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Coronavirus Response and Relief Act impacts on the HHS Provider Relief Fund

03.09.21

Read this if your organization has received assistance from the Provider Relief Fund.

On January 15, 2021 the US Department of Health & Human Services released updated guidance on the Provider Relief Fund (PRF) reporting requirements. Below, we outline what has changed and supersedes their last communication on November 2, 2020.

This amended guidance is in response to the Coronavirus Response and Relief Supplemental Appropriations Act (Act). The act was passed in December 2020 and added an additional $3 billion to the PRF along with new language regarding reporting requirements. 

Highlights

Please note this is a summary of information and additional detail and guidance that can be found on the Reporting Requirements and Auditing page at HHS.gov. See our helpful infographic for a summary of key deadlines and reporting requirements. 

  • On January 15, 2021 The Department of Health and Human Services (HHS) announced a delay in reporting of the PRF. Further details on the deadline for this reporting have not yet been communicated by HHS. Recipients of PRF payments greater than $10,000 may register to report on use of funds as of December 31, 2020 starting January 15, 2021. Providers should go into the portal and register and establish an account now so when the portal is open for reporting they are prepared to fulfil their reporting requirements.
  • Recipients who have not used all of the funds after December 31, 2020, have six more months from January 1 – June 30, 2021 to use remaining funds. Provider organizations will have to submit a second report before July 31, 2021 on how funds were utilized for that six-month period. 
  • The new guidelines further define the reporting entity and how to report if there is a parent company with subsidiaries for both general and targeted distributions:
     
    • Parent organizations with multiple TINs that either received general distributions or received them from parent organizations can report the usage of these funds even if the parent was not the entity that completed the attestation.
    • While a targeted distribution may now be transferred from the receiving subsidiary to another subsidiary by the parent organization, the original subsidiary must report any of the targeted distribution it received that was transferred.
       
  • The calculation of lost revenue has been modified by HHS through this new guidance. Lost revenue is calculated for the full year and can be calculated as follows:
     
    1. Difference between 2019 and 2020 actual client/resident/patient care revenue. The revenue must be submitted by client/resident/patient care mix and by quarter for the 2019 year.
    2. Difference between 2020 budgeted and 2020 actual. The budget must have been established and approved prior to March 27, 2020 and this budget, as well as an attestation from the CEO or CFO that this budget was submitted and approved prior to March 27, 2020, will have to be submitted.
    3. Reasonable method of estimating revenue. An explanation of the methodology, why it is reasonable and how the lost revenue was caused by coronavirus and not another source will need to be submitted. This method will likely fall under increased scrutiny through an audit by the Health Resources & Services Administration.
       
  • Recipients with unexpended PRF funds in full after the end of calendar year 2020, have an additional six months to utilize remaining funds for expenses or lost revenue attributable to coronavirus in an amount not to exceed the difference between:
     
    • 2019 Quarter 1 to Quarter 2 and 2021 Quarter 1 to Quarter 2 actual revenue,
    • 2020 Quarter 1 to Quarter 2 budgeted revenue and 2021 Quarter 1 to Quarter 2 actual revenue.

Next steps

In the wake of this new guidance, providers should undertake the following steps:

  • Register in the HHS portal and establish an account as soon as possible.
  • Revisit lost revenue calculations to determine if current methodology is appropriate or if an updated methodology would be more appropriate under the new guidance.
  • Understand the ability to transfer general and targeted distributions and the impact on reporting of these funds.
  • Develop reporting procedures for lost revenue and increased expense for reporting in the HHS portal.

If you have questions about accounting for, or reporting on, funds that you have received as a result of the COVID-19 pandemic, please contact a member of our team. We’re here to help.

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Read this if you are an employer with basic knowledge of benefit plans and want to learn more. 

This article is the third in a series to help employee benefit plan fiduciaries better understand their responsibilities and manage the risks of non-compliance with Employee Retirement Income Security Act (ERISA) requirements. Our first article covers the background of ERISA, while our second article covers the definitions and rules of parties-in-interest and prohibited transactions.

