COVID-19 Alert: Congress Extends Tax Credits for Paid Sick and Family Leave Under the Families First Coronavirus Response Act, but no Longer Mandates Leave

By Patrick M. Watts*

In March 2020, the Families First Coronavirus Response Act (“FFCRA”) became law with an April 1, 2020 effective date and an expected expiration date of December 31, 2020. As discussed in Zashin & Rich’s April 7, 2020 Alert (which you can access here), the FFCRA provides six qualifying reasons related to COVID-19 under which an employer is required to provide paid sick leave and/or paid family leave to an employee. In addition to mandating that employers provide paid sick leave and/or paid family leave, the FFCRA provided tax credits to certain employers that paid employees for sick leave and/or family leave.

On December 21, 2020, both the House and Senate passed the Consolidated Appropriations Act, 2021. The bill includes amendments to the FFCRA’s tax credit provisions, which extend the tax credits through March 31, 2021. The President signed the bill into law on December 27, 2020. While the bill extends the tax credits, the bill does not extend the FFCRA’s mandate that employers provide paid sick leave and/or paid family leave. Rather, the bill provides employers the option of continuing to provide FFCRA leave. For employers that elect to do so, the bill provides employers with the continued tax credit through March 31, 2021. This bill also does not affect state and local laws which may provide additional benefits for employers and employees alike.

Now that the President signed the bill into law, employers need to consider whether they will continue to voluntarily offer paid leave pursuant to the FFCRA (and receive the associated tax credits). Employers that implemented FFCRA policies without expiration dates should convey to their employees whether they will continue offering FFCRA leave through March 31, 2021. Those employers with FFCRA policies that expire on December 31, 2020 and that wish to continue providing leave should amend their policies to reflect the new March 31, 2021 expiration date and recirculate those policies to staff.

Employers with questions related to the new bill or revising their FFCRA policies and practices should contact counsel.

*Patrick M. Watts, an OSBA Certified Specialist in Labor & Employment Law, regularly advises clients on COVID-19-related matters. If you have questions about this new legislations, the CARES Act, the FFCRA, or any employment law matter, please contract Patrick at pmw@zrlaw.com or (216) 696-4441.

U.S. Secretary of Labor Releases Temporary Rules Implementing The Emergency Family and Medical Leave Expansion Act and The Emergency Paid Sick Leave Act

By Patrick M. Watts*

On April 6, 2020, the Secretary of Labor officially published temporary rules through the Federal Register concerning the Emergency Family and Medical Leave Expansion Act and that Emergency Paid Sick Leave Act of the Families First Coronavirus Response Act (“FFCRA”). The FFCRA and these temporary rules are effective from April 1, 2020 through December 31, 2020, after which, they will have no continued effect.

This alert summarizes some of the significant aspects of the temporary regulations. Please consult with your Z&R contact to discuss your particular circumstances.

Paid Leave Entitlements Include Employees Unable to Work Because of Stay at Home Orders.

Under the FFCRA, there are six qualifying reasons for which an employer is required to provide paid sick leave to an employee, all of which relate to COVID-19. One of these qualified reasons includes when an employee is unable to work because they are subject to a Federal, State, or local COVID-19 quarantine or isolation order. The new regulations state that a quarantine or isolation order includes quarantine, isolation, containment, shelter-in-place, or stay-at-home orders issued by any Federal, State, or local government authority that cause the employee to be unable to work even though his or her employer has work that the employee could perform but for the order. This also includes when a Federal, State, or local government authority has advised categories of citizens (e.g., of certain age ranges or of certain medical conditions) to shelter in place, stay at home, isolate, or quarantine, causing those categories of employees to be unable to work even though their employers have work for them.

Child Care Provider Includes Family Members Who Are Uncompensated.

Another qualifying reason for which an employer is required to provide paid sick leave and Expanded FMLA leave includes when an employee is unable to work because their son or daughter’s school or place of care has closed or their child care provider is unavailable due to COVID-19 related reasons. While the term “Child Care Provider” was defined under FFCRA as a provider who receives compensation for providing child care services on a regular basis, the new regulations clarify that an eligible child care provider need not be compensated or licensed if he or she is a family member or friend, such as a neighbor, who regularly cares for the employee’s child.

Paid Leave Entitlements Include Employees “Affirmatively” Seeking Medical Diagnosis.

