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June 25, 2015

The Supreme Court has upheld the law in the case of King v Burwell, making the Affordable Care Act subsidies valid in all 50 states.  The ruling comes after much anticipation as noted in our blog post earlier this week. In a 6-3 decision, premium tax subsidies in both the state and federal marketplaces will continue to be available. This ruling is the second time the Supreme Court has ruled in favor of Obamacare, saving a major piece of the ACA.

Going forward businesses should also make sure they are in compliance with the ACA reporting requirements which will be due January 31st and February 28th of next year. 

The ACA continues to be ever-changing. Keep up to date by subscribing to our blog. For further questions regarding the ACA, please contact Steve Dunavant at sdunavant@cbiz.com or (901) 685.5575.




June 22, 2015

The Supreme Court is wrapping up its October 2015 term, and one of the expected key decisions is the court's ruling in KING V. BURWELL (14-114) by the end of this month. At issue is whether the IRS regulations extending tax-credit subsidies to coverage offered through federal Exchanges is appropriate.  Section 36B of the Internal Revenue Code was enacted as part of the Patient Protection and Affordable Care Act ("ACA") and authorizes federal tax-credit subsidies for health insurance acquired through an "Exchange established by the State under section 1311" of the ACA.

As of today, it appears that KING V. BURWELL will be part of the last grouping of decisions released.  Many analysts expect a split court with the outcome riding on Justices Kennedy and Roberts.  A finding that the IRS’s regulations are invalid would have a significant impact on 6.4 million Americans living in 34 states who have acquired health insurance through federal exchanges.  The NY Times recently published an article, The Health Care Supreme Court Case: Who Would Be Affected?, which summarizes the affects following a decision against subsidies in the federal marketplace.

Keep in mind the reform is ever-changing. To keep up to date, subscribe to our blog. For further questions regarding the ACA, please contact Steve Dunavant at sdunavant@cbiz.com or (901) 685.5575.

 




February 18, 2015

The Net Investment Income (NII) tax went into effect in 2013, but if you participate in a self-rental property arrangement, now may be a good time to review your tax filings and entity structuring as we head into filing season. The NII Final Regulations included a reversal from a position taken in the 2012 Proposed Regulations concerning the treatment of self-rental income.

As a reminder, the 3.8% Medicare surtax on qualifying NII includes three buckets:

  1. Gross income from interest, dividends, annuities, royalties and rents, unless derived in a trade or business in which the taxpayer materially participates
  2. Gross income from a trade or business that is a passive activity or the trade or business of trading in financial instruments or commodities
  3. Net gain from the disposition of property, other than property the income generated from which otherwise would be excluded under Bucket 1 or 2

For a detailed description of the NII tax, feel free to read our previous post on the topic.

In this example, Bob is an attorney and operates his law practice in which he materially participates inside an S-Corporation of which he owns 100% of the stock. Bob also owns the property in which the law practice operates inside of a separate single-member LLC. Under the terms of the lease, Bob’s law practice pays rent to the single-member LLC.

In most circumstances, rental income is by nature considered passive income. However under Reg. §1.469-2(f)(6), rental income derived from property rented to a trade or business in which the taxpayer martially participates “is treated as not from a passive activity.” In the example presented above, since the rental income in Bob’s single member LLC is derived from the S-Corp, which is an operating business in which Bob materially participates, the income would be considered nonpassive. Also, Bob may group the rental activity with the operating business activity under Reg. §1.469-4(d)(1) thus making the grouped activity a nonpassive activity.

Initially under the Proposed NII Regs, self-rental income appeared to be subject to the 3.8% because it fell within the “rents” description in Bucket 1, unless the rental income was proved to be “derived in the ordinary course of a trade or business.” After hearing complaints from tax professionals, Treasury reversed the position in the Final NII Regs allowing rental income from a self-rental to be excluded from Bucket 1 if it is treated as a nonpassive activity (Reg. §1.469-2(f)(6)) or if the rental activity is grouped with an active trade or business activity (Reg. §1.469-4(d)(1) ) (and the grouped activity is nonpassive to the taxpayer).

