News: 2015 small businesses health plan tax filing extension

Posted on Posted in Employee Benefits, Small Business, Taxes

This article summarizes the issues that apply to small business employers only. See the IRS publication for provisions of Notice 2016-4 that pertain to larger employers.

Small business employers who provide health benefits outside of an insurance policy have a two month extension on reporting those benefits to employees and a three month extension for reporting these benefit to the IRS. Yesterday IRS issued Notice 2016-4 that provides the details of the tax filing extensions that mostly pertain to larger employers with more than 50 employees and insurance companies. The reporting is required for the first time as part of the ongoing implementation of the Affordable Care Act (ACA). Many small firms and their accountants were unprepared to meet the original filing deadlines that would have been as soon as February 1, 2016.

Most small businesses provide employee health benefits through insurance and are therefore not directly affected by this filing requirement. Some employers reimburse medical expenses directly and those arrangements are subject to the new reporting requirements and taxes. (Most uninsured medical reimbursement arrangements that are integrated with insurance as required by ACA are paid through a third party plan administrator who also handles the tax reporting requirements). The IRS notice refers to these as “self-insuring employers” but small business tax practitioners typically refer to these health plans that require separate reporting as “Health Reimbursement Arrangements” or “Medical Expense Reimbursement Plans”.

The new due date for Form 1095-B (reporting uninsured health benefits to employees) is now March 31, 2016 and the deadline for filing Form 1094-B (reporting uninsured health benefits to IRS) is May 31, 2016.

Without this extension of the filing date some employers would likely have been subject to penalties for failure to file the health benefits reports or for filing inaccurate health benefits reports.

The practical problem in the small business market is that wage tax reports are generally handled by payroll service companies but these firms do not have access to the uninsured health benefits that the employer may have provided to employees outside of the payroll system.

For tax professionals, the notice discusses procedures for abatement of tax penalties and how to handle filing of individual income tax returns or individuals who have not yet received a correct W2 that may include health benefits. IRS concedes that  for 2015 tax filing, individuals who rely upon other information received from their coverage providers about their health coverage when they file their income tax returns will not need to amend their returns once they receive the Form 1095-B or Form 1095-C with the correct health plan information.

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