A third qualifying reason for which an employer is required to provide paid sick leave is when the employee is experiencing symptoms of COVID-19 and seeking medical diagnosis from a healthcare provider. The temporary rules state that experiencing symptoms includes fever, dry cough, shortness of breath, or any other COVID-19 symptoms identified by the U.S. Centers for Disease Control and Prevention. Additionally, “seeking medical diagnosis” includes taking affirmative steps to obtain a medical diagnosis, such as making, waiting for, or attending an appointment for a test for COVID-19.

Intermittent Leave is Permitted If the Employer and Employee Agree.

An employee is permitted to take intermittent leave only if the employer and employee agree. The employer and employee may make the agreement in writing, but a clear and mutual understanding between the parties is sufficient. If agreed upon, intermittent leave may be taken in any increment of time agreed to by the employer and employee.

Employee Notice of Need for Leave.

An employer can require an employee to provide reasonable notice after the first workday (or part of) for which the employee takes paid sick leave for any reason other than caring for a child or dependent whose school or place of childcare is closed. What constitutes “reasonable notice” depends on the facts of the situation. If an employee does not give notice, the employer should notify the employee of the failure and provide an opportunity for required documentation prior to denying the request for leave. For leave requested to care for a son or daughter whose school or place of care or child care provider is closed, the employee shall provide notice as soon as practicable. In either event, it is reasonable for the employer to require the employee to comply with the employer’s usual notice and procedural requirements for requesting leave unless there are extenuating circumstances.

Documentation of Need for Leave.

An employee is required to provide the following documentation to their employer prior to taking paid sick leave under the EPSLA or expanded family and medical leave under the EFMLEA:

1. Employee’s name;
2. Date(s) for which leave is requested;
3. Qualifying reasons for the leave; and
4. Oral or written statement that the employee is unable to work because of the qualified reason for leave.

In addition, to take paid sick leave for a qualifying COVID-19 reason related to a quarantine or isolation order, an employee must provide the employer with the name of the government entity that issued the quarantine or isolation order. To take paid sick leave for a qualifying COVID-19 reason related to a health care provider advising the employee to self-quarantine, the employee must provide the employer with the name of the health care provider.

To take paid sick leave for a qualifying COVID-19 related reason under the EFMLEA, an employee must provide:

1. The name of the son or daughter being cared for;
2. The name of the school, place of care, or child care provider that has closed or become unavailable; and
3. A representation that no other suitable person will be caring for the son or daughter during the period for which the employee takes paid sick leave or expanded family and medical leave.

An employer may also request an employee to provide additional material as needed for the employer to support a request for tax credits pursuant to the FFCRA. If these materials have been requested and not provided, the employer is not required to provide leave. For more information on the tax credits, please click here.

Z&R has developed form policies, request forms and other guidance documents related to these new laws and COVID-19 related issues. Z&R will continue to monitor the latest information governing employers. Previous Z&R articles addressing employer requirements and considerations during the COVID-19 pandemic can be found here:

• Coronavirus Considerations for Employers
• Ohio Provides Some Cover for Employers and Employees in Wake of COVID-19
• Federal COVID-19 response mandates paid leave (for now)
• Application of the Worker Adjustment and Retraining Notification Act (“WARN”) to Closures Caused by the COVID-19 Pandemic
• Ohio BWC: Allows Deferment of Premium Payments and Addresses Compensability of Contracting COVID-19
• Ohio Department of Insurance Provides Coverage Flexibility for Ohio Employees in the Wake of COVID-19
• FLSA Implications for Employers Considering Reductions in Pay
• Ohio Legislature Passes Emergency COVID-19 Response Legislation
• U.S. Department of Labor Issues Families First Coronavirus Response Act Model Notice
• Loans, Unemployment Assistance, and Other Relief Under the CARES Act

*Patrick M. Watts, an OSBA Certified Specialist in Employment & Labor Law, regularly advises clients on all employment related matters. If you have questions about the CARES Act or any employment law questions, please contact Patrick at pmw@zrlaw.com or (216) 696-4441.

SHOW ME THE MONEY: IRS Issues First FAQs on Employer Tax Credit for Paid Family and Medical Leave

*By Stephen S. Zashin

The recently enacted Tax Cuts and Jobs Act of 2017 (the “Act”) created an employer tax credit for paid family and medical leave provided to employees. Specifically, Internal Revenue Code section 45S provides a general business tax credit to employers that voluntarily offer paid family and/or medical leave to their employees. On April 9, 2018, the Internal Revenue Service (“IRS”) issued a set of frequently asked questions (“FAQs”) that provides guidance to employers planning to take advantage of the tax credit.

