2015 Legislative Tax Update...Protecting Americans from Tax Hikes Act of 2015, signed into law on...
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2015 Legislative Tax Update What Small Business Needs to Know Sponsored by:
2015 Legislative Tax Update...Protecting Americans from Tax Hikes Act of 2015, signed into law on December 18, 2015. – The Act extended over 50 expiring tax provisions , making more
• New Permanent Tax Legislation• What’s New in Tax Compliance• IRS Repair Regulations Safe harbor• Healthcare Tax Updates• Tax Legislative Outlook• Q&A
Permanent Tax Legislation
PATH ACT – “Tax Extenders” and More– Protecting Americans from Tax Hikes Act of 2015, signed into
law on December 18, 2015. – The Act extended over 50 expiring tax provisions, making more
than 20 of them permanent, over $620 billion in tax reductions.
Most Important Provisions Small Business– Section 179 Small Business Expensing– Bonus Depreciation– Deduction Of State And Local Sales Tax– S Corporations Built-In Gains Tax– R&D Tax Credit– 15-year Cost Recovery for Qualified Real Property
Permanent Sec. 179, Small Business Expensing
• Permanent at $500,000 / $ 2 million: Immediately expense purchase of qualified business assets up to a limit of $500,000 (phased out at $2 million).
– Deduction would have been capped at $25,000 annually. – Indexes both the $500,000 and $2 million limits for inflation beginning in 2016.
• Modifications: Eligible Property
– Real Property: Qualified leasehold improvement, qualified restaurant and qualified retail improvement property are eligible for expensing ($250,000 cap on real property removed in 2016).
– HVAC: Air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing.
– Software: Off-the-shelf computer software.
Presenter
Presentation Notes
Off-the-shelf computer software -computer software that is readily available for purchase by the general public Tangible Personal Property Machinery and equipment. Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs. Gasoline storage tanks and pumps at retail service stations. Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals.
Bonus Depreciation• Bonus Depreciation Extended for 5-years
– Business can claim additional 50% first-year depreciation deduction through 2017.
– In years 2018 and 2019 the bonus percentage allowed is reduced to 40% and then 30%, and eliminated in 2020.
• New for 2016– “Qualified improvement property” new category eligible for
bonus depreciation. Replaces leasehold property but is more broad.
– Nut or fruit bearing trees, vines, and plants can be depreciated beginning when planted.
Presenter
Presentation Notes
QUALIFIED IMPROVEMENT PROPERTY: Any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service. CERTAIN IMPROVEMENTS NOT INCLUDED.—not include any improvement for which the expenditure is attributable to— ‘‘(i) the enlargement of the building, ‘‘(ii) any elevator or escalator, or ‘‘(iii) the internal structural framework of the building.’’. QUALIFIED LEASEHOLD IMPROVEMENT ‘qualified leasehold improvement property’ means any improvement to an interior portion of a commercial building which is nonresidential real property if— ‘‘(i) such improvement is made under or pursuant to a lease ‘‘(I) by the lessee (or any sub lessee) of such portion, or ‘‘(II) by the lessor of such portion, ‘‘(ii) such portion is to be occupied exclusively by the lessee (or any sublessee) of such portion, and (iii) such improvement is placed in service more than 3 years after the date the building was first placed in service. Modifies bonus depreciation to include qualified improvement property and to permit certain trees, vines, and plants bearing fruit or nuts to be eligible for bonus depreciation when planted or grafted, rather than when placed in service. After 2015, the provision allows additional first-year depreciation for qualified improvement property without regard to whether the improvements are property subject to a lease and also removes the requirement that the improvement must be placed in service more than three years after the date the building was first placed in service. Eligible property for bonus depreciation includes newly constructed or original use property with a recovery period of 20 years or less (real or personal), qualified leasehold improvements, certain computer software, and water utility property. Only new property is eligible for bonus depreciation; used property is not eligible. Unlike section 179 expensing, taxpayers do not need net income to take bonus depreciation deductions. Further, bonus is not limited to smaller businesses or capped at a certain dollar level, but it is not available for used property, property used outside of the US, tax-exempt use property, or tax-exempt financed property. Requirement that the improvement made more than three years after the date the building was first placed in service. Bonus Depreciation v. Sec. 179 Expensing Able to expense purchases under either Bonus or Sec. 179, or a combination. Eligible Property: New Property Only Recovery period of 20 years or less No Income limitation Business does not need income to take / can create a loss. Not capped at dollar amount or subject to phase-out.