Form 5500 is an informational return filed annually with the US Department of Labor (DOL). The purpose of Form 5500 is to report information concerning the operation, funding, assets, and investments of pension and other employee benefit plans to the Internal Revenue Service (IRS) and DOL. All pension benefit plans covered by the Employee Retirement Income Security Act (ERISA), and, generally, health and welfare plans covering 100 or more participants are subject to filing Form 5500. Any retirement plan covering less than 100 participants at the beginning of the plan year may be able to file Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan. Read on for important filing requirements, as noncompliance can result in substantial penalties assessed by both the DOL and IRS. 

Who has to file, and which Form 5500 is required?

Pension plans

The most common types of pension benefit plan filers include:

  • Retirement plans qualified under Internal Revenue Code (IRC) § 401(a)
  • Tax sheltered annuity plans under IRC § 403(b)(1) and 403(b)(7)
  • SIMPLE 401(k) Plan under IRC § 401(k)(11)
  • Direct Filing Entity (DFE)

Which Form 5500 you should file depends on the type of plan. Small plans covering less than 100 participants as of the beginning of the plan year will normally file a Form 5500-SF. Conversely, large plans, mainly those plans covering 100 or more participants as of the beginning of the plan year, will file Form 5500 as a general rule. 

Participants include all current employees eligible for the plan, former employees still covered, and deceased employees who have one or more beneficiaries eligible for or receiving benefits under the plan.

Welfare plans

Generally, all welfare benefit plans covered by ERISA are required to file a Form 5500. Common types of welfare benefit plans include but are not limited to medical, dental, life insurance, severance pay, disability, and scholarship funds.

Similar to pension plans, the required Form 5500 to be filed typically depends on whether the plan is a small plan with less than 100 participants at the beginning of the year, or a large plan with 100 or more participants at the beginning of the plan year. However, certain welfare benefit plans are not required to file an annual Form 5500, including, but not limited to:

  • Plans with fewer than 100 participants at the beginning of the plan year and that are unfunded, fully insured, or a combination of the two
  • Governmental plans 
  • Employee benefit plans maintained only to comply with workers’ compensation, unemployment compensation, or disability insurance laws

Participants for welfare benefit plans include current employees covered by the plan, former employees still covered, and deceased employees who have one or more beneficiaries receiving or entitled to receive benefits under the plan (e.g., COBRA). 

Required financial schedules for Form 5500

Small plans that do not file Form 5500-SF require the following schedules to be filed along with the Form 5500:

  • Schedule A—Insurance information
  • Schedule D—DFE/Participating plan information
  • Schedule I—Financial information for a small plan

Large plans require the following schedules in addition to small plan schedules:

  • Plan Audit (Accountant’s Opinion)
  • Schedule C—Service provider information
  • Schedule G—Financial transaction schedules
  • Schedule H—Financial information (instead of Schedule I)

Welfare plans with 100 or more participants that are unfunded, fully insured or a combination of the two are not required to attach Schedule H or an Accountant’s Opinion. Also, pension plans will attach Schedule SB or MB reporting actuarial information, if required, along with Schedule R reporting retirement plan information.

When to File

Form 5500 must be filed electronically by the last day of the seventh calendar month after the end of the plan year. However, a two and one-half months’ extension of time to file can be requested. Penalties may be assessed by both the IRS and the DOL for failure to file an annual Form 5500-series return. For 2020, the IRS penalty for late filing is $250 per day, up to a maximum of $150,000 (applies only to retirement plans), and the DOL penalty can run up to $2,233 per day, with no maximum. Therefore, it is very important to track participant counts and ensure compliance with filing deadlines.

If you have questions about your specific situation, please contact our employee benefit consulting team. We’re here to help.

Article
Form 5500: An overview

Read this if you are an employer looking for more information on the Employee Retention Credit (ERC).

As we previously wrote, the Consolidated Appropriations Act, 2021 expanded, retroactively to March 12th, 2020, the Employee Retention Credit (ERC) to include those otherwise eligible employers who also received Paycheck Protection Program (PPP) loans. For those employers, wages qualifying for the ERC include wages that were not paid for with proceeds from a forgiven PPP loan. 

IRS guidance released

Recently, the Internal Revenue Service (IRS) released guidance under Notice 2021-20 (the Notice) clarifying how eligible employers who also received a PPP loan during 2020 can retroactively claim the ERC. The Notice also formalizes and expands on prior IRS responses to FAQs and addresses changes made since the enactment of the Act; it contains 71 FAQs. The IRS has stated it will address calendar quarters in 2021 in later guidance.