The FAQs provide an informative overview of the tax credit and clarify several definitions. For instance, the FAQs provide that for purposes of the credit, “paid family and medical leave” includes time off for the following:

• Birth of an employee’s child and to care for the child;
• Placement of a child with the employee for adoption or foster care;
• To care for the employee’s spouse, child, or parent who has a serious health condition;
• A serious health condition that makes the employee unable to perform the functions of his or her position;
• Any qualifying exigency due to an employee’s spouse, child, or parent being on covered active duty (or having been notified of an impending call or order to covered active duty) in the Armed Forces; and
• To care for a service member who is the employee’s spouse, child, parent, or next of kin.

The FAQs note that an employer cannot claim the credit for any paid leave provided by the employer to comply with a state or local law or for leave paid by a state or local government. Additionally, if an employer provides paid vacation leave, personal leave, or medical or sick leave, that paid leave is not considered “family and medical leave” and is not eligible for the credit.

Other FAQs address the effective dates of the credit, how the tax credit is calculated, and how to adjust the deduction for wages if an employer elects the credit. Notably, unless extended by Congress, the credit only applies to tax years 2018 and 2019.

The IRS expects to provide additional information on the following:

• When the written policy must be in place?
• How paid “family and medical leave” relates to an employer’s other paid leave?
• How to determine whether an employee has been employed for “one year or more?”
• How state and local leave requirements will impact the credit?
• How members of a controlled group of corporations and businesses under common control are treated as a single taxpayer in determining the credit?

Z&R will continue to monitor additional IRS guidance on the paid family and medical leave tax credit and report any significant developments. Until additional guidance is issued, employers should contact counsel to determine if they can take advantage of this tax credit.

*Stephen S. Zashin is an OSBA Certified Specialist in Labor and Employment Law and the head of Zashin & Rich’s Labor, Employment and Sports Law Groups. Stephen regularly litigates FMLA cases and provides employers with FMLA guidance. For more information about the paid family and medical leave tax credit, please contact Stephen at ssz@zrlaw.com or 216.696.4441.

The Supreme Court Legislates New Life into the Affordable Care Act

By Patrick J. Hoban*

The Affordable Care Act (ACA) has created enormous administrative, operational, and financial challenges for public and private sector employers large and small. Since its enactment on March 23, 2010, the ACA has generated enormous controversy and questions about its legality. Yet, the ACA has survived and its mandates and regulations – including the Employer Mandate fines and reporting requirements – have required employers to expend time and resources to adapt, adjust, and prepare.

On June 25, 2015, the latest installment of the ACA saga came to a crescendo when the U.S. Supreme Court issued its long-awaited decision in King v. Burwell, Case No. 14-114 (Jun. 25, 2015). The sole issue before the Court was whether individuals who obtain health insurance coverage through a health insurance exchange “established by” the Federal Government and not by a “State” were eligible for ACA tax credits. Through an exercise of legal flexibility that delighted the ACA’s proponents and dazed its detractors, the Court upheld an Internal Revenue Service (IRS) regulation and interpreted the ACA to extend tax credits to individuals who obtain health insurance coverage through State or federally-established health insurance exchanges. If the Court had decided differently, the decision would have released employers in States that had not established Exchanges (35 of the 50 States – including Ohio) from the burdens of the Employer Mandate.

This is how we got here:

Background: Among its many, far reaching, and onerous provisions, the ACA requires that health insurance providers issue coverage to any applicant regardless of existing medical conditions. The ACA also requires insurers to adopt “community rating” for health insurance premiums which significantly restrict an insurer’s ability to set premiums based upon traditional actuarial factors. To guarantee that a sufficient number of relatively healthy individuals obtain coverage (and offset the costs of guaranteed issue and premium rate restrictions), the ACA further requires most individuals to purchase qualifying coverage or pay an annual “tax” (the Individual Mandate). With the goal of fostering a competitive marketplace for compliance with the Individual Mandate, the ACA introduced health insurance Exchanges – in short, online shopping forums for health insurance. The ACA provides that States may “establish” Exchanges for their citizens or, if a State elects not to, the Federal Government will establish “such Exchange” and operate it in the State.

To offset expected increases in health insurance premium costs generated by guaranteed issue, minimum essential coverage standards and rating limitations, the ACA created refundable, advanceble tax credits for individuals who earn between 100 and 400% of the Federal Poverty Line. To be eligible for an ACA tax credit, an individual must fall within the required income range, obtain coverage through an “Exchange established by the State,” and not have been offered group coverage by his employer.

