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SSARS 21 and Other Critical Changes

love jerryI am going to give you the highlights of four very critical items which may impact you in 2016 and beyond.

1. ACA 1094 and 1095
2. SSARS 21
3. SSA changes to drop file/suspend and restricted application
4. DOL/FLSA increase in wage base for exempt employees

1. ACA 1094 and 1095

Forms 1094 and 1095 are forms you should become familiar with and understand which clients may be required to file. The Affordable Care Act (ACA) was enacted in March of 2010. It is beginning to include more small employers with filing requirements.

Beginning in January of 2016 these forms are required to be filed with the IRS and given to employees. This is a critical step in implementing the ACA’s reporting requirements, which will enable the government to track compliance with the individual and employer mandates, and to determine eligibility for premium tax credits used to purchase health insurance coverage through a Health Insurance Marketplace.

[This article is course content for the Tax Season 2016 CPE quiz, worth 3 CPE credits! Reach the quiz and additional content HERE.]

Essentially employers who are subject to the ACA employer “shared responsibility” mandate who use the new forms to report health insurance coverage offered under employer-sponsored plans in accordance with Section 6056 of the Internal Revenue Code (IRC) will need to report information on Form 1095 to the employees. Form 1094-C must be used to report to the IRS summary information for each employer and to transmit Forms 1095-C to the IRS.

• Form 1095-A is completed by the Market Place Exchanges to report the coverage of individuals obtaining their insurance through the exchanges. Form 1095-A from the Marketplace will be used to reconcile premium tax credits.

• Form 1095-B is completed by insurance companies for the employers who have group policies through them.

• Form 1095-B is also required if a small employer is a sponsor of a self-insured group health plan. If you are a small employer with no insurance or with a group health insurance plan then the small employer has nothing to file.

• Form 1095-C according to the IRS instructions for the form, “All Applicable Large Employer Members (ALE Members) are required to file Forms 1094-C and 1095-C for 2015. Purpose of the form: Employers with 50 or more full-time employees (including full-time equivalent employees) in the previous year use Forms 1094-C and 1095-C to report the information required under sections 6055 and 6056 about offers of health coverage and enrollment in health coverage for their employees. Form 1094-C must be used to report to the IRS summary information for each employer and to transmit Forms 1095-C to the IRS. Form 1095-C is used to report information about each employee. In addition, Forms 1094-C and 1095-C are used in determining whether an employer owes a payment under the employer shared responsibility provisions under section 4980H. Form 1095-C is also used in determining the eligibility of employees for the premium tax credit. Employers that offer employer-sponsored self-insured coverage also use Form 1095-C to report information to the IRS and to employees about individuals who have minimum essential coverage under the employer plan and therefore are not liable for the individual shared responsibility payment for the months that they are covered under the plan.”

IRS instructions continue: “Who Must File Applicable Large Employers, generally employers with 50 or more fulltime employees (including full-time equivalent employees) in the previous year, must file one or more Forms 1094-C (including a Form 1094-C designated as the Authoritative Transmittal, whether or not filing multiple Forms 1094-C), and must file a Form 1095-C for each employee who was a fulltime employee of the employer for any month of the calendar year. Generally, the employer is required to furnish a copy of the Form 1095-C (or a substitute form) to the employee.”

• Form 1094-C - As noted above, the C Forms consist of a transmittal form and an individualized form. Form 1094-C is the transmittal form, and provides a summary of aggregate, employer-level data to the IRS. For ALEs that are members of a controlled group, separate transmittal forms must be filed for each ALE member that is required to report. Separate transmittal forms for one ALE member may also be filed for different employee groups (e.g., union employees, non-union employees, salaried employees, hourly employees, etc.). However, if there are multiple transmittal forms for ALE employee groups, one form must be designated as the “authoritative” form for the ALE member, which will include aggregate information for the ALE member. Non-authoritative transmittal forms need to include only employer information and the number of individual forms being submitted with that transmittal.

For information related to the Affordable Care Act, visit www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions-Home

2. SSARS 21

SSARS 21 is the biggest change to a CPA firm’s write up practice in 35 years. SSARS 21 creates a new level of service known as “preparation service.” SSARS 21 replaces all the previous SSARS [except compilation of pro-forma financial statements, SSARS 14, which is now currently in exposure draft]*. We still have Compilation and Review service and they are essentially the same. The Compilation services have a new Accountants Compilation Report. There are not any significant changes to the Review services.

SSARS 21 is in effect for any financial statement for a period ending after December 15, 2015. So if you are issuing monthly financial statements for a client, the accounting services you perform for November 30, 2015 would be under the old standards but when you issue the financial statements for the period dated December 31, 2015 it should be in compliance with SSARS 21.

