On Dec. 22, 2017, President Donald Trump signed the tax reform bill, called the Tax Cuts and Jobs Act, into law, after it passed both the U.S. Senate and the U.S. House of Representatives.
This tax reform bill, drafted based on a tax reform plan that was developed in consultation with the Trump administration, will make significant changes to the federal tax code. Specifically, the tax reform bill will have a substantial impact on businesses.
For example, it:
- Lowers the corporate tax rate—Beginning in 2018, the bill reduces the corporate tax rate to 21 percent (down from 35 percent) and eliminates the corporate Alternative Minimum Tax (AMT), in an effort to make American corporations more competitive globally.
- Creates a new tax deduction for small businesses—The bill establishes a new 20 percent tax deduction for all businesses conducted as sole proprietorships, partnerships, LLCs and S corporations.
- Allows “expensing” of capital investments—The bill allows businesses to immediately write off (or “expense”) the cost of new investments for at least five years.
- Repeals or restrict many existing business deductions and credits—Because the bill substantially reduces the tax rate for all businesses, it also eliminates the existing domestic production (Section 199) deduction, and repeals or restricts numerous other special exclusions and deductions (including those for employer provided transportation and commuting benefits). However, the bill explicitly preserves business credits related to research and development and low-income housing, as well as deductions or exclusions for employer provided dependent care assistance programs (DCAPs), education assistance programs and adoption assistance programs.
- Ends “offshoring” incentives—The bill ends the incentive to offshore jobs and keep foreign profits overseas by exempting them when they are repatriated to the United States. It imposes a one-time, low tax rate on wealth that has already accumulated overseas so there is no tax incentive to keep the money offshore.
- Repeals the individual mandate tax penalty imposed under the Affordable Care Act (ACA), effective in 2019.
However, the tax reform bill does not affect the following tax provisions:
- Tax treatment of employer-sponsored health plans; and
- The ACA’s Cadillac tax on high-cost employer-sponsored health coverage.
Scurich Insurance will continue to monitor the tax reform process for any future updates.
On Aug. 31, 2017, a federal judge in Texas struck down the Department of Labor’s (DOL) 2016 overtime rule, stating that the DOL had exceeded its authority by issuing a new salary level requirement for white collar exempt employees.
The DOL is unlikely to appeal this court decision because the ruling does not put into question the DOL’s general authority to set any type of salary limit.
However, the DOL has also signaled its intention to propose a new overtime rule. The DOL has published a request for information (RFI) to invite the public to comment on the issues the DOL should consider before proposing a new overtime rule.
Employers are not required to comply with the 2016 overtime final rule. This ruling ensures that the rule will not take effect. Employers should monitor developments on a new overtime rule proposal.
DOL Rule on White Collar Exemptions
The Fair Labor Standards Act (FLSA) establishes minimum wage and overtime pay protections for many workers in the United States. However, the FLSA exempts certain workers, such as white collar employees, from these protections. The white collar exemptions apply to certain executive, administrative, professional, outside sales, computer and highly compensated employees.
To qualify for the executive, administrative or professional (EAP) exemption, an employee must meet a salary basis test, a salary level test and a duties test. The DOL’s 2016 overtime rule would have increased the required salary level from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). Highly compensated employees (HCEs) must also satisfy the salary basis and duties tests to be considered exempt, but a different salary level applies to them. The DOL rule would have increased the required salary level for highly compensated employees from $100,000 per year to $134,004 per year.
Challenges to the 2016 Overtime Rule
In September 2016, a coalition of 21 states and a number of business groups filed two separate lawsuits challenging the new rule. These two lawsuits were combined in October. On Nov. 16, 2016, the court held a hearing on whether to grant an emergency injunction blocking the implementation of the rule. The judge presiding over the case issued his written ruling granting the injunction on Nov. 22, 2016.
On Aug. 31, 2017, the same federal court struck down the 2016 overtime rule stating that the DOL exceeded its authority when imposing the $913 per week ($47,476 per year) and $134,004 per year salary level limits.
The Future of FLSA Overtime Regulations
On July 26, 2017, the DOL published an RFI regarding the overtime exemptions for executive, administrative, professional, outside sales and computer employees. The purpose of the RFI is to gather information from the public before formulating a proposal to amend the FLSA or its regulations.
The RFI does not place any responsibilities on employers. However, any individual or organization interested in responding to the RFI must submit their comments to the DOL by Sept. 25, 2017. The DOL is encouraging individuals and organizations to submit their comments electronically, using the instructions in the Federal eRulemaking Portal.
When submitting a comment, employers should remember that, once submitted, comments are considered public records and will be published without editing. This includes any personal information provided.
Please contact Scurich Insurance for more information regarding current overtime rules, compliance with the FLSA or the RFI on overtime regulations.
Final Forms for 2017 ACA Reporting Released
On Sept. 28, 2017, the Internal Revenue Service (IRS) released final 2017 forms for reporting under Internal Revenue Code (Code) Sections 6055 and 6056.
- 2017 Forms 1094-C and 1095-C are used by applicable large employers (ALEs) to report under Section 6056, as well as for combined Section 6055 and 6056 reporting by ALEs who sponsor self-insured plans. Related draft instructions were released on Aug. 31, 2017, and have not been finalized at this time.
- 2017 Forms 1094-B and 1095-B are used by entities reporting under Section 6055, including self-insured plan sponsors that are not ALEs. Related draft instructions were released on Aug. 31, 2017, and have not been finalized at this time.
