Small Business Owners Scramble to Prepare for New Tax Form
Small employers are facing an unexpectedly onerous task: tallying their individual employees’ monthly health-care costs.
Starting in 2016, under the Affordable Care Act, employers with 50 or more full-time workers are required to file new tax forms laying out what individual employees are being charged for their employer-sponsored plans. The Internal Revenue Service released the new forms on Feb. 8.
Though completed forms aren’t due until next January, many employers are scrambling to get procedures in place now to collect the data. The new process entails measuring every individual full-time worker’s total monthly out-of-pocket cost for an employer health plan this year.
The IRS says tax officials will use this information to figure out whether employers are complying with the law’s requirement that businesses offer affordable health coverage to full-time employees and their dependents. Federal penalties for failing to provide an affordable health plan can run up to $3,000 an employee.
But small employers, especially those who keep their own books and prepare their own tax returns, say they’re finding the task of tracking employee costs for the plans to be confusing and time-consuming.
Rather than simply ask employers to record the price tag for a given health plan, the forms require employers to calculate the lowest-cost plan available to each full-time worker on a month-by-month basis—a figure that can vary as wages or working hours change, tax lawyers and workplace benefits consultants say.
That can be especially hard for retailers, restaurants, day-care services or other businesses where workers’ hours can vary from part-time to full-time, or so-called variable hour employees, they add. Under the law, employers aren’t required to offer coverage to part-timers.
“It’s a labor intensive process,” says Adam Okun, a senior vice president of Frenkel Benefits in New York, about completing the new IRS paperwork, Form 1095C. Employers who don’t start collecting this information today are heading for a “real nightmare next year,” he adds.
As of January 2015, employers with more than 100 full-time workers are required under the health law to offer affordable coverage plans to their employees, or face penalties. Employers with 50 to 99 full-time workers have until 2016 to offer such plans.
Yet even these smaller businesses, which are otherwise exempt from the law this year, are required to submit the new tax forms in 2016, according to the 84-page guidelines issued by the Treasury Department last year.
Barbara Weltman, a Florida-based lawyer who specializes in small-business tax issues, says small-business owners who manage payroll themselves “may want to outsource this to a payroll company” to avoid any costly errors down the road.
Some outside payroll services are charging extra fees to complete the new forms—in some cases as high as a $400 “set up” fee, and 40 cents per employee, according to Victoria Braden, an accountable care certified specialist and president of Braden Benefit Strategies Inc., in Johns Creek, Ga.
Ms. Braden calls the fees “crazy,” adding that, in most cases, a good spreadsheet is all employers need to track the data, provided they start collecting the data now.
“Anytime an employer sees a new IRS form number, it send chills up their spine because they don’t know what is required, it is one more thing to keep up with and one more potential place to make a mistake,” Ms. Braden says.
Some payroll services are opting not to handle the new IRS paperwork. For instance, Intuit Inc., one of the biggest providers of financial and tax preparation software for small businesses, recently posted on its website that it “will not support” the new tax forms, because of the detailed benefits and human resources information required to correctly complete them.
“The vast majority of our customers are not required to comply with this mandate, and the data required by these forms is not fully collected in our payroll application,” says Stephen Sharpe, a spokesman for Intuit.
Tommy Cain, owner of T. Cain Grocery Inc., a Fairhope, Ala.-based operator of five Piggly Wiggly stores along the Gulf Coast, says in recent weeks he has worked with staff to develop a system for recording the necessary data on the chain’s 250 employees.
“We’re keeping a list that we can update every month,” says Mr. Cain, who offers employees both a low-cost and a premium health plan. “It means logging extra hours” for the store’s accountant, “and it’s just one more thing we’ve got to worry about.”
Roughly 80 of the Piggly Wiggly workers have signed up for one of the company’s two health plans. Many of the remainder are covered by a spouse’s plan or have purchased plans on the individual market.
Mr. Cain says complying with the health law is challenging because so far “it’s a moving target.” He cited some recent changes in deadlines for business owners under the law, including a move last month by the IRS to delay tax penalties on small employers that provide cash to their workers to cover the cost of purchasing their own health plans.