State and Local Sales Deduction• If you itemize deductions, you can deduct either of the following:
– State and local income taxes paid; or– State and local sales taxes paid.
• PATH Act made permanent itemized deduction for state and local sales taxes in lieu of state and local income taxes.
• The deduction has been a temporary provision of the tax code since 2004. Expired for 2015.
• Important to residents of states without a state income tax: – AK, FL, NV, SD, TX, WA, WY, NH and TN
Presenter
Presentation Notes
Temporary deduction for sales taxes paid to State and local governments expired for tax years beginning after December 31, 2014. States without income taxes: Seven U.S. states currently don't have an income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. And residents of New Hampshire and Tennessee
Recognition Period for S Corporations Built-In Gains (BIG) Tax
• Permanent 5-year BIG Tax Recognition Period • 10-year recognition period for built-in gains tax
(BIG) reduced to 5-years permanently.
• Tax applies to businesses that have converted from a C corporation to an S Corporation. – BIG Tax applies to C Corps that later convert
to S Corps to preserve the double layer of corporate taxation.
– Temporary reduction in place since 2009.
Presenter
Presentation Notes
If an S corporation that was previously taxed as a C corporation has built-in gains attributable to the period during which it was a C corporation, it is subject to a corporate-level tax (the built-in gains, or BIG, tax) when it recognizes the built-in gains within a certain period of time after its conversion to S corporation status.
Modified Permanent R&D Credit
• Permanent R&D Tax Credit– Enacted in 1981, expired eight times, and been extended 16
times.
• AMT Turnoff– Eligible small businesses can use research tax credits to offset
both the regular tax and AMT. – Small businesses: Average annual gross receipts of less than
$50 million for the 3-year period prior to the taxable year.
• Refundable Against Payroll Taxes– Qualified small business may elect to apply the research credit
as a payroll tax credit instead of its income tax liability. – Credit can offset up to $250,000 in payroll taxes.– Small Business: Gross receipts of less than $5 million/year.
Presenter
Presentation Notes
Allows businesses to take the R&D tax credit against their AMT (the AMT turnoff) Second, the bill allows small businesses (for five years) to take the R&D tax credit against their payroll taxes (essentially making it refundable). Allows small businesses to take against payroll tax (up to $250,000 per year) for up to five years. A small business for the Start-Up Act provision is defined – in general — as a business with gross receipts of less than $5 million dollars a year. qualified small business is defined as: 1) a corporation or partnership with gross receipts of less than $5 million for the taxable year, and 2) a company with no gross receipts for any taxable year preceding the five-year taxable period ending with the taxable year.
15-year Depreciation Period for “Real Property”
• Permanent 15-year depreciation for “Real Property”– 15-year depreciation recovery period for portions of a building
that meet statutory definition of real property made permanent. – Generally the cost of commercial building/improvements
recovered by straight-line depreciation over 39 years.
– Real Property Eligible for Bonus Depreciation: • Qualified improvement property eligible for bonus depreciation –
could include leased retail/restaurant.
Presenter
Presentation Notes
Qualified leasehold improvement property Any improvement to an interior portion of a building that is nonresidential real property and placed in service more than three years after the date the building was first placed in service. The landlord and tenant cannot be a related party and enlargements, elevators/escalators, common area work, and internal structural framework are excluded. The improvement may be made by the lessee or by the lessor but must be made pursuant to a lease. Qualified restaurant property any section 1250 property that is a building or an improvement to a building, if more than 50 percent of the building’s square footage is devoted to the preparation of, and seating for on-premises consumption of, prepared meals. Qualified retail improvement property Any improvement to an interior portion of a building which is nonresidential real property and placed in service more than three years after the date the building was first placed in service. Retail establishments that qualify include those open to the public and primarily in the business of the sale of goods (tangible personal property) to the general public and not services. Examples of these retail establishments include grocery stores, clothing stores, hardware stores, and convenience stores. Enlargements, elevators/escalators, common area work, and internal structural framework are excluded as qualifying retail improvements. It is important to note that qualified restaurant and qualified retail improvement property are not eligible for bonus depreciation unless it also satisfies the definition of qualified leasehold improvement property. In general A taxpayer generally must capitalize the cost of property used in a trade or business and recover such cost over time through annual deductions for depreciation or amortization. Tangible property generally is depreciated under the modified accelerated cost recovery system (`MACRS'), which determines depreciation by applying specific recovery periods, placed-in-service conventions, and depreciation methods to the cost of various types of depreciable property. 