The 2017 forms are substantially similar to the 2016 versions, except that sections related to expired Section 4980H Transition Relief were removed.
Employers should become familiar with the revisions to the forms, and prepare to file these final versions in early 2018.
The Affordable Care Act (ACA) created reporting requirements under Code Sections 6055 and 6056. Under these rules, certain employers must provide information to the IRS about the health plan coverage they offer (or do not offer) or provide to their employees. Each reporting entity must annually file all of the following with the IRS:
- A separate statement (Form 1095-B or Form 1095-C) for each individual who is provided with minimum essential coverage (for providers reporting under Section 6055), or for each full-time employee (for ALEs reporting under Section 6056); and
- A transmittal form (Form 1094-B or Form 1094-C) for all of the returns filed for a given calendar year.
Reporting entities must also furnish related statements (Form 1095-B or 1095-C, or a substitute form) to individuals.
Forms must generally be filed with the IRS no later than Feb. 28 (March 31, if filed electronically) of the year following the calendar year to which the return relates. Individual statements must be furnished to individuals on or before Jan. 31 of the year immediately following the calendar year to which the statements relate.
2017 Forms and Instructions
The 2017 forms, as well as the 2017 draft instructions, are substantially similar to the 2016 versions. However, note the following changes:
- Section 4980H Transition Relief. Several forms of transition relief were available to some employers under Section 4980H for the 2015 plan year (including any portion of the 2015 plan year that fell in 2016). However, no Section 4980H transition relief is available for 2017. As a result, the 2017 draft instructions for Forms 1094-C and 1095-C were revised to remove references to Section 4980H transition relief. In addition, Form 1094-C has been revised to remove references to this transition relief. Specifically, the following two sections on Form 1094-C related to this transition relief have been designated as “Reserved” and should not be used: Part II, in the “Certifications of Eligibility” Section on Line 22, Box C; and Part III, in the “ALE Member Information – Monthly” table, column (e).
- Instructions for Recipient. Both individual statements (Forms 1095-B and 1095-C) include an “Instructions for Recipient” section. On both of the 2017 Forms 1095-B and 1095-C, the following paragraph was added: “Additional information. For additional information about the tax provisions of the Affordable Care Act (ACA), including the individual shared responsibility provisions, the premium tax credit, and the employer shared responsibility provisions, see www.irs.gov/Affordable-Care-Act/Individuals-and-Families or call the IRS Healthcare Hotline for ACA questions (1-800-919-0452).”
- Updated Penalty Amounts. Both sets of 2017 draft instructions include updated penalty amounts for failures to file returns and furnish statements in 2017. The adjusted penalty amount is $260 per violation, with an annual maximum of $3,218,500 (up from a maximum of $3,193,000, for 2016).
- Code Series 2 (Section 4980H Safe Harbor Codes and Other Relief). The 2017 draft instructions for Forms 1094-C and 1095-C clarify that there is no specific code to enter on line 16 to indicate that a full-time employee who was offered coverage either did not enroll or waived the coverage.
- Corrected Forms 1095-C. The 2017 draft instructions for Forms 1094-C and 1095-C include additional information for employers that have errors on Forms 1095-C. Specifically, the draft instructions indicate that Forms 1095-C filed with incorrect dollar amounts on line 15, Employee Required Contribution, may fall under a safe harbor for certain de minimis errors. The safe harbor generally applies if no single amount in error differs from the correct amount by more than $100. If the safe harbor applies, employers will not have to correct Form 1095-C to avoid penalties. However, if the recipient elects for the safe harbor not to apply, the employer may have to issue a corrected Form 1095-C to avoid penalties. For more information, see Notice 2017-9.
- Reporting Catastrophic Coverage for 2017. The 2017 draft instructions for Forms 1094-B and 1095-B clarify that reporting for catastrophic coverage enrolled in through the Exchange remains optional for 2017. It was expected that health insurance issuers and carriers would be required to report this coverage beginning in 2017. However, the instructions clarify that reporting of catastrophic coverage enrolled in through the Exchange will remain optional for coverage in 2017 (filing in 2018).
- Formatting Returns Filed with the IRS. Both sets of 2017 draft instructions clarify that all returns filed with the IRS must be printed in landscape format.
In addition, a prior draft version of Form 1095-C for 2017 clarified that the “Plan Start Month” box in Part II of Form 1095-C will remain optional for 2017. The draft instructions for Forms 1094-C and 1095-C indicate that this box may be mandatory for the 2018 Form 1095-C.
Although the forms have been finalized for 2017 reporting, keep in mind that the IRS may include additional clarifications in the final instructions, once those are released.
The 2016 versions of these forms are also available on the IRS website:
These forms must have been filed with the IRS no later than Feb. 28, 2017 (March 31, 2017, if filing electronically). However, the IRS extended the due date for furnishing individual statements for 2016 an extra 30 days, from Jan. 31, 2017, to March 2, 2017. The IRS does not anticipate extending the filing or furnishing deadlines for 2017 reporting.
According to the IRS, information returns under Sections 6055 and 6056 may continue to be filed after the filing deadline (both on paper and electronically). Employers that missed the filing deadline should continue to make efforts to file their returns as soon as possible.
The IRS also previously released:
Please contact Scurich Insurance for more information on reporting under Code Sections 6055 and 6056.