April 18, 2011

Repeal of the Affordable Care Act's 1099 Reporting Requirement and Changes in the Subsidies Available to Individuals in 2014

On April 14, 2011, President Obama signed into law a modest change to the Affordable Care Act (ACA).1 The law, the "Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011," eliminates the ACA's revision to the Form 1099 tax-reporting requirement.2

The change to the Form 1099 does not affect the requirement to report the value of health care coverage on the Form W-2. The W-2 reporting requirement continues in effect, but is optional for 2011.3

Brief Background

The Form 1099 reporting requirement is a longstanding rule that requires reporting of payments to any individual that total $600 or more in a taxable year. The ACA expanded the Form 1099 requirement in two ways: it required reporting of any payment of $600 or more to businesses (in addition to individuals), and it required inclusion of amounts paid with respect to rental property. While the purpose of the expansion was to assist in collection and audit of tax revenue, the provision was wildly unpopular due to the increase in recordkeeping that would be necessary to comply with it.

Legislation to repeal the ACA's expansion of the Form 1099 reporting requirement passed both the House and the Senate by decisive margins. What proved more elusive, however, was agreeing on how to offset the revenue lost from this change of the ACA. Because the ACA's revision to the 1099 tax-reporting requirement raised money for the Treasury by improving tax collections, undoing it meant a loss of revenue.

Changes to the ACA's Individual Subsidies

The new law offsets the loss in revenue from the repeal of the 1099 reporting requirement by allowing the government to require individuals who receive premium-assistance subsidies under the ACA in 2014 and beyond to repay more of the money to the government. Those subsidies are available to certain people with incomes under 400 percent of the poverty level to help them buy health coverage through a state health insurance exchange beginning in 2014.

Under the law as originally passed, the ACA sharply limited how much individuals with household incomes under 400 percent of the federal poverty line who receive subsidies would have to repay: such individuals would not have to repay more than $400 ($250 for an unmarried individual). As discussed below, the new law increases this amount significantly.4

The new law changes the repayment structure for lower-income families, by capping the amount that must be repaid within certain poverty-level ranges, as noted in the following table:

If the household income
(expressed as a percent
of the poverty line) is:
The maximum amount that must be repaid is:
Less than 200% $600 ($300 if unmarried)
At least 200% but less than 300% $1,500 ($750 if unmarried)
At least 300% but less than 400% $2,500 ($1,250 if unmarried)
400% or more Unlimited

As under the ACA, those with household income levels of 400 percent of poverty or higher will still have to pay back the entire excess subsidy if they end up with higher-than-expected household incomes for the year for which the subsidy was obtained.

• • •

As with all issues involving the interpretation or application of laws and regulations, sponsors of group health plans should rely on their legal counsel for authoritative advice on the interpretation and application of the Affordable Care Act and related regulations. Segal can be retained to work with plan sponsors and their attorneys on compliance issues.

The Affordable Care Act is the shorthand name for the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-48, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-152. (Return to the Capital Checkup text.)
When the law, which has not been assigned a Public Law number at the time this Capital Checkup was posted, is available online, it will be accessible from the Government Printing Office website. The bill number was H.R. 4. (Return to the Capital Checkup text.)
For more information, see The Segal Company’s October 15, 2010 Capital Checkup, “Employers that Contribute to Multiemployer Health Plans Are Not Required to Report Coverage Costs on W-2 Forms for 2011.” A forthcoming Capital Checkup will discuss Internal Revenue Service guidance on W-2 reporting that was published in late March. (Return to the Capital Checkup text.)
An interim law, the Medicare and Medicaid Extenders Act of 2010, Public Law 111-309, created a graduated repayment structure, based on seven poverty-level ranges under 500 percent of poverty, with those at 450 percent to 500 percent of the poverty level having to repay as much as $3,500 of any overpayment. (Return to the Capital Checkup text.)

Capital Checkup is The Segal Company's periodic electronic newsletter summarizing activity in Washington with respect to health care and related subjects. Capital Checkup is for informational purposes only. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.


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