In the years following the ACA’s enactment, 16 States and the District of Columbia established Exchanges at great cost to those States, and, through federal grants, the U.S. Treasury. The remaining 34 States (including Ohio) chose not to and the Federal Government established Exchanges to operate in those States. In 2013, the IRS issued a regulation interpreting the ACA to provide that tax credits were available to an individual who obtained coverage through an Exchange “established by the State” or established by the Federal Government. Accordingly, in 2014, the first year that tax credits were available, the IRS granted tax credits to qualifying individuals regardless of whether they obtained coverage through a “State established” or a federally established Exchange. The regulation was challenged in two separate actions on grounds that the ACA’s language clearly stated that only individuals who obtained coverage through an “exchange established by a State” were eligible for tax credits. In Halbig v. Burwell, 14-5018 (D.C. Cir. Jul. 22, 2014), the D.C. Circuit struck down the IRS regulation. On the same day, in King v. Burwell, 14-1158 (4th Cir. Jul. 22, 2014), the Fourth Circuit upheld the IRS regulation.

While the Obama Administration appealed the Halbig decision to the full D.C. Circuit for en banc review, the Plaintiffs in King appealed to the Supreme Court which accepted the case based on the split between the circuit courts. Notwithstanding the ACA’s myriad provisions affecting insurers, health insurance providers and individuals, employers – especially “Applicable Large Employers” (i.e., employers with 50 or more full-time employees or full-time equivalents) – had a dog in the fight.

Under the ACA’s Employer Mandate, Applicable Large Employers face fines of from $2,000 to $3,000 per year per full-time employee if they do not offer group health insurance coverage to full-time employees and their dependents that provides “minimum essential coverage” as established by the ACA, provides “minimum value” (pays for at least 60% of benefits costs), and is affordable (employee premium payments are less than 9.5% of their monthly compensation). Additionally, Applicable Large Employers are required to file multiple forms with the IRS (and provide copies to each employee) annually to verify employee access to coverage, employee premium payments, minimum value, and affordability. However, all of the Employer Mandate requirements were conditioned on a full-time employee’s eligibility for a tax credit for coverage obtained through an Exchange. In short, if an employee obtained coverage through a federally established Exchange and was not eligible for a tax credit, his employer would not be liable for Employer Mandate fines or reporting requirements (e.g., Ohio employers). A decision striking down the IRS tax credit regulation would have essentially nullified the Employer Mandate in Ohio and other States that did not establish Exchanges.

The Decision: In an opinion written by Chief Justice Roberts, the six-member Court majority first concluded that the phrase “established by a State” was ambiguous. It then determined that, because the issue of whether tax credits were available to individuals enrolled through federally-established exchanges was “key” to the operation of the ACA, Congress could not have intended to delegate authority to make that decision to the IRS. Then, based on analysis of the context of the ACA’s tax credit provisions, the Court held that the ACA’s overall purpose meant that tax credits had to be available under exchanges established by the Federal Government and not only those “established by the State.” The Court summarized its decision:

Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. [The ACA] can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.

The majority also recognized that the procedure by which the ACA’s 900 pages were enacted resulted in “inartful drafting” because the Obama Administration and then Democrat Congressional majority “wrote key parts of the Act behind closed doors,” used a complicated budgetary process “which limited opportunities for debate and amendment,” and “bypassed the normal 60-vote filibuster requirement.” This process, the majority concluded, “does not reflect the type of care and deliberation that one might expect of such significant legislation.”

The Dissent: The dissenting opinion, written by Justice Scalia, rejected the majority’s conclusion that the phrase “exchange established by the State” was ambiguous. In short, the dissent contended that congressional intent is most clearly expressed through the plain language of the statute, and the plain language states that tax credits are not authorized for coverage through exchanges established by the Federal Government: “Words no longer have meaning if an Exchange that is not established by the State is ‘established by the State.’” Characterizing the majority’s interpretation as “jiggery-pokery,” the dissent accuses the majority of concocting ambiguity to “rewriting” the ACA based on its determination to correct the ACA’s structural flaws based on an understanding of its purpose that is contrary to its terms.

The dissent further objected to the majority’s reliance on the importance of tax credits to the overall structure of the ACA stating that, if denying tax credits to coverage through federally-established exchanges it would “only show that the statutory scheme contains a flaw, [and] would not show that the statute means the opposite of what it says.” Rejecting the majority’s “inartful drafting” rationale, the dissent asserted that “This Court . . . has no free-floating power ‘to rescue Congress from its drafting errors.” To this point, the dissent further stated:

This Court holds only the judicial power – the power to pronounce the law as Congress has enacted it. We lack the prerogative to repair laws that do not work out in practice, just as the people lack the ability to throw us out of office if they dislike the solutions we concoct. We must always remember, therefore, that “our task is to apply the text, not to improve upon it.”

