On February 18, 2015, the Internal Revenue Service issued Notice 2015-17, which reiterates the conclusion in previous guidance addressing employer payment plans – that they are not in compliance with the Affordable Care Act (ACA). This article will discuss the additional guidance provided by Notice 2015-17, and it will also serve as an update to the article that Stockman Kast Ryan & Co. published on December 15, 2014 linked here:

https://www.skrco.com/what-the-affordable-care-act-means-for-reimbursement-type-plans/

Transition Relief for Small Employer Reimbursement Plans

Notice 2015-17 states that employer payment plans, (plans that pay directly for or reimburse employees in part or full for health insurance) are considered group health plans that are not in compliance with the Affordable Care Act. However, the Notice does provide transition relief to small employers – those who are not Applicable Large Employers, meaning that they have less than 50 full-time or full-time equivalent employees. Small employers have until June 30, 2015 to transition their plan to one in compliance with the Affordable Care Act or be subject to excise tax under Internal Revenue Code §4980D. The excise tax is equal to $100 per day, per employee, or $36,500 per participant, per year.  

The transition relief applies to:

1.Employer payment plans, as described in Notice 2013-54 (http://www.irs.gov/pub/irs-drop/n-13-54.pdf);

2.S Corporation healthcare arrangements for 2-percent shareholder-employees;

3.Medicare premium reimbursement arrangements;

4.TRICARE-related health reimbursement arrangements (HRAs).

S Corporation Guidance for 2% Shareholder-employees

Notice 2015-17 provides that the IRS is still contemplating publication of additional guidance on the application of market reforms to a 2-percent shareholder-employee healthcare arrangement. The good news for taxpayers is that until this guidance is issued, and in any event through the end of 2015, these arrangements will not be subject to the excise tax under Internal Revenue Code §4980D. In addition, S corporations with a 2-percent shareholder-employee healthcare arrangement will not be required to file Form 8928. Keep in mind that this relief does not apply to S corporation employees who are not 2-percent shareholders.

As discussed in the December article, the market reforms do not apply to a group health plan with less than two participants. For this reason, a plan covering only a single S corporation employee is not subject to the market reforms or the excise tax.

Medicare Reimbursements

Arrangements that reimburse employees for Medicare Part B or Part D premiums are considered employer payment plans under IRS Notice 2013-54. Notice 2015-17 discusses that when an employer reimburses the cost of Medicare premiums and integrates this with another group health plan offered by the employer, then this is permissible under the market reforms.

 However, this is permissible only if:

1.The employer offers a group health plan (other than the Medicare reimbursement arrangement) to the employee that does not consist solely of excepted benefits and offers coverage providing minimum value;

2.The employee participating in the Medicare reimbursement arrangement is actually enrolled in Medicare Parts A and B;

3.The Medicare reimbursement arrangement is available only to employees who are enrolled in Medicare Part A and Part B or Part D;

4.The Medicare reimbursement arrangement is limited to reimbursement of Medicare Part B or Part D premiums and excepted benefits, including Medicare premiums.

Employee Reimbursement

Notice 2015-17 confirms the argument that an employer may increase an employee’s taxable compensation, not conditioned on the purchase of health insurance, without creating an employer payment plan.  Because this type of arrangement will not be considered a group health plan, it is not subject to the market reform provisions.

Unfortunately, the IRS has clarified that after-tax employer payment plans are, in fact, subject to excise tax under Code §4980D. An arrangement where an employer pays for or reimburses an employee for the cost of health insurance is subject to the market reform provisions of the Affordable Care Act without regard to whether the employer treats the money as pre-tax or post-tax to the employee.

Conclusions

The market reform provisions of the Affordable Care Act are continuously updating and taking shape as more guidance is received on the application of these rules from the IRS. Notice 2015-17 contains some important clarification on the employer reimbursement arrangements as well as transition relief through June 30, 2015 for some small employer plans. We will continue to update you as new information and guidance becomes available.

Understand unrelated business income and how to avoid excess amounts

Like other nonprofits, your organization probably has searched for new sources of revenue during the recession and economic slump. Hopefully, though, you haven’t run into problems accumulating too much unrelated business income (UBI). That kind of green can subject your nonprofit to taxes — and even threaten your tax-exempt status.

The IRS defines UBI

Certain product sales count

Ad space revenue is UBI, too

Selling unrelated services also matters

Exceptions to the rules exist

Gaming is ticklish

Report UBI carefully

If you receive a notice from the Internal Revenue Service (IRS), don’t panic! The IRS frequently sends notices and they are usually very easy to address.  

One situation we want to make you aware of is that the IRS has prematurely sent notices regarding the late filing of S-Corporation returns. This is simply a mistake within their system of one office not communicating with another. These notices are being generated from the first office before the second office has processed the extension of time to file the tax return. The notice usually lists the number of shareholders and shows a penalty for each shareholder of $195 multiplied by the number of months the return is shown as late. A penalty may be accessed for up to 12 months per shareholder.