Under the 2020 ERC rules, an eligible employer may receive a refundable credit equal to 50% of qualified wages and healthcare expenses (up to $10,000 of wages/health care expenses per employee in 2020) paid by a business or not-for-profit organization that experienced a full or partial suspension of their operations or a significant decline in gross receipts. For employers that received a PPP loan, Q&A 49 of the Notice outlines the IRS’ position on the interaction with the ERC for 2020. 

An eligible employer can elect which wages are used to calculate the ERC and which wages are used for PPP loan forgiveness. The Notice provides for a deemed election for any qualified wages  included in the amount reported as payroll costs on the PPP Loan Forgiveness Application, unless the included payroll costs exceed the amount needed for full forgiveness when considering only the entries on the application. The text of Q&A 49 appears to treat the minimum amount of payroll costs required for PPP loan forgiveness (i.e., 60%) as being the deemed election as long as there are other eligible non-payroll expenses reported on the application to account for the other 40% of loan forgiveness expenses.

Payroll costs reported on the PPP Loan Forgiveness Application: Examples

The examples make it clear the payroll costs reported on the PPP Loan Forgiveness Application and needed for loan forgiveness are generally excluded from the ERC calculations. The qualified wages included on the PPP Loan Forgiveness Application that may be included in the ERC calculations are partially impacted by the documented non-payroll expenses included in the PPP Loan Forgiveness Application. Following are a few examples from the Notice. Each example outlines the interaction between payroll costs reported on the PPP Loan Forgiveness Application and the qualified wages for the ERC.

Example #1: An employer received a PPP loan of $100,000 and has both payroll and non-payroll costs that far exceed the borrowed amount. The employer only reports payroll costs of $100,000 on the PPP Loan Forgiveness application to simplify the forgiveness process. The employer cannot use any of the $100,000 of payroll costs to claim the ERC. This is notwithstanding the fact that 100% forgiveness may have been achieved by reporting only $60,000 of payroll costs and the remaining $40,000 from non-payroll costs.   

Example #2: An employer received a PPP loan of $200,000. The employer submitted a PPP Loan Forgiveness Application and reported $250,000 of qualified wages as payroll costs in support of forgiveness of the entire PPP loan. The employer is deemed to have made an election not to take into account $200,000 of the qualified wages for purposes of the ERC, which was the amount of qualified wages included in the payroll costs reported on the PPP Loan Forgiveness Application up to (but not exceeding) the minimum amount of payroll costs. The employer is not treated as making a deemed election with respect to $50,000 of the qualified wages ($250,000 reported on the PPP Loan Forgiveness Application, minus the $200,000 PPP loan amount forgiven), and it may treat that amount as qualified wages for purposes of the ERC.

Example #3: An employer received a PPP loan of $200,000. The employer is an eligible employer and paid $200,000 of qualified wages that would qualify for the employee retention credit during the second and third quarters of 2020. The employer also paid other eligible expenses of $70,000. The employer submitted a PPP Loan Forgiveness Application and reported the $200,000 of qualified wages as payroll costs, as well as the $70,000 of other eligible expenses, in support of forgiveness of the entire PPP loan. In this case, the employer is deemed to have made an election not to take into account $130,000 of qualified wages for purposes of the ERC, which was the amount of qualified wages included in the payroll costs reported on the PPP Loan Forgiveness Application up to (but not exceeding) the minimum amount of payroll costs, together with the $70,000 of other eligible expenses reported on the PPP Loan Forgiveness Application, sufficient to support the amount of the PPP loan that was forgiven. As a result, $70,000 of the qualified wages reported as payroll costs may be treated as qualified wages for purposes of the ERC.

Key takeaway:

For purposes of PPP loan forgiveness, an employer must generally submit payroll expenses equal to at least 60% of the loan amount to maximize loan forgiveness and to maximize the available wages for the ERC. If an employer does not report non-payroll costs (or limits the amount it reports) on the PPP Loan Forgiveness Application then doing so will have a direct impact on the wages available for the ERC. 

An employer must also consider the payroll costs reported on the PPP Loan Forgiveness Application and the payroll costs necessary to maximize the ERC. For example, if an employer does not qualify for the ERC until the third quarter of 2020, it should consider limiting the amount of wages reported on the PPP Loan Forgiveness Application that are attributable to the third quarter in order to maximize the wages available for the ERC.

