Volume No. US-15-02
“Employer-Provided Health Insurance Offer and Coverage”
In general, absent any treaty over ride, employment income is sourced to where the employment services are performed. If you are sending employees to the United States to perform services, they will have U.S. source employment income. It does not matter which company they work for or which payroll they are on (i.e., Canadian or U.S.). As an employer, with employees with U.S. source employment income, you have certain obligations that you must satisfy.
Tax laws are complex. These, and other statutory requirements related to having employees, can apply to you. For example, while this list is not meant to be all inclusive, you generally must do the following four items.: 1) withhold federal and state income tax and social security from each pay cheque, 2) make timely, electronic payroll tax deposits, 3) file federal and state payroll returns/reports (generally due monthly, quarterly and annually), and 4) insure your employees (providing statutory minimum coverage – or better – for a) short-term disability, b) worker’s compensation, and where applicable as discussed further below, c) health insurance coverage).
Each of the above four items could be expanded upon in great detail. We will focus, however, on what is new, and that is the requirement for certain employers to file Form 1095-C, “Employer-Provided Health Insurance Offer and Coverage” by February 29, 2016 (if filing on paper) or March 31, 2016 (if filing electronically). The requirement to file this form is part of the Affordable Care Act (aka “Obamacare”). Penalties apply for not filing the form, filing it late, or filing an incomplete or inaccurate report. Penalties also apply for not offering your employees minimum required health insurance coverage if your business is an applicable large employer (ALE).
Form 1095-C provides data to the IRS regarding your employee’s health insurance for the prior calendar year (beginning with 2015). Only ALE’s must file this form. If you qualify as an ALE then form 1095-C must be filed with respect to: 1) all of your employees working within the U.S., and 2) any U.S. employees you have working outside the U.S. However, only type “1” employees (those working within the U.S.) are counted when determining if your business is an ALE. If the number of these employees is 50 or more for the year, on a full-time equivalent (FTE) basis (as described below), then you qualify as an ALE.
Calculating ALE Status: Here are highlights of the ALE status calculation:
- Count all employees that work 30 or more hours per week as one FTE employee.
- For part-time employees, add up their hours that month, divide that by the number of weeks in the month, and then divide by 30. The result is your number of FTE employees from part-time employees.
- Add up items 1 and 2 above to get your total FTE employees for that month. Add all the months in the year together and divide by 12, to get your total FTE employees for the year. If that number is 50 or higher, your business is an ALE. Reminder: only count employees working within the U.S.
Information Reported to IRS on form 1095-C: Here are highlights of the data reported to the IRS on form 1095-C (re: all employees within the U.S., and all U.S employees working outside the U.S. unless an exception applies):
- Employee name, social security number (SSN), date of birth (DOB) and address
- Name, SSN and DOB of the employee’s spouse and dependents (“covered individuals”)
- Name, address and other details of your business (the ALE)
- Information regarding health insurance coverage and costs for each month of the calendar year being reported on (ie. 2015, with due date of February 29, 2016).
Questions? Feel Free to Contact Us: If you have any questions regarding U.S. taxes, or if you think your business may be an ALE but aren’t sure, please do not hesitate to contact us. We can be reached at firstname.lastname@example.org or email@example.com.
The above information is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of section 10.37(a)(2) of U.S. Treasury Department Circular 230. The contents of this document are intended for general information purposes only.
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The material provided in US Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky U.S. Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.