****

Rather than rewriting the law under the pretense of interpreting it, the Court should have left it to Congress to decide what to do about the Act’s limitations of tax credits to state Exchanges.

What Do Employers Do Now: The King decision ends the most serious challenge to the ACA’s continued existence. Had the majority’s decision prohibited tax credits for coverage through federally-established exchanges, the ACA could not have survived without congressional action (unlikely) or the establishment of State exchanges by most of the 34 States that opted out. There are other, ongoing legal challenges to the ACA’s more limited provisions, and other potential challenges looming once the Employer Mandate takes full effect in January 2016. However, for now, employers must continue to identify their risks and obligations under the ACA by evaluating each employee’s “full-time” status under the ACA, determining whether to offer group coverage to “full-time” employees, confirm the “affordability” and “minimum value” of coverage offered, and comply with the bevy of reporting requirements arising under the ACA.

The Court has ruled and, while the political process may bring changes to the ACA in the next two years, the ACA is the law of the land.

Patrick J. Hoban, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of private and public sector labor relations. Pat regularly counsels employers on compliance with the ACA and has done so since 2010. Pat also frequently speaks on ACA issues. For more information about the ACA, labor & employment law, or any other workplace related issues, please contact Pat | pjh@zrlaw.com | 216.696.4441.

ACA Tax Credit Eligibility/Employer Mandate Fines Headed to the U.S. Supreme Court Ahead of Schedule - Employer ACA Liability Hangs in the Balance

By Patrick J. Hoban*

On July 25, 2014, Zashin & Rich Co., L.P.A. (“Z&R”) notified employers about the two conflicting opinions issued by federal courts of appeals over whether the IRS may grant tax credits to individuals who reside in states with Affordable Care Act (“ACA”) health care Exchanges established and operated by the federal government. See Halbig v. Burwell, No. 14-5018 (D.C. Cir. Jul. 22, 2014) (“Halbig”), King v. Burwell, No. 14-1158 (4th Cir. Jul. 22, 2014) (“King”).

The Halbig decision held that individuals who obtained health insurance through federal Exchanges were not eligible for tax credits under the ACA. However, the D.C. Circuit vacated Halbig on September 4, 2014, after the U.S. Department of Health and Human Services, the U.S. Justice Department, and the Internal Revenue Service (“IRS”) sought and were granted en banc review. At that point, there was no circuit split on the ACA tax credit issue as the Fourth Circuit in King upheld the IRS rule granting tax credits to individuals who obtained health insurance through federal Exchanges. However, the plaintiffs in King appealed the Fourth Circuit decision to the U.S. Supreme Court.

In the absence of a circuit split, many observers concluded that the Supreme Court would bide its time and await the decision of the full D.C. Circuit in Halbig. However, true to the unusual judicial and legislative events that have surrounded the ACA since its enactment in 2010, four justices of the Supreme Court granted review in King on November 7, 2014. This development renders the pending D.C. Circuit en banc decision in Halbig less significant as the issue will be addressed directly by the Supreme Court. It is expected that the Supreme Court will hear oral arguments this spring and render a decision by the end of June 2015.

As Z&R explained in its July Alert, the stakes for the ACA and employers’ liability under the Employer Mandate could not be higher. If the Supreme Court reverses King and strikes down the IRS rule, it will in effect render the Employer Mandate a nullity in the 34 states (including Ohio) which did not elect to establish “state operated” Exchanges. This is because employer fines under the Employer Mandate are conditioned upon full-time employees obtaining health insurance coverage through an Exchange and receiving tax credits to pay for that coverage under the ACA.

It is estimated that approximately 85% of individuals who obtained health insurance coverage through state and federally operated Exchanges in 2014 received some level of tax credit. In addition to disrupting the application of ACA Employer Mandate fines in states without state operated Exchanges, if the Supreme Court strikes down the IRS rule, it will significantly disrupt the application of individual taxes under the ACA’s Individual Mandate. Furthermore, such an outcome will pressure states that elected not to establish Exchanges to act to maintain existing ACA tax credit eligibility for their citizens.

In short, uncertainty will continue to surround the ACA’s Employer Mandate for some months. While a Supreme Court ruling on the “make-or-break” tax credit eligibility issue will clarify some questions, it is just as likely to generate more of the confusion that has characterized the ACA since 2010. As it has since the ACA was first introduced in 2009, Z&R will track ACA developments and provide regular updates and guidance to employers so they can successfully navigate the ACA maze.

