The Affordable Care Act: How Do I Calculate if I Am a Large Employer, and What Effects do Seasonal Employees have on my Calculation?
The term “variable hour employees” in the Patient Protection and Affordable Care Act (commonly known as “Obamacare” or “PPACA” or “ACA”) is a source of confusion for employers working to comply with the new law. Variable-hour employees create a challenge for employers to track and identify which of these employees qualify as part-time or full-time employees. This is important, because under the ACA, employers who employed at least 50 full-time employee equivalents (FTEs) during the preceding calendar year must provide affordable health insurance coverage to at least 95% of their full-time employees.
The ACA defines a full-time employee as any employee who works an average of 30 or more hours a week. However, determining who is a Full-Time Employee is not always so simple as calculating the hours worked. Employers may also identify Full-Time Employees by crediting an employee who works at least one hour a day with eight hours credit or one hour a week with 40 hours for the week. However this is done, it should be consistent for all similarly situated employees. Employers must also count any hours of paid leave, including vacation, holidays, PTO for illness, layoffs, jury duty or military leave.
Additionally, calculating whether or not you have over 50 full time employees is not as easy as it seems. It’s not just a matter of counting who works more than 40 hours a week; instead, you have to add up all of the hours worked of your part-time employees and then divide the total hours by 120 hours per month. Next, you have to add that number to all of the full-time employees you have. You now know how many FTEs you have for the month. Next, you have to add that monthly figure with your calculations for the other 11 months of the preceding year and divide by 12. Now you have the average number of FTEs for the preceding year. If the average is less than 50, you are NOT a Large Employer. There is transition relief for making your 2014 determination; during 2013, you can use 6 consecutive calendar months instead of 12 months to make your determination.
There is an exception for certain employers who employ a significant number of “seasonal employees” The definition of a “seasonal employee,” according to the Department of Labor, is:
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A worker who performs labor or services on a seasonal basis (such as agricultural workers)
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Retail workers employed exclusively during holiday periods
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Others as defined by 29 CFR 500.20(s)(1)
For employers whose workforce is only 50 or more for less than 120 days of the calendar year, and the employees in excess of 50 are seasonal employees, the employer avoids being treated as a Large Employer under the ACA.
What Happens if I Don’t Spend the Money in My HSA
We recently received a question from an account holder and we thought it would be beneficial to post the answer for anyone else who may be wondering the same thing.
“What happens if I don’t spend my entire HSA balance before the end of the year?”
One of the great benefits of Health Savings Accounts (HSAs) is that you will never lose the money in your account, even if you are unable to spend the funds by the end of the year. Since an HSA is a bank account in your name, the money will always be available to you and will continue to roll over from year to year.
Unlike other medical savings accounts, such as Flexible Spending Arrangements (FSAs), you don’t have to worry about trying to plan ahead and guess what your medical expenses will be for the upcoming year. You can change your payroll deduction amount for your HSA as frequently as you like, which makes it customizable and easy to adjust to the actual amount of your medical expenses during the year.
In fact, many HSA account holders maximize their contributions to ensure that they achieve the greatest tax savings while saving for future health care expenses. You can pay for any eligible expenses the following year, even if you are no longer on a High Deductible Health Plan (HDHP). This lets you earn interest or invest your HSA balance to increase your balance. Along the same lines, if you are interested to learn what happens to your HSA when you leave your employer, you can view this blog post.
To see answers for other HSA-related questions, check out our Health Savings Account (HSA) Expert Blog Series. If you have any questions, please feel free to contact our support team by phone at (866) 384-8549 or by email at support@tangohealth.com.
Is There a Reimbursement Deadline for HSA Expenses?
We recently received a question from an account holder and we thought it would be beneficial to post the answer for anyone else who may be wondering the same thing.
“Do I have to reimburse myself from my HSA within a certain time period of incurring the medical expense?”
There is no deadline for reimbursements from your Health Savings Account (HSA) for qualified medical expenses. You have your entire lifetime to reimburse yourself. See IRS Notice 2004-50 Q.39 for the official explanation from the IRS.
Tango’s patented flex reserve automatically keeps track of qualifying medical expenses so you’ll know how much you can reimburse yourself.
Many people find that this is a great way to save for future expenses or to grow your balance with interest or investments. If you’re interested in investing your HSA funds or earning interest, contact the HSA custodian or trustee at which your HSA is held to see their options.