One major change every CPA needs to completely understand is SSARS 21 requires an engagement letter and it MUST be signed by both the CPA and the client.

An essential change with SSARS 21 is the principle that the type of service you are providing is based on what you are “engaged” to perform in your engagement letter. So many have observed that a preparation engagement and a compilation engagement may be very similar and the resulting financial statement may be exactly the same. However, whether you should put a compilation report with the financial statement is based on what you are engaged to perform.

The new concept hinges on what you are engaged to perform vs. the prior concept of “prepare and present.”

A preparation engagement is required to have a disclaimer on each page of the financial statement which indicates “no assurance is provided.” If this disclaimer cannot be on every page, then a short disclaimer report is required. It should be noted that for anyone who has previously issued financial statements under SSARS 8, that concept is now obsolete and in effect been replaced with the preparation engagement. A CPA no longer needs to be concerned about who the recipients of the financial statements will be (i.e. in SSARS 8 it was restricted to management only) but instead now must only come to an agreement with the client as to the service to be provided by the CPA.

SSARS 21 is a very significant change and you must be in compliance as you approach your next peer review.

The AICPA Professional Ethics Committee has announced that a Preparation engagement is a non-attest service.

For information related to SSARS 21, visit http://www.aicpa.org/InterestAreas/FRC/ReviewCompilationPreparation/Pages/resources-for-SSARS21.aspx

3. SSA Changes to Drop File/Suspend and Restricted Application

As reported by Michael Kitces on Wednesday October 28, 2015 in Retirement Planning:

“When Congress passed the Senior Citizens Freedom to Work Act in 2000, it introduced a new concept called “voluntary suspension” of benefits, allowing those who had already started Social Security benefits to stop their payments and earn delayed retirement credits. In the process, however, the new voluntary suspension rules unleashed several additional Social Security claiming strategies, including various “claim now, claim more later” tactics involved File-and Suspend and Restricted Applications for spousal benefits.

Congress has decided to close these perceived “loopholes” in the Social Security rules. By extending the rules for deemed application, it will no longer be possible to file a restricted application for just spousal benefits. And with an extension of the “suspension” rules that stipulate suspending an individual’s benefits will also suspend any benefits to other people based on the same earnings record, Congress has killed off the various “File and Suspend” strategies to allow spousal and dependent benefits to be paid while still earning delayed retirement credits.”

For information related to this issue, visit www.kitces.com/blog/congress-ends-file-and-suspend-restricted-application-andother-voluntary-suspension-social-security-strategies/ or www.reuters.com/article/2015/10/28/us-retirement-congress-fileandsuspend-idUSKCN0SM2UO20151028

4. DOL/FLSA Proposes to Increase the Wage Base for Exempt Employees from $23,660 to $51,000

In March of 2014, President Obama ordered the Department of Labor to revise the federal rules for who must be paid overtime at time and half for working more than 40 hours.

See: http://www.nytimescom/2014/03/14uspolitics/obama-orders-rule-changes-to-expand-overtime-pay.html?_r=0

Here is a link to the President’s remarks at the press conference: https://www.whitehouse.gov/the-press-office/2014/03/13/remarks-president-overtimepay

To develop a good foundation about this change, a good source is: http://www.nolo.com/legal-encyclopedia/overtime-pay-rights-employee-30142.html. This article will help you understand how this change will affect CPA firms and the “professional employee” classification does not exclude you from this change.

Also you can read the proposed rule at this link: http://www.regulations.gov/#!documentDetail;D=WHD-2015-0001-0001

This link is specifically addressing redefining the exemptions for Executive, Administrative, and Professional employees. Another foundation article on the progression of the executive order to implementation is found at: http://abcnews.go.com/Politics/obama-boostwages-millions-overtime-eligibility/story?id=31650687

You will clearly see in this article the proposed threshold is that any employee making less than $51,000 per year will be subject to overtime pay requirements. This is up substantially from the current $23,660.

As of the writing of this article, I cannot find any confirmation that the DOL has issued the final regulations after the comment period. There have been articles indicating DOL has received considerable concern that the wage limit is jumping too high too fast. There is speculation the final regulation may have a wage benchmark higher than the current $23,660 but lower than the proposed $51,000.

This is a topic of great significance to our clients and to CPA firms. Keep this one on the radar to watch in the coming weeks and months.

* correction from James J. Newhard, CPA


Jerry Love is the sole owner of Jerry Love CPA, LLC in Abilene, Texas. He graduated from Abilene Christian University. In addition to being a CPA, he has also earned the designations of PFS, CFP, CVA, ABV, CITP, CFF, and CFFA. In 2006-07, Jerry was the Chairman of the Texas Society of CPAs.