Patrick J. Hoban, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of private and public sector labor relations. For more information about the ACA or labor & employment law, please contact Pat | pjh@zrlaw.com | 216.696.4441

ACA Tax Credits/Employer Mandate Fines Undermined by One Federal Circuit Court but Upheld in Another – Justice Roberts: Are You Ready for ACA Round 2?

*By Patrick J. Hoban

On July 22, 2014, two federal courts of appeals issued conflicting opinions over whether the IRS may grant tax credits to individuals who reside in states with Affordable Care Act (“ACA”) health care Exchanges established and operated by the federal government.  See Halbig v. Burwell, No. 14-5018 (D.C. Cir. Jul. 22, 2014) (“Halbig”), King v. Burwell, No. 14-1158 (4th Cir. Jul. 22, 2014) (“King”). 

The specific language of the ACA makes tax credits available to qualified individuals to subsidize the purchase of health insurance through “an Exchange established by the State.”  This language seemingly limits tax credits to coverage obtained through a “state-established” Exchange and not an Exchange established by the Federal Government in a state that has elected not to establish an Exchange (i.e., Ohio).  However, in 2013, the IRS promulgated regulations making tax credits available to qualifying individuals who purchase health insurance through an Exchange established by a state or by the Federal Government.  In Halbig and King, individuals argued that the ACA’s clear language limits tax credits to individuals who obtain healthcare through state-established Exchanges and that the IRS regulations were unlawful.

In Halbig, the D.C. Circuit Court of Appeals agreed, found the ACA language clear, and concluded “established by the State” means what it plainly says.  Since a federally-established Exchange is not an “Exchange established by the State,” the ACA does not authorize tax credits for insurance purchased on federal Exchanges.  The court further held that the ACA’s broad policy goals (facilitating universal health care coverage at lower costs) do not alter this plain language.  However, one of the three judges in Halbig dissented and concluded that, read in context and considered in light of the ACA’s larger purpose, Exchanges “established by the State” included federally-established Exchanges

Within hours of Halbig’s release, the Fourth Circuit Court of Appeals held that the IRS regulation granting tax credits for coverage obtained through federally-established Exchanges was lawful.  In King, the Fourth Circuit determined that, when read in context, the ACA tax credit provisions were “ambiguous.”  Although the court recognized that “common sense” and “a literal reading” favored the individual’s argument, when considered in light of the textual ambiguity and ACA’s overall purpose, the Fourth Circuit concluded that the U.S. Congress, through the ACA, had delegated to the IRS the authority to determine whether tax credits are available on federal Exchanges.  Accordingly, the court concluded that the IRS made a permissible statutory interpretation and that the tax credit regulation was lawful

Should Halbig stand, it will have a monumental impact on the ACA’s future.  Specifically, the Employer Mandate, which fines applicable large employers who do not offer group coverage to full-time employees and their dependents or offers “unaffordable” coverage or coverage that does not provide “minimum value,” will be unenforceable in the 34 states (including Ohio) in which federally-established Exchanges operate.  Because ACA Employer Mandate fines are conditioned on one full-time employee’s eligibility for ACA tax credits, without tax credits there can be no Employer Mandate fines.

In addition to the enormous consequences for the operation of the Employer Mandate, if Halbig is upheld, many fewer individuals will have to comply with the ACA’s Individual Mandate, which requires people to maintain “minimum essential coverage” or pay a “tax.”  The Individual Mandate does not apply to individuals for whom the annual cost of health care coverage, less any tax credits, exceeds eight percent of their projected household income.  Thus, absent ACA tax credits, more individuals will be exempted from Individual Mandate taxes if they do not obtain coverage.  As a consequence, experts predict that the covered pools in the Exchanges will include individuals who make greater use of covered benefits, driving up the cost of coverage under Exchanges.

The U.S. Justice Department announced that it will seek en banc review of Halbig before the full D.C. Circuit Court of Appeals (which has a 7 to 4 Democrat-president appointed majority).  The D.C. Circuit stayed the decision in Halbig pending appeal and the IRS will continue to grant tax credits to individuals obtaining coverage through federally-established Exchanges.  At present, there is no word on whether Appellants in King will appeal.  However, given the starkly conflicting decisions and the enormous impact of a decision denying tax credits for coverage in federally-established Exchanges, the U. S. Supreme Court likely will decide whether the IRS may grant tax credits to individuals through federal Exchanges, and the fate of the Employer Mandate in 34 states including Ohio.