For most small business owners, it’s common to split real estate and active business operations into separate legal entities for liability issues. Therefore, it is critical that taxpayer’s develop an understanding of self-rental structuring. A rental lease’s arrangement could change the nature of a property owner’s involvement in the trade or business such as in the case of an Operating lease versus a Triple-net lease. This arrangement is one example of a tax planning opportunity available for self-rental property owners.

Also, how you deal with the disposition of the activity or property can affect if your operations are viewed as a trade or business or an investment property. Read more about these considerations in Part 2 of our blog post series.

If you have any further questions regarding the NII tax or your self-rental property, please feel free to contact Bryan Koch at bkoch@cbiz.com or 901.685.5575.




July 23, 2014

Yesterday was a very rare day with two appellate level courts reaching conflicting opinions on the same issue regarding the Affordable Care Act (ACA). At issue was whether federally facilitated exchanges could make premium assistance payments for a person enrolling for health insurance through a federally-facilitated exchange. The language in statute, Code § 36B, states that assistance payments may be made by “Exchange established by the State,” and makes no reference to federally facilitated exchanges. Federal regulations provided that the assistance payments also included federally-facilitated Exchanges. The Court of Appeals for the District of Columbia (Halbig, et al. v HHS) said “no” to the interpretation of the statute by the regulations, and the Court of Appeals for the Fourth Circuit (King, et al. v HHS) said “yes.”

Hello Supreme Court, here we go again.  Does this mean that those living in the District of Columbia will not receive assistance payments until the Supreme Court rules?

The Affordable Care Act sets in motion the largest change in employer-provided health benefits most of us have seen in our lifetime. Keep in mind the reform is ever-changing. To keep up to date subscribe to our blog. For further questions regarding the ACA, please contact Steve Dunavant atsdunavant@cbiz.comor (901) 685-5575.




June 26, 2014

“One’s an outlier, a few many be a passing fad, but over 50 is the beginning of an industry trend.” Eric Grossman, National Exchange Leader at Mercer

Reuters is predicting 2014 to be a “watershed” year. Over 65 employers are moving to private exchanges, with over 1,000,000 active employees due to participate. Like the Health Insurance Marketplace (i.e., the public exchanges), private exchanges are marketplaces of health insurance and other employee benefit products where employers may purchase the health insurance. Then, the employees can choose from a health plan provided.

Unlike the public, governmental exchanges, there is no governmental subsidy to purchase insurance for those who meet the salary guidelines under the ACA. Instead, there is an employer subsidy to purchase insurance that meets the ACA requirements as well as any state insurance regulations. This shifting in the cost and risk of health insurance allows employers to control their bottom line, while shifting the costs to their employees. Under the private exchanges, employers’ former duties of plan design and other insurance relationships are now outsourced. However, employers will still have to face communication challenges, such as monitoring employees’ relationship and understanding of the exchanges.

What are the benefits of private exchanges?

  • Negotiating Leverage
  • Competition
  • Product Commoditization
  • Administrative Streamlining
  • Cost Trend Control (risk pooling)
  • Cost Trend Control (defined contribution)
CBIZ offers not only a mid to large market private health care exchange, but also a custom version for employers with 25 to 100 employees. Keep an eye on our blog for an upcoming post on CBIZ Choice, our own private exchange. For all questions regarding private exchanges or the Affordable Care Act, please contact Steve Dunavant at sdunavant@cbiz.com or (901) 685-5575.  

 




June 20, 2014

What has been delayed for employers?

Employer Shared Responsibility Requirement Provisions: No reporting until calendar year 2015

  • Delayed until January 1, 2015 for large employers with 100 or more employees.  There is a potential excise tax penalty for failure to offer minimum essential coverage (MEC) at an affordable rate:

1. "No coverage” Penalty ($2000): Failure to offer MEC to 95% (70% for 2015) of full-time employees working 30+ hours

2. “Inadequate or Unaffordable” Penalty ($3000): Coverage fails to meet minimum value standard or is unaffordable

Transition relief is only available if the non-calendar year plan year has not been changed since December 27, 2012.

