Flyboyjohn

Agreed, the client's "wants" are relevant in that if they're perfectly happy to make the late contribution you can easily work through the nuances whereas if they're trying to wiggle out of it there will be significant challenges and risks.

What does your client want the answer to be? Seems to me you'll have an easier time talking yourself into how to make a late 2011 profit sharing contribution as opposed to telling the participants that all their benefit statements since 2011 have been wrong. Have there been any disributions in the interim?

I can't think of any reason you couldn't cover after tax benfits in the document.

Yes

2014: He's maxed his 402(g) limit so can't do any more elective deferrals to any plan Can't do a SIMPLE, would violate the "only plan" restriction since he's considered the "owner" of the 403b Can do a SEP for roughly $9,000 as you suggested 2015: Assuming he's not the owner of the new W-2 employer he should max his 401k there ($17,500) and get that match Should do a SEP for the side income (about $14,000 based on your estimates)

Maybe I haven't been clear that I agree 100% with your position on the income tax treatment which remains full deductability of S corp shareholder premiums under 162(l). My concerns center solely on whether the IRS will (in the future) expand the underlying theme of Notice 2013-54 (that premiums for individual health insurance can't ever enjoy tax free treatment) to encompass the S corp shareholder situation. I think that's where they're headed but agree they're not there yet.

Are you suggesting that a staffing company cannot have workers that are actually the common law employees of the client company? The regs suggest this is the "typical" situation.

I don't think it's a stretch to think the IRS will say an S corp payment of shareholder premiums which get added to the W-2 and then deducted on the 1040 would be considered for all practical purposes "pre-tax". Remember the S corp doesn't withhold any income or FICA taxes from the payments and essentially just passes the deduction thru to the shareholder. Not that it matters much but I'm not alone in my concern and have found other commentators positing the same issue. Hopefully I'm wrong and the IRS is going to let this "loophole" go on forever (can you envision S corps giving all of their uppity-ups 2% of the stock to allow them to continue to enjoy tax free health insurance?)

I don't think the repayment agreement would get them out of the penalty (wouldn't they just be paying themselves back anyway?). But, given the murkiness of the issue (I could certainly be wrong and the other commenters may be correct) and given the fact that until this issue is clarified 99.99% of S corps will undoubtedly continue to pay shareholder premiums and shareholders will continue to take the 162(l) deduction I would have no problem advising the client to "go for it". Also remember that the 4980D penalty has caps that in this case would be far less than the $100/day/person maximum. Our discussion on this bulletin board has been more in the way of an intellectual "what if" undertaking and not meant to translate into real life practical advice to your client.

In the S corp scenario the corp MUST pay or reimburse the premium and add it to the W-2 in order for the shareholder to get the 162(l) deduction. But you're right, my hypothetical letter from IRS should also say "...and if the premium was paid or reimbursed by your S corporation employer..."

I agree with your interpretation but consider the following hypothetical: I'm a staffing firm with 2 workers, Joe and Jim, and I offer both of them adequate and affordable ACA compliant coverage. Joe takes the coverage, costs me $1/hour and I pass that on to my client company. Jim doesn't take the coverage, doesn't carry the extra $1/hour charge but my client still gets to take credit for my offer of coverage. What prevents my client from saying "Only send me the folks who didn't take the coverage and therefore cost $1/hour less"?

If I worked for IRS here's how I would do it: Flag all 2014 and later 1040s claiming a 162(l) deduction. Send a computer generated letter from the Service Center asking whether the deduction was based on insurance premiums paid under a group plan or under an individual health insurance policy. If the answer came back "individual policy" bingo, jackpot, send bill for $36,500

My opinion (no surprise) is that if you have 2 shareholder-employees market reforms do apply but not if there's just one. To my knowledge neither IRS nor DOL have yet addressed excluding shareholder-employees from the defintion of "employee" for ACA purposes.

I absolutely agree with the tax result, 162(l) is alive and well, no argument there. My concern is with Notice 2013-54 which addresses "any arrangement" that pays or reimburses individual premiums and converts that "arrangement" into an employer payment plan subject to the $100/day/person penalty. Reasonable men may differ.

Great question and see my thread on the "Tax Free Premium Reimbursement- S corp loophole". I think the bottom line is that the S corp payment or reimbursement of shareholder individual premiums are still deductible under 162(l) BUT probably violate the tenets of Notice 2013-54 and constitute an "employer payment plan" subjecting the S corp to the $100/day/person penalty under 4980D

See 54.4980H-4(b)(2), a lengthy paragraph titled "Offer of coverage on behalf of another entity", page 213 of the PDF version of the regs from the Federal Register, thanks

Final regulations allow the common law large employer to take credit for health coverage provided by a staffing company or PEO but only if the staffing company charges a higher fee for workers for whom it's providing coverage. Does the higher fee have to be charged with respect to all workers OFFERED ACA compliant coverage or only those who actually ENROLL in the coverage? It would seem logical that the fee should attach to any worker offered coverage since that dovetails with the common law employer's obligation but the reg language seems to say the fee applies with respect to the workers "actually provided" coverage.

Since these forms will dovetail with and probably accompany W-2s they will be prepared by payroll companies and payroll software vendors and won't likely be something the retirement plan software vendors will mess with.

There probably a "missing" first notice from IRS talking about the penalty possibility and offering the DFVC option that the client failed to respond to. I suspect DFVC is still an option but your're going to have to get farther into the weeds in dealing with IRS personnel.

What about adopting a safe harbor 401k, would that eliminate any uncertainty?

I would argue that what you're calling the non-ERISA plan is not a "plan" at all but simply a payroll-deduction & money forwarding accomodation (not being an "employee benefit plan" is what makes it exempt from ERISA). Now that you're client is prepared to set up an ERISA "plan" I would argue that it qualifies as a new plan and can therefore have safe harbor matching contributions for 2014 (I assume you're not tryiong to go back and match deferrals to the non-ERISA arrangement) In your 403b plan documents I'd suggest calling this a new plan 001 effective August, 2014

Can you expand on what you're referring to as the "prompt payment" requirement?

My understanding is that when IRS expands 105(h) to cover fully insured plans (as required by the ACA) they're going to completely re-write the rules for self-insured plans too so I think it's a "wait and see" at the moment.

It's rumored that DOL has ramped up audits (I guess they call them "investigations") of health plans for ACA compliance, if anyone has encountered one can you post a copy of the notice letter and laundry list of documents they want to see (with client info redacted)? Thanks

My understanding (without any supporting authority) is that you don't have to go back farther than 1999(if I'm recalling correctly that that's the year filing transferred from IRS to DOL). I agree with the statements that DOL only wants to see 3 "perfect" returns and the rest can be "estimates" (which means in the case of welfare plans almost nothing on the imperfect returns)