property improvement agreements. The Indiana Tax Court has ruled against the distinction between the sales tax treatment of time and material and lump-sum contracts in Lowe’s Home Centers, LLC v. Indiana Department of State Revenue (IN Tax Ct. Dec. 19, 2014).

The issue was whether Lowe’s properly self-assessed and remitted use tax on construction materials used in its real property improvement contracting work. Lowe’s served as general contractor on home improvement work, such as new roof and kitchen cabinet installation, where it routinely furnished customers with both construction materials (typically pulled from inventory) and labor. Relying on tax regulations promulgated in the 1980s, the Department assessed Lowe’s sales tax on the retail cost of the materials it claimed should have been collected from Lowe’s customers.

The court dismissed the Department’s position that under the construction contracts, customers of Lowe’s were purchasing materials separately from the labor, causing the contractor to act as a retail merchant of the materials. The court agreed with Lowe’s that its customers were purchasing a completed improvement. Title to the construction materials was deemed to have passed once they were installed, at which point, they lost their identity as tangible personal property, having been converted to real property. Thus, Lowe’s did not transfer tangible personal property to its customers.

The court invalidated those portions of Indiana Tax Regulations that provide that when a contractor enters into a time and material contract with its customer, it owes no use tax on the materials because its customer owes sales tax on the materials supplied. These regulations also provide that when a contractor uses a lump-sum contract, it is required to self-assess and remit use tax on the construction materials supplied.

Although the court found the Lowe’s contracts to be lump sum in nature and not time and material as asserted by the Department, the court did not base its decision on this distinction. The court went as far as to state that in this instance, the Department had created an artificial distinction between time and material and lump-sum contracts to convert a contractor’s use tax liability into a sales tax liability on the materials’ higher price. The court said that because Indiana Code section 6-2.5-3-2(c) does not impose use tax liability contingent upon the type of contract a contractor uses, that distinction as contained in 45 I.A.C. 2.2-3-9 and 45 I.A.C. 2.2-4-22 is invalid.

The Department can appeal the Tax Court’s decision to the Indiana Supreme Court, so it remains to be seen whether time and material contracts for real property improvements are truly a thing of the past. Until the legal challenges have run their course, there will be a degree of uncertainty with regard to these contracts in Indiana.

Please contact Aaron Wilzbacher, CPA or John Rittichier, CPA at 800.880.7800 with questions.

The following memorandum contains important information regarding upcoming reporting requirements related to the Affordable Care Act (ACA) or ObamaCare. The only employers that should be concerned with this memo and the detailed information within it are the following types of employers:

• Employers with less than 50 full-time-equivalent employees, but only if they sponsor a self-insured group health plan. If an employer has less than 50 full-time equivalent employees and either (1) does not offer group health insurance or (2) offers fully-insured group health insurance, they are not subject to the reporting requirements that are discussed below.
• Employers with 50 full-time-equivalent employees or more regardless of whether they offer fully-insured, self-insured or no health insurance are subject to the reporting requirements that are discussed below.

The Affordable Care Act created new reporting requirements under Internal Revenue Code (Code) sections 6055 and 6056. Under these new reporting rules, certain employers discussed above must provide information to the Internal Revenue Service about the health plan coverage they offer (or do not offer) to their employees.

The additional reporting is intended to promote transparency with respect to health plan coverage and costs. It will also provide the government with information to administer other ACA mandates, such as the large employer shared responsibility penalty and the individual mandate. While this reporting is not due until January 2016 for the 2015 year, it is essential that employers make plans to start tracking information in January 2015 to capture all relevant information needed to fulfill the reporting requirements.

On March 5, 2014, the Internal Revenue Service (IRS) released two final rules on these reporting requirements:

The Section 6055 final ruling (Forms 1094-B and 1095-B) requires applicable small employers (an employer with less than 50 full-time-equivalent employees) who provide self-insured plans to employees to report information on that coverage to the IRS and covered individuals. Employers will have to file form 1094-B and 1095-B to report information on each full-time employee.

The Section 6056 final ruling (Forms 1094-C and 1095-C) requires applicable large employers (an employer with at least 50 full-time-equivalent employees) to report to the IRS and covered individuals information on the health coverage offered to full-time employees. Employers will have to file form 1094-C and 1095-C to report information on each full-time employee.

Below is a chart summarizing the filing requirements based on the size of the employer. For purposes of these filings, a small employer is one with less than 50 full-time employees (including equivalents) and a large employer is one with at least 50 full-time employees (including equivalents) during the preceding calendar year.

 

Employer Size	Employer Health Plan	Employer Files Forms 1095-B/ 1094-B	Employer Files Forms 1095-C/ 1094-C
Small employer	None	No	No
Small employer	Fully-Insured	No (insurer files forms)	No
Small employer	Self-insured	Yes	No
Large employer	None	No	Yes
Large employer	Fully-Insured	No (insurer files forms)	Yes
Large employer	Self-insured	Combined with 1095-C Reporting	Yes

 

Reporting of Health Coverage for Issuers and Self-insured Plans (Code § 6055)

The ACA requires every health insurance issuer, sponsor of a self-insured health plan, government agency that administers government-sponsored health insurance programs and any other entity that provides minimum essential coverage (MEC) to file an annual return with the IRS reporting information for each individual who is provided with this coverage. Related statements must also be provided to individuals.

The IRS will use the information from the returns to implement the ACA’s individual mandate (that is, the requirement that individuals obtain acceptable health insurance coverage for themselves and their family members or pay a penalty).