If your S-corporation filed an extension yet you received a late filing notice, this issue can be handled by a call to the IRS or simply mailing a letter with proper documentation to refute their claim. You can handle this yourself or promptly forward the notice to your CPA and they can determine the best way to respond. If you choose to write a response yourself, please be sure to make copies and provide that detail to your CPA. It is important to reply within the allotted time frame to avoid further notices or penalties and interest on any balance due.  

Often times the IRS sends notices that don’t require any response. If you receive a notice and are uncertain of what is required or you want assistance responding to the notice, contact your CPA promptly and they can help you understand what is needed and respond appropriately.

A variety of factors over the last decade have changed how physicians view their careers in medicine. Now physicians may look at their practice as a vehicle for achieving financial independence rather than primarily as a life-long calling. Financial independence for most physicians means having the resources to allow you to choose the age to retire and to have a comfortable life style in retirement. 

Start With a Plan

Financial Planning Best Practices

• First, use discipline at the practice level. Annually review practice expenses and compare them, particularly your largest expenses for staffing and office space, to those of your peers. Determine what expenses could be reduced and prepare an annual budget to measure how the practice is doing in relation to the budget in holding down expenses.

• Max out your individual 401(k). In a tax-deferred retirement plan, such as a traditional 401(k), every dollar that you put into your plan grows tax-free until you withdraw that money during retirement and you achieve current year tax savings as well. 

• Set aside money for Uncle Sam. Tax planning is an important component of financial planning. The goal is to have enough money available at year-end to pay your tax liability in full every year. Since interest rates in savings accounts are low right now, it would be better to withhold the maximum federal and state income taxes from your paycheck rather than face the possibility of having to pay interest and penalties if you can’t pay off the tax bill. Your accountant can help you plan for the amount of tax that you will need to withhold each year.

• Anticipate the unexpected. Most of us expect to work full time until we are ready to retire. But what if something happens—such as a disability—that makes that impossible? Adequate insurance coverage (disability, life and liability) is essential to provide the income that you and your family will need to make it to retirement if the unexpected happens.

There are many reasons to keep household records, including keeping track of your expenses, maintaining records for insurance purposes or getting a loan. You should have the same approach to managing your tax records, even after your tax return is filed. Records you should keep include bills, credit card and other receipts; invoices; mileage logs; canceled, imaged or substitute checks; proof of payments; and any other records to support deductions or credits you claim on your return. Read our quick tips below for more detail on what to keep and for how long.

Here are some quick tips for keeping your tax return records:

• If you file a claim for credit or refund after you file your return, you’ll want to keep your records for three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.
• Supporting documentation for your tax returns includes not only your forms W-2 and 1099 but also bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
• If you claim depreciation, amortization, or depletion deductions, you’ll want to keep related records for as long as you own the underlying property. That includes deeds, titles and cost basis records.
• If you claim special deductions and credits, you may need to keep your records longer than normal (for example, if you file a claim for a loss from worthless securities or bad debt deduction, you should keep those records for seven years).
• If you have employees, including household employees, keep your employment tax records for at least four years after the date that payroll taxes become due or is paid, whichever is later. This should include forms W-2 and W-4, as well as related pay information including benefit forms.
• If you claim any other special tax benefits not mentioned above (for example, the first time homeowner’s credit), a good rule of thumb is to keep your records for as long as the tax benefit runs plus three years.
• If you have property that will result in a taxable event at sale or disposition (like stocks, bonds or your home), you’ll want to keep records which support your related tax consequences (capital gains, etc.) until the disposition of the property plus three years.
• If you receive property as the result of a gift or inheritance, you’ll want to keep records that support your basis in that property. Generally, if you inherit property, your basis is the stepped up value as of the date of death; if you receive a gift, your basis is the same as the donor’s basis. Don’t toss those old records just because you’re the new owner of the assets.

You should keep copies of your tax returns as part of your tax records. In the event of your death, copies of your returns and records can be helpful to your survivor or the executor, or administrator, of your estate. You may also need tax returns from previous years for loan applications or to estimate tax withholding.

Keeping good records will help us explain any tax position we take on your return and arrive at the correct amount of tax with a minimum amount of effort on your part. If you don’t have records, you may have to spend time getting statements and receipts from various sources. In the event of an IRS audit, if you cannot produce the correct documents you may have to pay additional tax and be subject to interest and penalties.

We are happy to answer any questions you may have about what records you should keep and for how long in your particular situation. For general guidelines, you can download or print our Tax Records Retention Schedule here.

As expected, the Financial Accounting Standards Board (FASB) issued an Exposure Draft on April 22, 2015 on a proposed Accounting Standards Update on the "Presentation of Financial Statements of Not-for-Profit Entities." 