Zashin & Rich Co., L.P.A. will continue to track these cases and, as it has since the ACA was introduced in 2009, provide regular updates so employers have the information needed to avoid unplanned liability under the ACA.

*Patrick J. Hoban, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of private and public sector labor relations.  Pat has advised employers on the ACA since its introduction in 2009 and has counseled employers on ACA compliance strategies since the statute’s enactment in March 2010.  For more information about these court decisions, the ACA, or labor & employment law, please contact Pat (pjh@zrlaw.com) at 216.696.4441.

IF YOU BUILD IT THEY WILL COME: Tax Benefits for Employers Hiring New Employees

By Jessica Tucci

President Obama signed H.R. 2847- the Hiring Incentive to Restore Employment (HIRE) Act- into law on March 18, 2010. HIRE amends the Internal Revenue Code by providing two new tax benefits to employers hiring unemployed workers. The first tax benefit essentially exempts employers from paying their share of Social Security taxes (or 6.2%) on wages paid to newly hired employees after March 18, 2010. Employers still must pay their share of Social Security taxes from new hires and then claim the payroll tax benefit on their 2010 federal employment tax returns. The second tax benefit affords employers a general business tax credit of up to $1,000 per new employee if the employer retains the new employee for at least one year.

Tax benefits are not automatic. The employer must be a business, agricultural employer, tax-exempt organization or public college or university. Household employers do not qualify for the tax benefits. Employers must hire new employees between February 3, 2010 and January 1, 2011, and the new employee must fill a newly added position or a position that was previously occupied by an employee that voluntarily left or was terminated for cause. Finally, employers must obtain a form from the new employee attesting that he or she was unemployed for the 60 days prior to starting work or worked less than 40 hours total for a different employer during the 60 days prior to starting work. The Internal Revenue Service will post the new tax provisions and the required form in the coming weeks at www.irs.gov.

Health Care Reform Legislation Passes the House and Is On Its Way to the President – What Does It Mean for Employers?

*By Patrick J. Hoban

Last night, the U.S. House of Representatives passed the “Patient Protection and Affordable Care Act” – H.R. 3590 (the “Senate Bill”) – by a vote of 219-212. The U.S. Senate passed the identical bill on December 24, 2009, and, after President Obama signs the bill, it will become law. Supporters claim that the bill’s combination of taxes, regulations, and health insurance subsidies will result in “comprehensive” reform of health care in the United States. Opponents counter that the bill’s provisions are too costly and that its regulations will only serve to drive up the cost of health care and reduce access.

Among the Senate Bill’s many terms are provisions requiring employers employing more than 50 employees to pay an “assessment” to the federal government when one of its full-time employees is eligible for government health care subsidies based upon their compensation as a percentage of the Federal Poverty Limit. The Senate Bill defines “Full-Time” as any employee who works at least an average of 30 hours per week as determined by regulations to be issued by the Secretary of Health and Human Services in consultation with the Secretary of Labor. The Senate Bill also includes the following provisions which take effect on January 1, 2014:

• Employers who do not offer health care coverage meeting federal minimal essential coverage standards are required to pay the federal government a flat dollar amount per full-time employee;
  
  
• Employers who do offer health care coverage meeting federal minimal essential coverage standards are required to pay either $3,000.00 per subsidy-eligible employee or a flat dollar amount per each full-time employee, which ever is less;
  
  
• Employers who impose a waiting period before employees can enroll in employer provided health coverage are required to pay $400.00 per employee for 30-60 day waiting periods and $600.00 per employee for 60-90 day waiting periods;
  
  
• Employers who provide health care coverage meeting federal minimal essential coverage standards to their employees must provide a voucher equal to the employer’s cost of providing such coverage to employees whose income is less than 400% of the Federal Poverty Limit (e.g., $88,050.00 for a family of four) if the employee’s share of health insurance premiums is between 8% and 9.8% of their income and the employee chooses insurance coverage through a federal health insurance exchange.
  
  
• Employers must automatically enroll all employees for health care coverage, but employees may opt out of coverage.

In addition to the foregoing provisions, the Senate Bill also provides small employers with tax credits for offering their employees health care coverage. In tax years 2010-2013, employers with fewer than 25 employees and average annual wages of less than $50,000.00 may take a tax credit of up to 35% of employee health premiums if the employer pays at least 50% of the premium for minimal essential coverage. Additionally, until January 1, 2014, the federal government will reimburse employers who provide health insurance coverage for retirees over the age of 55 years but not Medicare-eligible for up to 80% of retiree health insurance claims up to $90,000.00. Reports indicate the President will sign the Senate Bill today or tomorrow.