  • Delayed until 2016 for small employers with 50-99 employees. There is a potential excise tax penalty for failure to offer minimum essential coverage (MEC) at an affordable rate:

1. “No coverage” Penalty ($2000): Failure to offer MEC to 95% of full-time employees working 30+ hours

2.  “Inadequate or Unaffordable” Penalty ($3000): Coverage fails to meet minimum value standard or is unaffordable

To qualify, employer must not have materially reduced the health benefits offered as of February 9, 2014.

What has been delayed for individuals?

Individual Mandate Penalties for Failure to Maintain MEC: Provisions Delayed until October 1, 2016

 Individual Mandate Penalties

What has NOT been delayed?

Group Health Plan Mandates: For plan years beginning on or after January 1, 2014, all group health plans, including grandfathered and non-grandfathered plans, must include these mandates:

  • Ban on pre-existing condition exclusion limitations on anyone
  • Extension of dependent coverage until age 26
  • Full implementation of ban on annual or lifetime limits for essential health services
  • Increased limit in outcome-based incentives/disincentives permitted in wellness programs from 20% to 30%; or, up to 50% for tobacco-free programs
  • Ban on waiting periods exceeding 90 days (60 days if using 1st of the month eligibility)
  • Inclusion of essential benefit coverage, providing a specified actuarial value, and cost-sharing limitations by insurers in small group and individual markets, and large group markets via state marketplaces
The Affordable Care Act sets in motion the largest change in employer-provided health benefits most of us have seen in our lifetime. Keep in mind the reform is ever-changing. To keep up to date subscribe to our blog. For further questions regarding the ACA, please contact Steve Dunavant at sdunavant@cbiz.com or (901) 685-5575.



March 3, 2014

As noted in our recent post on Understanding the 3.8% Medicare Tax on Net Investment Income, final instructions for Form 8960, the one page form used to report the calculation of Net Investment Income (NII), were yet to be released. On Wednesday night, February 26, 2014, the IRS posted the final instructions for the form, though the form itself has been finalized since early January.

Changes in the underlying worksheets in the instructions were mostly clarifying in nature, but a few changes could impact calculations of the tax in certain circumstances:

  • Line 5b adjustment: An active calculation has been added when you have a capital loss carryover to the next year. In the draft instructions, this line was N/A for 2013. This adjustment would apply in only limited circumstances, but if you have a capital loss carryover to 2014 and have any other line item adjustments to line 2, you should review these calculations.
  • Application of itemized deduction limited on deductions allocable to NII: This worksheet now includes a line for "gambling losses" which it did not include in the draft instructions. If you have a return with deductible gambling losses, you should review these calculations.

Lack of complete guidance from the IRS may have slowed down the filing process for some taxpayers, as software vendors were waiting for final instructions to be released. Now that additional guidance is available, we should see vendors begin to finalize the form over the next few weeks allowing all taxpayers to file returns that include Form 8960. To see both the draft and final instructions, click on the links below:

If you are an individual subject to the 3.8% Medicare tax, keep in mind that there are potential planning ideas such as examining passive and nonpassive activities, grouping elections for material participation and/or considering the election to become a “real estate professional.” These opportunities could provide you some relief by minimizing your tax, which we will expand upon in a future post.

If you have further questions about this newly implemented tax, feel free to contact Bryan Koch at bkoch@cbiz.com or 901.685.5575.




February 13, 2014

The Affordable Care Act, which was passed in 2010, included provisions that added a 3.8% Medicare surtax on qualifying net investment income to your tax bill beginning with your 2013 return. The final Regulations Section 1.1411 for this tax were issued in 2013. However, Form 8960, the one page form used to report the calculation of Net Investment Income (NII), was just finalized in January. 

