Roundup of Tax Changes for Businesses and Health Plans Taking Effect in 2015

There are many important tax changes taking effect in 2015. They are the result of the Tax Increase Prevention Act of 2014 (TIPA) as well as other tax legislation, or are triggered by effective dates in regs, rulings and other guidance. Also, a number of important final regs go into effect in 2015. This article highlights key non-inflation-indexed 2015 tax changes affecting businesses and health plans.


RF observation: Numerous other tax changes will go into effect by default because a long list of business and individual tax breaks (the so-called “extender provisions”), which were extended for a year only by TIPA, expire at the end of 2014.


Employer shared responsibility payment under the Affordable Care Act (ACA). In general, beginning Jan. 1, 2015, employers with at least 100 full-time and full-time equivalent employees must offer affordable health coverage that provides minimum value to their full-time employees and their dependents, or they will be subject to an employer shared responsibility payment. Under the employer shared responsibility rules, if a covered employer does not offer affordable health coverage that provides a minimum level of coverage to their full-time employees (and their dependents), it may be subject to an employer shared responsibility payment if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges, also called Health Insurance Marketplaces.


The employer responsibility provisions will not apply until 2016 to employers with at least 50 but fewer than 100 full-time employees if the employer provides an appropriate certification described in regs.


Employers that are subject to the employer responsibility provisions in 2015 must offer coverage to at least 70% of full-time employees as one of the conditions for avoiding an assessable payment; that percentage will increase to 95% in 2016.


Final regs on the ACA’s 90-day waiting period limit for employer health coverage. For plan years beginning on or after Jan. 1, 2014, the ACA provides that an employer group health plan or group health insurance issuer offering employer group health insurance cannot have any waiting period (for employee coverage) that exceeds 90 days. Final regs that apply to group health plans and group health insurance issuers for plan years beginning on or after Jan. 1, 2015, clarify the 90-day rule; they provide that:


  1. no group health plan or group health insurance issuer may impose a waiting period that exceeds 90 days after an employee is otherwise eligible for coverage; and
  2. all calendar days are counted beginning on the enrollment date, including weekends and holidays.


Under the final regs, a requirement to successfully complete a reasonable and bona fide employment-based orientation period may be imposed as a condition of eligibility for coverage under the plan. The final regs do not specify the circumstances under which the duration of an orientation period would be considered reasonable or bona fide. However, under new proposed regs, one month would be the maximum length of any orientation period.


For plan years beginning in 2014, compliance with either previously issued proposed regs or the new final regs would constitute compliance with the ACA’s 90-day waiting period limitation.


Exclusion of dividends from controlled foreign corporations from the definition of personal holding company income. For tax years ending on or after Dec. 19, 2014 (date of enactment), TIPA excludes dividends received from a foreign subsidiary from personal holding company income, though the dividends will remain subject to corporate income tax.


Expatriate health plans excluded from the ACA. For plans issued or renewed on or after July 1, 2015, the Consolidated and Further Continuing Appropriations Act of 2015 (the Act) provides that, with limited exceptions, “expatriate health plans” are exempt from various ACA provisions. Expatriate health plans are group health plans and similar plans, that meet various requirements, one of which is that substantially all of the primary enrollees in the plan are “qualified expatriates.”


Revised definition of controlled group for purposes of branded prescription drug fee. Sec. 9008 of the ACA provides that each “covered entity” (i.e., any manufacturer or importer with gross receipts from branded prescription drug sales) with aggregate branded prescription drug sales of over $5 million to any specified government program or pursuant to coverage under any such program must pay an annual nondeductible fee for calendar years beginning after Dec. 31, 2010. The calculation of the annual fee is a two-step process; IRS makes a preliminary calculation and then, a year later, makes a final calculation.


The term “covered entity” includes a controlled group. Beginning on Jan. 1, 2015, the term controlled group means a group of two or more persons, including at least one person that is a covered entity, that are treated as a single employer under Code Sec. 52(a), Code Sec. 52(b) , Code Sec. 414(m), or Code Sec. 414(o).


Through Dec. 31, 2014, the term “controlled group” means a group of at least two covered entities that are treated as a single employer under Code Sec. 52(a), Code Sec. 52(b), Code Sec. 414(m), or Code Sec. 414(o).


Plans lacking hospitalization coverage don’t provide minimum value; online MV calculator can’t be relied on. The Code Sec. 36B premium tax credit is designed to make health insurance affordable to individuals with modest incomes who are not eligible for other qualifying coverage, such as Medicare, or “affordable” employer-sponsored health insurance plans that provide MV (minimum value). Under Code Sec. 36B(c)(2)(C)(ii), a plan fails to provide MV if the plan’s share of the total allowed costs of benefits provided under the plan is less than 60% of the costs. Under Code Sec. 4980H, an applicable large employer may be liable for an assessable payment if one or more full-time employees receives a premium tax credit.


One way to determine whether a plan provides MV is to use a MV calculator, which determines if a plan provides MV based on information about the plan’s benefits, coverage of services, and cost-sharing terms.


IRS has warned that employer-sponsored health plans failing to provide substantial coverage for in-patient hospitalization services or physician services do not provide MV for purposes of the Code Sec. 36B premium tax credit. Forthcoming regs, which are intended to be finalized during 2015 and applicable upon finalization, will provide that an employer can’t use the MV Calculator (or any actuarial certification or valuation) to demonstrate that a Non-Hospital/Non-Physician Services Plan provides MV.


IRS has warned employers to consider the consequences of the inability to rely solely on the MV Calculator (or, alternatively, on any actuarial certification or valuation) to demonstrate that a Non-Hospital/Non-Physician Services Plan provides MV for any portion of any tax year ending on or after Jan. 1, 2015 that follows finalization of such regs, and says that employers generally should not adopt such a plan for the 2015 plan year.


Higher standard mileage allowance rate. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) increases by 1.5¢ to 57.5¢ per mile for business travel after 2014. This rate can also be used by employers to provide tax-free reimbursements to employees who supply their own autos for business use, under an accountable plan, and to value personal use of certain low-cost employer-provided vehicles. However, the rate for using a car to get medical care or in connection with a move that qualifies for the moving expense decreases by 0.5¢ to 23¢ per mile after 2014.


New regs on retail inventory method go into effect. A final reg on the retail inventory accounting method restates and clarifies the computation of ending inventory values and provides a special rule for taxpayers that receive margin protection payments or certain vendor allowances. The final reg applies to tax years beginning after Dec. 31, 2014.