1 [Footnote] The cost of nonresidential real property is recovered using the straight-line method of depreciation and a recovery period of 39 years. Nonresidential real property is subject to the mid-month placed-in-service convention. Under the mid-month convention, the depreciation allowance for the first year in which property is placed in service is based on the number of months the property was in service, and property placed in service at any time during a month is treated as having been placed in service in the middle of the month. [Footnote 1: Sec. 168.] Depreciation of leasehold improvements Generally, depreciation allowances for improvements made on leased property are determined under MACRS, even if the MACRS recovery period assigned to the property is longer than the term of the lease. This rule applies regardless of whether the lessor or the lessee places the leasehold improvements in service. If a leasehold improvement constitutes an addition or improvement to nonresidential real property already placed in service, the improvement generally is depreciated using the straight-line method over a 39-year recovery period, beginning in the month the addition or improvement was placed in service. However, exceptions exist for certain qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property. Qualified leasehold improvement property Section 168(e)(3)(E)(iv) provides a statutory 15-year recovery period for qualified leasehold improvement property placed in service before January 1, 2015. Qualified leasehold improvement property is any improvement to an interior portion of a building that is nonresidential real property, provided certain requirements are met. 2 [Footnote] The improvement must be made under or pursuant to a lease either by the lessee (or sublessee), or by the lessor, of that portion of the building to be occupied exclusively by the lessee (or sublessee). The improvement must be placed in service more than three years after the date the building was first placed in service. Qualified leasehold improvement property does not include any improvement for which the expenditure is attributable to the enlargement of the building, any elevator or escalator, any structural component benefiting a common area, or the internal structural framework of the building. 3 [Footnote] If a lessor makes an improvement that qualifies as qualified leasehold improvement property, such improvement does not qualify as qualified leasehold improvement property to any subsequent owner of such improvement. 4 [Footnote] An exception to the rule applies in the case of death and certain transfers of property that qualify for non-recognition treatment. 5 [Footnote] [Footnote 2: Sec. 168(e)(6).] [Footnote 3: Sec. 168(e)(6) and (k)(3).] [Footnote 4: Sec. 168(e)(6)(A).] [Footnote 5: Sec. 168(e)(6)(B).] Qualified leasehold improvement property is generally recovered using the straight-line method and a half-year convention. 6 [Footnote] Qualified leasehold improvement property placed in service after December 31, 2014, is subject to the general rules described above. [Footnote 6: Sec. 168(b)(3)(G) and (d). An additional first-year depreciation deduction (`bonus depreciation') is allowed equal to 50 percent of the adjusted basis of qualified property acquired and placed in service before January 1, 2015 (January 1, 2016, for certain longer-lived and transportation property). See sec. 168(k). Qualified property eligible for bonus depreciation includes qualified leasehold improvement property. Sec. 168(k)(2)(A)(i)(IV).] Qualified restaurant property Section 168(e)(3)(E)(v) provides a statutory 15-year recovery period for qualified restaurant property placed in service before January 1, 2015. Qualified restaurant property is any section 1250 property that is a building or an improvement to a building, if more than 50 percent of the building's square footage is devoted to the preparation of, and seating for on-premises consumption of, prepared meals. 7 [Footnote] Qualified restaurant property is recovered using the straight-line method and a half-year convention. 8 [Footnote] Additionally, qualified restaurant property is not eligible for bonus depreciation unless it also satisfies the definition of qualified leasehold improvement property. 9 [Footnote] Qualified restaurant property placed in service after December 31, 2014, is subject to the general rules described above. [Footnote 7: Sec. 168(e)(7).] [Footnote 8: Sec. 168(b)(3)(H) and (d).] [Footnote 9: Sec. 168(e)(7)(B).] Qualified retail improvement property Section 168(e)(3)(E)(ix) provides a statutory 15-year recovery period for qualified retail improvement property placed in service before January 1, 2015. Qualified retail improvement property is any improvement to an interior portion of a building that is nonresidential real property if such portion is open to the general public 10 [Footnote] and is used in the retail trade or business of selling tangible personal property to the general public, and such improvement is placed in service more than three years after the date the building was first placed in service. 