Importantly, in addition to passing the Senate Bill, last night, the House also passed the “White House/Congressional Leadership Reconciliation Bill Health Care and Education Affordability Act of 2010” – H.R. 4872 (the “Reconciliation Bill”) by a vote of 220-211. The Reconciliation Bill contains a series of amendments to the Senate Bill and will have to get through the reconciliation process with at least 51 votes (as President of the Senate, Vice President Joe Biden can break any ties) and be signed by the President before becoming law. Importantly, the Reconciliation Bill changes some of the employer-specific provisions contained in the Senate Bill. The Senate is expected to take up the Reconciliation Bill this week.

In addition to the President’s signature, full implementation of the Senate Bill will require regulatory guidance from the Internal Revenue Service, the Department of Health and Human Services, and the Department of Labor. However, all employers should consult with their health insurance brokers, tax advisers, and review collective bargaining agreements to develop a strategy that allows them to best adapt to the drastically changed national health insurance landscape.

*Patrick J. Hoban, practices in all areas of labor and employment law, with a focus on private and public sector labor law. If you have any questions about the effect of recent health care legislation on employers, contact Pat Hoban at pjh@zrlaw.com or 216.696.4441.

President Obama Extends Unemployment Insurance

*By Stephen S. Zashin

President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009 (H.R. 3548) on Friday, November 6th as unemployment reached 10.2%. The Act will extend unemployment insurance benefits by 14 weeks in all states. States with higher average rates of unemployment (8.5% over a three-month period) will receive up to 6 additional weeks of benefits for a total of 20 weeks.

The National Employment Law Project reports that benefits for one million unemployed individuals would have ended without the extension. The legislation also includes amendments extending the first-time homebuyer tax credit and tax credits for businesses sustaining operating losses in 2008 or 2009.

If you have any questions how the unemployment benefits extension may affect your business, please contact Stephen S. Zashin at 216.696.4441 or ssz@zrlaw.com.

*Stephen S. Zashin is an OSBA Certified Specialist in Labor and Employment Law and has extensive experience in all aspects of workplace law. For more information about defending allegations of public policy discrimination, please contact Stephen at 216.696.4441 or ssz@zrlaw.com.

IRS Releases Updated Form 941 For Employers To Report Cobra Premium Assistance Payments

By Richard A. Hanrahan

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act (“the Act”) into law. The Act makes significant changes to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), and allows certain assistance-eligible individuals of COBRA the right to receive a 65% subsidy on their premium payments.

In particular, assistance-eligible employees, involuntarily terminated between September 1, 2008 and December 31, 2009, must pay 35% of the COBRA premium, while employers must pay the remaining 65%. However, employers may recover the 65% subsidy provided to assistance-eligible individuals by completing the IRS updated Form 941 (Rev. January 2009), Employer’s Quarterly Federal Tax Return.

Employers must claim the COBRA premium payments on Line 12a of Form 941. The assistance payments on Line 12a may result in overpayment of taxes, in which employers can elect to offset their payroll tax deposits or claim the subsidy as a refund at the end of the quarter. Employers must also include the number of individuals provided COBRA premium assistance on Line 12b.

In addition to properly filing out the new Form 941, employers must maintain supporting documentation for the tax credit or refund, including:

• Receipt of the employee’s 35% share of the premium, including dates and amounts;
• For insured plans: a copy of invoice or a similar statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier;
• For self-insured plans: proof of the premium amount and coverage provided to the assistance eligible individuals;
• Declaration and date of the former employee’s involuntary termination (which must be between September 1, 2008 and December 31, 2009);
• Proof of each assistance eligible individual’s eligibility and election for COBRA coverage at any time during the period from September 1, 2008 and December 31, 2009;
• A record of all covered employees’ social security numbers, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one (1) or more individuals; and,
• Other documents necessary to verify the correct amount of reimbursement

The filing date for the updated Form 941 will not be extended. Therefore, it is imperative that employers complete Form 941 on time and maintain the proper documentation. The IRS states it will send the new Form 941 to about 2 million employers sometime in mid-March. However, employers can retrieve the updated Form 941 at: http://www.irs.gov/pub/irs-pdf/f941.pdf.

The Department of Labor, Department of Health and Human Services, and the IRS share responsibility for implementing the COBRA requirements. For further details on Form 941, refer to the IRS link: http://www.irs.gov/instructions/i941/index.html.

(For more details on the changes to COBRA read our firm’s prior alert: “The COBRA Clutch: The Stimulus Bill Alters COBRA”).