There are just a couple things to keep in mind however, when you are planning to reimburse yourself at a later date:
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Your HSA must be established at the time the expense was incurred. So, if you did not open your HSA until March of 2013, you cannot reimburse yourself for an expense that you incurred in October of 2012.
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You must have proof that the amount you are requesting the reimbursement for was an eligible medical expense and that it was not otherwise reimbursed nor taken as an itemized deduction for a prior tax year. See our blog post on receipt keeping for more guidance on this rule.
To see answers for other HSA-related questions, check out our Health Savings Account (HSA) Expert Blog Series. If you have any questions, please feel free to contact our support team by phone at (866) 384-8549 or by email at support@tangohealth.com.
Health Savings Account Record Keeping: Receipts and HSAs
This is very important: keeping receipts of your Health Savings Account (HSA) spending is an IRS requirement. Many people don’t realize this when they sign up for an HSA. Essentially, any money that comes out of your HSA and is coded as a distribution by your custodian, must have a receipt showing the distribution was an eligible medical expense. The only exception is when a distribution is rolled over to another HSA and you must account for this on your tax return.
Now that we’ve made it clear you must have a receipt (and we mean must), what are the details of record keeping? The IRS has not issued an official notice regarding record keeping with an HSA besides this:
“You must keep records sufficient to show that:
- The distributions were exclusively to pay or reimburse qualified medical expenses,
- The qualified medical expenses had not been previously paid or reimbursed from another source, and
- The medical expenses had not been taken as an itemized deduction in any year.
Do not send these records with your tax return. Keep them with your tax records.”
With that said, there are some general rules about what is required of a receipt that supports a tax deduction.
Rules On What The Receipt Must Contain:
| IF payment is by… | THEN the statement must show the… |
| Cash |
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| Check |
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| Debit or credit card |
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| Electronic funds transfer |
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| Payroll deduction |
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Rules On How Long To Maintain The Receipt:
Generally, it’s a good idea to hold on to your receipts for tax purposes. If you are storing them electronically, there is no reason really to get rid of them. To be more specific though, these are the IRS rules on how long records must be kept:
| IF you… | THEN the period is… |
| Owe additional tax and (2), (3), and (4) do not apply to you | 3 years |
| Do not report income that you should and it is more than 25% of the gross income shown on your return | 6 years |
| File a fraudulent return | No limit |
| Do not file a return | No limit |
| File a claim for credit or refund after you filed your return | The later of 3 years or 2 years after tax was paid. |
| File a claim for a loss from worthless securities | 7 years |
Are Electronic Records Sufficient For HSA Distributions?
The short answer is yes and the specific text on this is derived from the general rules about record keeping for taxes. Again, the IRS has not issued specific rules on Health Savings Account electronic record keeping but if you want to read their jargon for keeping electronic records you can go here.
HSA Receipt Summary: It’s really important that you keep receipts for amounts you spend on eligible medical expenses. Overall, the IRS considers spending from an HSA to be equivalent to a tax deduction and has not provided guidelines beyond the general rules given for all tax deductions. If you want to avoid pain with an IRS audit, follow the above guidelines.
What Happens to Your HSA if You Leave Your Employer or Retire?
We recently received a question from an account holder and we thought it would be beneficial to post the answer for anyone else who may be wondering the same thing.
“What happens to my HSA if I leave my employer or retire?”
Here’s our answer: First, the money in your Health Savings Account (HSA) is yours to keep. You can continue to use it for qualified health expenses, and your account will remain open until you choose to close it.
If you remain enrolled in a high deductible health plan (HDHP), either through a new employer, through your former employer’s plan via COBRA, or through an individually-purchased insurance policy, then you will still be eligible to contribute to your HSA. However, if you have no coverage, or if you enroll in a health plan with a low deductible, then you will no longer be eligible to contribute to your HSA.
Lastly, you should note that most employers cover the monthly or annual cost of their employees’ HSAs. You should check with your HSA provider to determine whether you will start to be charged any fees once you are no longer associated with your former employer.
To see answers for other HSA-related questions that we’ve answered on our blog, check out our Health Savings Account (HSA) Expert Blog Series. If you have any questions, please feel free to contact our support team by phone at (866) 384-8549 or by email at support@tangohealth.com.