11 [Footnote] Qualified retail improvement property does not include any improvement for which the expenditure is attributable to the enlargement of the building, any elevator or escalator, any structural component benefiting a common area, or the internal structural framework of the building. 12 [Footnote] In the case of an improvement made by the owner of such improvement, the improvement is a qualified retail improvement only so long as the improvement is held by such owner. 13 [Footnote] [Footnote 10: Improvements to portions of a building not open to the general public (e.g., stock room in back of retail space) do not qualify under the provision.] [Footnote 11: Sec. 168(e)(8).] [Footnote 12: Sec. 168(e)(8)(C).] [Footnote 13: Sec. 168(e)(8)(B). Rules similar to section 168(e)(6)(B) apply in the case of death and certain transfers of property that qualify for non-recognition treatment.] Retail establishments that qualify for the 15-year recovery period include those primarily engaged in the sale of goods. Examples of these retail establishments include, but are not limited to, grocery stores, clothing stores, hardware stores, and convenience stores. Establishments primarily engaged in providing services, such as professional services, financial services, personal services, health services, and entertainment, do not qualify. Generally, it is intended that businesses defined as a store retailer under the current North American Industry Classification System (industry sub-sectors 441 through 453) qualify while those in other industry classes do not qualify. 14 [Footnote] [Footnote 14: Joint Committee on Taxation,General Explanation of Tax Legislation Enacted in the 110th Congress(JCS-1-09), March 2009, p. 402.] Qualified retail improvement property is recovered using the straight-line method and a half-year convention. 15 [Footnote] Additionally, qualified retail improvement property is not eligible for bonus depreciation unless it also satisfies the definition of qualified leasehold improvement property. 16 [Footnote] Qualified retail improvement property placed in service after December 31, 2014, is subject to the general rules described above. [Footnote 15: Sec. 168(b)(3)(I) and (d).] [Footnote 16: Sec. 168(e)(8)(D).]
Polling Question #1Now that Sec. 179 expensing has been made permanent, does your business plan to make purchases this year that can be immediately deducted?
– YES– NO
Tax Compliance
• 2017 W-2 / 1099 Reporting Deadlines• Information Return Penalties Increased • New Business Filing Due Dates
– PATH ACT accelerates filing dates of Form W-2 / 1099-MISC with IRS to Jan. 31st, same date for furnishing to employees.
– Effective for calendar year 2016 forms to be filed in 2017; – Note: Ability to make corrections before submitting to IRS,
possible with March 31 (e-file) due date no longer be available.
• New safe harbor for certain penalties for de minimis errors– Provides relief from penalties for errors of $100 or less; filers not
required to file a corrected return. – Recipients can request a corrected statement and that the
statement be filed with the IRS.
Presenter
Presentation Notes
The bill would accelerate the filing date of Form W-2 with the IRS to January 31, the same date for furnishing W-2 forms to employees. The ability to make corrections before submission to the IRS, possible with the March 31 due date, for electronically filed Forms W-2 (and the February 28 due date for paper-filed forms) would essentially no longer be available. This change would be effective for calendar year 2016 Forms W-2 required to be filed in 2017. The bill would provide much-welcomed relief to information return filers that discover errors of $100 or less (or withholding tax errors of $25 or less). This provision would remove the administrative burden of filing corrected information returns without exposure to information reporting penalties. This relief would apply to information returns and statements required to be filed after December 31, 2016 (i.e., calendar year 2016 information returns filed in 2017). PATH ACT created new due date for W-2 and 1099 information returns filed with IRS. You must furnish to every employee who worked for your company during the year a statement of wages and certain benefits on Form W-2, Wage and Tax Statement. You also have to send copies of all your W-2s to the Social Security Administration so it can log employees’ work credits for purposes of Social Security and Medicare eligibility. Note: If you handle payroll responsibilities in-house, make sure to mark your calendar for all filing obligations. If you use a CPA or outside payroll service, make sure that your required forms have been submitted on a timely basis
Increased Information Return Penalties
• Congress significantly increased the penalties for late or erroneous filing of W-2 / 1099-MISC information returns.
• Penalties apply on a per return basis.
• Effective Date: 2016 tax year –“statements required to be filed after Dec. 31, 2015.”
• “Small business”: Less than $5 million average annual gross receipts over the three most recent taxable years.
• Revenue in Trade Preferences Extension Act of 2015. $136 million /10 years.