The information that will need to be captured regarding each covered employee along with family members who have coverage under the self-insured plan relating to Code Section 6055 (Form 1095-B) consists of:

• Full name
• Address
• Social Security number (or date of birth)

Applicable Large Employer Health Coverage Reporting (Code § 6056)

Applicable large employers are required to file information returns with the IRS under IRS Section 6056. Applicable large employers are those with 50 or more full-time employees during the previous year. Employers file forms 1094-C and 1095-C to report information on each full-time employee whether the employee is participating in an employer-sponsored group health plan or not. Employees must also be provided with a statement of this data by January 31^st each year for the prior year.

The information that will need to be captured regarding each covered employee along with family members who have coverage under the self-insured plan relating to Code Section 6056 (Form 1095-C) consists of:

• The employee’s name, address and Social Security number
• The employer’s name, address and employer identification number
• Whether the employee and family members were offered health coverage each month that met the minimum value standard
• The employer’s share of the monthly premium for the lowest-cost minimum value health coverage offered
• Whether the employee was a full-time employee each month
• The affordability safe harbor applicable for the employee
• Whether the employee was enrolled in the health plan
• If the health plan is self-insured, the name and Social Security number (or birth date if Social Security number is unavailable) of each employee and family member covered by the plan by month

Please contact your payroll processor, Human Resources department, or your insurance provider for more information on how to start accumulating this data beginning in January 2015.

Many popular but temporary tax incentives have been extended again by the Tax Increase Prevention Act of 2014. Among them is Code Sec. 179 small business expensing, bonus depreciation, the research tax credit, qualified leasehold/ retail improvements/ restaurant property and the Work Opportunity Tax Credit. President Obama is expected to sign the bill into law.

 Read more here!

The ACA includes various new reporting requirements and fees to be implemented over a period of time.  A few upcoming items which may affect your organization include the transitional reinsurance fee, health plan identifier and data reporting to the IRS.

Transitional Reinsurance Fees

Generally, self-insured plans providing major medical coverage will be subject to a fee of $63 per covered life.  In order to determine an organization’s total balance due, the appropriate form must be filed by November 15, 2014.   The payment will then be made via ACH which requires registration on pay.gov.  For this particular fee, the first installment will be due by January 15, 2015 with a  second installment due by November 15, 2015.

Certain plans are exempt from these fees, including but not limited to: stand-alone plans (e.g. vision, dental, prescription drug), Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), Flexible Spending Accounts (FSAs), and Stop-Loss Coverage. Read more here.

Health Plan Identifier (HPID)

All health plans are required to obtain an HPID to be used as the standard transactional identifier for health plans when interacting with the government. Health plans other than small health plans must obtain their HPID by November 5, 2014. Small health plans must obtain their HPID by November 5, 2015. “Small health plan” is defined as a plan with $5 million or less in the previous year in claims receipts for a self-funded group, or $5 million in total premium for a fully-insured group. Read more here.

Data to Report to IRS – IRS 6056

Applicable large employers are required to file information returns with the IRS under IRS Section 6056. Applicable large employers are those with 50 or more full-time employees during the previous year (see IRS guidance on how to calculate FTE’s.) Employers file form 1094-C and 1095-C to report information on each full-time employee. Employees must also be provided with a statement of this data.

Reporting is voluntary for calendar year 2014. It will be required beginning with calendar year 2015, and forms are due by February 29, 2016. For each individual return that is incorrect or not timely filed, or not furnished to employees, a penalty ranging from $30 to $100 may be assessed. The maximum penalty for failure to file timely is $1.5 million.

Some (but not most) may qualify for simplified reporting. For more information on IRS 6056, see the Q&A on the IRS website.

Louisville, Ky
One Southern Indiana (1SI) and the Metro Manufacturing Alliance (MMA) kicked-off their inaugural Manufacturing Day in America activities last night at Harding, Shymanski & Company’s Louisville office. At the celebration, Wendy Dant Chesser, President and CEO of One Southern Indiana, announced that eight manufacturers in the region would host programming throughout the day on October 3rd to promote manufacturing career and educational opportunities.

Read more about regional activities for Manufacturing Day in America here.

Effective July 15, 2014, Kentucky has enacted a new Small Business Tax Credit Program to provide non-refundable state income tax credits for eligible companies with 50 or fewer employees. To qualify for the credit, small businesses must create and fill one or more eligible full-time positions and invest at least $5,000 in qualifying equipment or technology. Each qualified new position can generate up to $3,500 in credits, subject to an overall cap of $25,000 per company.

Eligible positions include positions that raise the base employment level of the business, pay an average hourly wage of at least $10.88 (150% of minimum wage), and require an employee to work an average of thirty-five or more hours a week for a 12-month period. The employees that fill these positions must be subject to Kentucky income tax in order to qualify for the credit.

Qualifying equipment or technology includes any tangible property with a minimum per-unit cost of $300. Examples include computers, equipment, furniture, fixtures, furnishings and vehicles.

Applications will be accepted on a first-come, first-served basis until the $3 million per fiscal year tax cap has been reached. If approved, the applicants are responsible for claiming the credit on their tax return. Unused credits may be carried forward up to five years. The application requires disclosure of the name, hire date, and average hourly wage of each eligible employee along with a description, invoice date, quantity and unit costs for qualifying equipment or technology purchases.

For additional information about qualification or the application process, please contact either John Rittichier, CPA at 800.880.7800 ext. 8484, jrittichier@hsccpa.com; or Jim Clark, CPA at 800.880.7800 ext. 8468, jclark@hsccpa.com.