The FASB’s Not-for-Profit Advisory Committee indicated the reason for the proposed update is that existing standards for financial statements of not-for-profit entities are sound but could be improved to provide better information to donors, creditors, and other users of financial statements.

Public comment on the proposal is now open with a deadline of August 20, 2015. 

To better understand the issue, how it may impact your organization and to comment, please read the Exposure Draft here.​

Manage and Improve Cash Flow in Your Professional Practice

• Changes and uncertainty in reimbursement
• Increased difficulties in accounts receivable collection as financial responsibility shifts to patients through high-deductible health plans
• Consolidation of payers creating stronger rate negotiators
• Increased complexities in coding and reimbursement rules

Recommendations to maintain healthy cash flow:

1. Train your staff. Train your staff to be confident and proficient in the accounts receivable collection process. Explain to them how the billing and collection process affects the bottom line of the practice and the practice’s ability to give pay raises and bonuses. Give them the tools they need, including up to date computer equipment, to do their job well.
2. Verify eligibility early and often. Collect insurance information and verify and update patient information at each patient visit. If the patient’s insurance and other information is not correct in your records, at best, payment will be delayed and at worst, payment will be denied. Because of the grace period included in the Affordable Care Act, it’s important to check eligibility at the time the patient’s appointment is made and again one to three days before the appointment.  
3. Collect co-pays, deductibles and prior balances due at the time of service. Due to rising costs, employers have increased deductibles and co-pays for employee medical and dental insurance plans. As a result, a critical step in maintaining/improving cash flow is to collect co-pays, deductibles and prior balances at the time of service. Let your patients know at the time they make an appointment that deductibles, co-pays and prior balances must be paid at the time of service. Verify insurance coverage prior to the appointment to allow the practice to accurately communicate the practice’s expectations to the patient for payment prior to the appointment.
4. Monitor rejected claims from the clearinghouse. This allows the practice to correct claims before it reaches the third party payer, allowing for quicker payment of the claim.
5. Reduce claim denial rates by managing denials. Monitor denials to determine trends so that methods of reducing denials can be developed by the practice.
6. Strengthen internal controls. Check our earlier post “6 Internal Controls Your Medical Practice Needs Right Now” to prevent cash leakage and fraud.
7. Speed up the deposit of cash to your bank. Utilize remote deposit services which enable a practice to deposit checks into a bank account from its office by scanning a digital image of a check into a computer and the transmitting the image to the bank.
8. Benchmark your practice’s accounts receivable billing and collection process. Compare your aging schedule, net collection percentage and days sales in accounts receivable with those or your peers by using surveys from MGMA, the AMA or other organizations.
9. Review practice expenses. Benchmark your largest expenses for staff and office space with those of your peers. Look for other expenses that would be easy to reduce. Remember that a dollar saved in expense will result in a dollar increase in the bottom line and cash flow. Conversely, a dollar of additional revenue will not result in a dollar increase in the bottom line and cash flow because of variable costs associated with the production of the income.
10. Plan for cash flow disruptions. Every practice experiences a disruption in cash flow from time to time. A doctor goes on maternity leave or takes a leave of absence, for example. Or perhaps you know from experience that next year’s conversion to ICD-10 will entail additional administrative time and payment delays. Cash flow modeling can indicate when and to what degree you can expect a cash flow crunch. This advance warning enables you to take proactive steps to smooth out rough patches in cash flow, such as taking out a short-term line of credit.

Provisions affecting businesses

Provisions affecting individuals

An ongoing battle

How your "innovative" vehicle can save you more money

On May 15^th, 2013 the Colorado Legislature signed a bill that has the potential to significantly boost the tax benefit of owning or leasing alternative fuel and/or electric vehicles. House Bill 13-1247 extends the availability of credits for certain “innovative” vehicles and simplifies the calculation of these credits. Purchasers and lessee’s are now potentially eligible for up to a $6,000 credit on their individual or business Colorado income tax return for purchases/lease agreements made during the 2013 tax year through tax year 2021. The bill expands the availability of this credit to include the purchase of both new and used plug-in electric and plug-in hybrid electric vehicles. Also, non-plug-in vehicles with a minimum fuel efficiency of 40 mpg or greater, may qualify for the credit, if purchased during 2013.

It is important to note, however, that used vehicles are only eligible if the Colorado credit has not been previously claimed on that vehicle. The amount of the credit is dependent upon the vehicle specifications and purchase price, adjusted for any eligible credits, grants, and/or rebates. Also, for taxpayers that have already purchased a vehicle relying on information from the prior law, if that law provides more favorable treatment, it may still be utilized.

For those of you considering the purchase of a fuel efficient vehicle, for business use or pleasure, we would be happy to assist you with determining the potential tax savings available as a result of the newly modified credit. Please call Jordan Empey, Tax Manager, at  (719) 630-1186 or email him at jempey@skrco.com.