Though we are in the beginning of tax season and final instructions for Form 8960 have not yet been released, it's important to take this tax into consideration, as it applies to taxpayers that exceed certain income thresholds. The lack of full guidance from the IRS on how to complete the required form may mean that tax professionals and their clients will be left to interpret key aspects of the calculation from what information is currently available. The legislation refers to this tax as a 3.8% "Medicare tax" on individuals, estates, and certain trusts, yet it is unrelated to Medicare. For individuals, the tax is equal to 3.8% multiplied by the lesser of Net Investment Income (NII) or Modified Adjusted Gross Income (MAGI) in excess of the following thresholds:

  • $250,000 for married couples filing jointly,
  • $125,000 for married couples filing separately,
  • $200,000 for single taxpayers and taxpayers filing as head of household

The Net Investment Income tax includes:

  • Interests, dividends, annuities, royalties and rents (unless such income is derived in the ordinary course of a trade or business), less allocable deductions
  • Income from a passive activity
  • Income from a trade or business of trading in financial instruments or commodities
  • Net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in an active trade or business

If you are an individual subject to the 3.8% Medicare tax, keep in mind that there are potential planning ideas such as examining passive and nonpassive activities, grouping elections for material participation and/or considering the election to become a "real estate professional." These opportunities could provide you some relief by minimizing your tax, which we'll expand upon in a future post.

If you have further questions about this newly implemented tax, feel free to contact Bryan Koch at bkoch@cbiz.com or 901.685.5575.  




November 19, 2013

The Memphis office held their bi-annual CFO/Controller Conference November 13th at the University of Memphis Fogelman Center.

One hundred financial leaders in the Mid-South attended the half-day event where they gained insight into the current challenges in the industry including the ever-changing issue of healthcare reform. The first of four presentations given by PeopleCap Principals, Howard Cleveland and Andy Nix, spotlighted the importance of having a people strategy both in the process of hiring and in the management of current employees. Their long-term picture of employee engagement outweighing any benefits a company may offer served as a launching pad for Steve Dunavant and David Gearhardt's topic of the current financial environment of which CFOs are having to navigate.

The Affordable Care Act, though continuously changing, is putting an added burden on both CFO and HR professionals in the area of employee health benefits. Perhaps the most frustrating is the absence of much control over the impeding requirements.

Jenny Kiesewetter, Founding Member at Kiesewetter Law Firm PLLC, recognizes the shift of risk management from the collective "House Money, House Rules" way of thinking to placing more responsibility on the employee. The transfer of risk leaves many individuals with the choice to leverage private exchanges within the marketplace. Kieswetter clearly recognized this "industry trend" during her presentation on "The Future of Employer-Provided Healthcare."

The conference came full-circle with the final Q & A portion presented by a selected panel of CFO and HR professionals in the Memphis area. A common theme throughout this session was the growing partnership between the financial and human resources department at companies across the Mid-South. The panel represented some of the most well-respected companies and professionals in the local community: Perkins & Marie Callender's, nexAir, Bryce Corporation and Fred's. Though healthcare plans and benefits varied across the stage of businesses, all agreed that they are keeping a close eye on the healthcare reform and its effects on their employees.

Marcia Vargas, Sr. Vice President of Human Resources at Fred's, said it best, "We can no longer rely on benefits as the lever for employee satisfaction and recruitment. We are going to have to identify other ways to create employee engagement."

Healthcare is certainly changing the way employees view their employer. If our conference has any one takeaway, it is that Memphis businesses deeply care for their employees and their health.




November 8, 2013

It's no surprise to today's CFOs and HR Directors that the ever-changing dynamics of healthcare legislation are presenting new challenges in day-to-day business operations. From the benefits perspective, HR and finance professionals are having to work closer together now than they ever have in the past.

These ideas will feed into our Q & A portion of our CFO/Controller Conference on Wednesday, November 13th. Our own CBIZ representatives and moderators, Linda Lauer of the Memphis office and Karen Fenaroli of EFL Associates, Inc., will help lead a panel of experts in discussion over healthcare reform and business strategy. Panelists will include:

  • Barbara Anderson, Sr. Director/Benefits & Compensation, Perkins & Marie Callender's
  • Milton Lovell, CFO & General Counsel, nexAir
  • Ramon Marus, CFO, Bryce Corporation
  • Marcia Vargas, Sr. Vice President/Human Resources, Fred's
These influential Memphis leaders will share their own experiences, best practices, and lessons they have learned so far in dealing with new legislation in healthcare, including the Affordable Care Act. Though the panelists will be taking questions from the audience, if you already know of something you'd like discussed during this presentation, please feel free to send your questions over Twitter using #CFOConf @CBIZCFOConf or leave a comment below. Quick! Seats are running out fast. Pre-register for the event here.



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