Level of Culpability
PenaltyAmount per Return
Maximum Annual Penalty
Maximum Penalty for Small Business
Corrected within 30 days of Due Date
Current: $30New: $50
Current: $250,000New: $500,000
Current: $75,000New: $175,000
Corrected after 30 days but before August 1st
Current: $60New: $100
Current: $500,000New: $1,500,000
Current: $200,000New: $500,000
Continuing delinquency on or after August 1st
Current: $100New: $250
Current: $1,500,000New: $3,000,000
Current: $500,000New: $1,000,000
Intentional failure to File
Current: $250New: $500
Current: No limitNew: No limit
Current: No limitNew: No limit
Presenter
Presentation Notes
On June 29, 2015, President Obama signed the Trade Preferences Extension Act of 2015. The act includes a provision that substantially increases penalties associated with late or erroneous filing of informational returns and payee statements. This includes 1099s--one of the more common informational returns taxpayers file, and 1095s, newly required for certain taxpayers under the Affordable Care Act, and Forms W-2. The new information reporting penalties are effective with respect to returns and statements required to be filed after December 31, 2015. Due to these penalty increases, small businesses must be more vigilant in making sure they are filing the proper forms, with the correct information in a timely manner The Trade Preferences Extension Act of 2015 was recently signed into law providing substantial increases in penalties for failure to timely file information returns (e.g., Forms 1099 series, Form 1042-S, among others) with the Internal Revenue Service (IRS) and failure to furnish payee statements under Internal Revenue Code (IRC) Sections 6721 and 6722. These penalties have remained unchanged since they were last increased in 2010. The increased penalties apply to information returns and payee statements required to be filed or furnished after December 31, 2015. Changes to the penalty structure are summarized in the following table.
New Business Return Filing Due Dates (2016 Tax Year)
• Modified Business Tax Return Due Dates for 2016 tax year– Due dates will apply for 2017
filing season.
• Partnership and Corporate Tax Return Dates Flipped– Date advanced to March 15th,
month earlier than current 04/15 date.
– 6-month extension, deadline remains 9/15.
• Note: Shorter deadlines for some filers might mean increased workload for businesses and their tax preparers earlier in the filing season.
Form Current Due Date
NEW Due Date
Partnerships(Form 1065) April 15th March 15th
S Corporations(Form 1120S) March 15th March 15th
C Corporations(Form 1120) March 15th April 15th
Form 1065 Extension September 15th September 15th
C Corporation Extension September 15th September 15 /
October 15th
Presenter
Presentation Notes
C corporation Extension – For calendar year corporations, extension date remains Sept. 15 until 2015, then extension deadline changes to Oct. 15. The new due dates will apply to returns for tax years beginning after Dec. 31, 2015 – the 2016 tax year. New due dates for partnership and C corporation returns, and several other IRS information returns. AICPA and state CPA societies have been advocating for several years to create a more logical flow of information and help taxpayers and tax professionals in filing timely and accurate tax returns. Partnership and S corporation tax returns, the new due date is March 15 for calendar year partnerships. This is a month earlier than the previous due date of April 15.
De Minimis Safe Harbor Election• De Minimis Safe Harbor Expensing Election
– Safe harbor for smaller dollar equipment purchases, if elects to use safe harbor, then business may deduct and not capitalize amounts paid for certain purchases i.e. can be expensed similar to an ordinary and necessary business expense.
• $2,500 Per Item / Per Invoice– IRS modified safe harbor amount to $2,500 for businesses without an AFS (Applicable
Financial Statement)• Increased from $500 to $2,500 per invoice/item. • Change effective for costs incurred during taxable years beginning on or after
January 1, 2016.• Sec. 263A Uniform Capitalization rules still apply to purchases of inventory.
• Annual election – Election annually by attaching a statement to a timely filed original federal tax return
(including extensions).
Presenter
Presentation Notes
The final tangible property regulations issued in 2013 provide a safe harbor election that allows qualifying businesses to immediately deduct purchases of tangible property below certain dollar thresholds. For taxpayers that do not have an applicable financial statement (typically an audited financial statement) (“AFS”), the dollar threshold was $500.The IRS received many comments suggesting that the $500 threshold was too low to effectively reduce the administrative burden of complying with the capitalization requirement for small businesses. After consideration of these comments, the IRS recently announced that the de minimis safe harbor threshold would be increased to $2,500 beginning with 2016 tax years. The final tangible property regulations issued in September, 2013, introduced the de minimis safe harbor election, applicable to taxable years beginning on or after January 1, 2014. The de minimis safe harbor is an annual tax return election that permits taxpayers to currently deduct expenditures they would otherwise have to capitalize for the purchase of tangible property (including materials and supplies) The increase to $2,500 in the de minimis safe harbor for taxpayers without an AFS is welcome relief that should simplify recordkeeping and generate more current tax deductions. Many more assets that traditionally were capitalized, such as many computers, tablets, smartphones, and high-end office furniture, now potentially can be deducted immediately. To the extent that tangible property below the de minimis threshold is used in the production or acquisition of inventory, those expenditures may need to be capitalized into the cost of the inventory if you are subject to the uniform capitalization rules. Annual election Election annually by attaching a statement to a timely filed original federal tax return (including extensions). Statement include: (1) Name and address; (2) TIN, (3) Statement specifying the election Found in Treasury Regulations Section 1.263(a)-1(f) Intended as an administrative convenience for purchases that would otherwise be capitalized and depreciated. Note: The safe harbor does not limit a taxpayer’s ability to deduct otherwise deductible repair or maintenance costs that exceed the safe harbor threshold. Business electing the de minimis safe harbor may deduct and not capitalize amounts paid to acquire or produce a unit of tangible property if: Taxpayer does not have an AFS Taxpayer has at the beginning of the tax year, accounting procedures treating as an expense for non-tax purposes – Amounts paid for property costing less than a certain dollar amount, Taxpayer treats the amounts paid for property as an expense on its books Amount does not exceed $2,500 per invoice or per item substantiated by invoice. Minimis Safe Harbor Limit Election Section 1.263(a)-1(f), provides a de minimis safe harbor election that permits a taxpayer to not capitalize, or treat as a material or supply, certain amounts paid for tangible property that it acquires or produces during the taxable year intended as an administrative convenience whereby a taxpayer is permitted to deduct small dollar expenditures for the acquisition or production of new property or for the improvement of existing property, which otherwise must be capitalized under § 263(a). The safe harbor merely establishes a minimum threshold below which all qualifying amounts are considered deductible Cost of many commonly expensed items (for example, tablet-style personal computers, smart phones, and machinery and equipment parts) typically surpass the current $500 per item or invoice threshold provided. Limitation for a taxpayer without an AFS is increased from $500 to $2,500. The Notice is effective for costs incurred during taxable years beginning on or after January 1, 2016. AUDIT PROTECTION For taxable years beginning before January 1, 2016, the IRS will not raise upon examination the issue of whether a taxpayer without an AFS can utilize the de minimis safe harbor provided in § 1.263(a)-1(f)(1)(ii) for an amount not to exceed $2,500 per invoice (or per item as substantiated by invoice) if the taxpayer otherwise satisfies the requirements
Poll Question #2• In the year-end tax bill, Congress changed the due date for
submitting W-2 and 1099-MISC forms to the IRS to Jan. 31st, the same date they are due to employees. Previously, this date was as late as March 31st if filed electronically.
• Are you concerned that your business will have difficulty complying with the new date?
– YES– NO
Affordable Care Act Tax ProvisionsImpact small business owners
• Employer Mandate: Full Phase-In in 2016– Employer mandate now fully implemented. Midsize businesses (50-99 FT employees)
and large employers (100+ employees) must offer health insurance or pay penalties. – Penalty for not offering insurance will increase to $2,160 per employee.
• Employer Mandate: 2015 Tax Year Compliance– Midsize businesses must report coverage offers to IRS for tax year 2015; Distribute
1095-C forms to employees by March 31, 2016, and report coverage information to the IRS by May 31, 2016.
– For small businesses, (fewer than 50 employees), insurance carriers will send forms to employees and report to the IRS.
• Health Reimbursement Accounts (HRA) Prohibition– In July 2015, IRS prohibited employers from directly paying or reimbursing employee
medical costs and insurance premiums. – Penalties are severe - $100 per employee per day of violation ($36,500 per year per
employee). – H.R. 2911/ S. 1697, the Small Business Healthcare Relief Act - Roll back existing
Treasury Department guidance prohibiting HRAs and protect employers from penalties.
Presenter
Presentation Notes
In 2016, after numerous administrative delays and adjustments, the employer mandate will be fully implemented. All midsize businesses (50 to 99 full-time employees) and large businesses (100 or more full-time employees) must offer affordable and adequate health insurance to 95 percent of full-time employees or pay penalties. The penalty for not offering insurance will increase to $2,160 per employee, minus 30 employees. The penalty for offering unaffordable insurance will increase to $3,240 per employee. Insurance coverage is deemed affordable when an employee’s contribution to the self-only (not family) premium is less than 9.5 percent of his or her income. (Box 1 of an employee’s W-2 form lists total income.) Despite the one-year reprieve from the employer mandate, midsize businesses must still report coverage offers to the IRS for tax year 2015. Midsize and large businesses must distribute 1095-C forms to employees by March 31, 2016, and businesses must report coverage information to the IRS by May 31, 2016. These deadlines were extended by the IRS in December. For small businesses (fewer than 50 employees), their insurance carriers will distribute these forms to employees and report to the IRS. Employers will also report employees’ health insurance information on a monthly basis for 2015. Health Reimbursement Arrangements (HRAs) Penalty for Not Having Insurance Cadillac tax Delay Medical Device Tax Delay Health Insurance Tax Obamacare Employer Reporting Penalty for Not Having Insurance The health insurance penalty is ramping up significantly. If you have health insurance in 2014, and they didn’t qualify for an exception to the penalty, the consequences weren’t so bad. They may have paid $95 per person or 1 percent of their household income, whichever was greater. In 2015, they’ll pay $325 per person, or 2 percent of their household income, whichever is greater. That’s a steep increase. Cadillac tax Delay Tax on high-cost health coverage, imposed by Sec. 4980I, is delayed for two years and is now effective for tax years beginning after Dec. 31, 2019. The provision imposes a 40% nondeductible excise tax on the amount by which the monthly cost of an employee’s “applicable employer-sponsored coverage” exceeds statutory dollar limits. Medical Device Tax Delay The act also delays the 2.3% medical device excise tax under Sec. 4191, which will now not apply to sales during 2016 and 2017. Health Insurance Tax The act also puts a one-year moratorium on the Patient Protection and Affordable Care Act’s annual fee on health insurance providers, which applies to any covered entity engaged in the business of providing health insurance for U.S. health risks 1095s – Employers have obligation Under the Affordable Care Act, employers have a new reporting obligation for health coverage in 2015. The purpose of providing information returns to employees is to enable them to determine their eligibility for the premium tax credit and whether they owe the shared responsibility payment for not having required minimum essential health coverage. Employers with 50 or more employees must provide Form 1095-C to employees. They must also transmit copies of the forms, along with Form 1094-C, to the IRS. Employers with 50 to 99 employees use these forms even though they have no penalty for not providing coverage for full-time employees and their dependents in 2015. Smaller employers who have self-insured plans (e.g., health reimbursement arrangements) use Form 1095-B and 1094-B. If these smaller employers only have coverage for staff with insurance, there is no filing obligation; the insurer completes the form. Deadline delayed. The filing deadlines for the forms and transmittal technically is the same as those for W-2s. However, because this is the first year of mandatory reporting, the IRS has postponed the deadline. The applicable forms must be furnished to employees by March 31, 2016 (instead of February 1, 2016). They must be submitted to the IRS by May 31, 2016 (instead of February 29, 2016) if filed by paper, or June 30, 2016 (instead of March 31, 2016). For information returns about 2016 coverage that are due in 2017, the same deadline for W-2s will apply (assuming the IRS does not again extend the deadline). Penalties. If you fail to meet the deadlines, you can be penalized. However, the IRS has said it will consider whether you’ve taken reasonable steps to meet reporting requirements when determining whether to abate penalties.
2016 Legislative Outlook• Presidential Campaigns
– Candidates have introduced tax plans. How will the ongoing debate impact future tax legislation?
• Congressional Tax Agenda– International Tax Reform– Corporate Integration– Looking ahead to 2017
• NFIB Tax Agenda– Continuing pressure Congress to enact comprehensive tax
reform that treats the pass-through community fairly. – Does not single out a particular industry for more favorable
treatment.
Presenter
Presentation Notes
Congressional Tax Agenda International Tax Reform Repatriating Foreign Profits Special Rate for Patent Income Corporate Integration Focus on 2017 Congressional leadership and Chairmen of the tax committees are looking to set the foundation for 2017 NFIB Tax Agenda Continuing pressure Congress to enact comprehensive tax reform that treats the pass-through community fairly. And does not single out a particular industry for more favorable treatment
Q&A
• Please call # to ask a question• Follow-up contact information• NFIB Tax and Health care Team
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