How to claim the Employee Retention Credit

An eligible employer that received a PPP loan and did not claim the ERC may file a Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return for the relevant calendar quarters in which the employer paid qualified wages, but only for qualified wages for which no deemed election was made. 

Form 941-X may also be used by eligible employers who did not receive a PPP loan for 2020, but subsequently decide to claim any ERC to which they are entitled for 2020. 

The deadline for filing Form 941-X is generally within three years of the date Form 941 was filed or two years from the date you paid the tax reported on Form 941, whichever is later.

For more information

If you have more questions, or have a specific question about your situation, please call us. We’re here to help.

Article
IRS guidance: Retroactively claiming the 2020 ERC

Read this if your organization has to comply with HIPAA.

We have been monitoring HHS Office for Civil Rights (OCR) settlements as part of the HIPAA Right of Access Initiative (16 settlements and counting) and want to dispel some myths about HIPAA enforcement. Myths can be scary. It would be pretty frightening to run into Bigfoot while taking a stroll through the woods, but sometimes myths have the opposite effect, and we become complacent, thinking Bigfoot will never sneak up behind us. He’s just a myth, right?

As we offer our top five HIPAA myths, we invite you to decide whether to address gaps in compliance now, or wait until you are in the middle of the woods, facing Bigfoot, and wondering what to do next.

Myth #1: OCR doesn’t target organizations like mine.

The prevailing wisdom has been that the Office for Civil Rights only pursues settlements with large organizations. As we review the types of organizations that have been targeted in the recent past, we find that they include social services/behavioral health organizations, more than one primary care practice, a psychiatric medical group practice, and a few hospital/health systems. With settlements ranging from $10,000 to $200,000 plus up to two years of monitoring by the OCR, can you really afford to take a chance?

Myth #2: I have privacy policies, procedures, and training protocols documented, so I’m all set if OCR comes calling.

Are you really all set? When did you last review your policies and procedures? Are you sure what your staff actually does is HIPAA compliant? If you don’t regularly review your policies and procedures and train your staff, can you really say you’re all set?

Myth #3: HIPAA gives me 30 days to respond to a patient request, so it’s ok to wait to respond.

Did you try to ship a package during the 2020 holiday season? If so, do you remember checking your tracking number daily to see if your gift was any closer to its destination? Now imagine it was your health records you were waiting for. Frustration builds, goodwill wanes, and you start looking for a higher authority to get involved. 

And beware: if proposed Privacy Rule changes to HIPAA are finalized, the period of time covered entities will have to fulfill patient requests will be reduced from 30 to 15 days.

Myth #4: If I ignore the problem, it will go away.

Right of Access settlement #10 dispels this myth: A medical group was approached by OCR to resolve a complaint in March 2019. Then again in April 2019. This issue was not resolved until October 2020. Now, in addition to a monetary settlement, the group’s Corrective Action Plan (CAP) will be monitored by the OCR for two years. That’s a lot of time, energy, and money that could have been better spent if they worked to resolve the complaint quickly.

Myth #5: OCR will give me a “get out of jail free” card during the pandemic.

As one of our co-workers said, “Just because they are looking aside does not mean they are looking away.” The most recent settlement we have seen to OCR’s Right of Access Initiative was announced February 10, 2021, showing that the initiative is still a priority despite the pandemic.

Are you ready to assess or improve your compliance with HIPAA Right of Access rules now? Contact me and I will help you keep OCR settlements at bay. 

Article
Debunking the myths of HIPAA: Five steps to better compliance

Read this if you are an employee benefit plan fiduciary.

This article is the second in a series to help employee benefit plan fiduciaries better understand their responsibilities and manage the risks of non-compliance with Employee Retirement Income Security Act (ERISA) requirements. In our last article, we looked into the background of ERISA, which established important standards for the sound operation of employee benefit plans, as well as who is and isn’t a plan fiduciary, and what their responsibilities are. 

One important ERISA provision, found in Section 406(a), covers the types of transactions a plan fiduciary can and can’t engage in. ERISA terms the latter prohibited transactions, and they’re a lot like traffic lights—when it comes to avoiding conflicts of interest in business dealings, they’re your guide for when to stop and when to go. By knowing and abiding by these rules of the road, plan fiduciaries can steer clear of tickets, fines, and other damaging mishaps. 

Parties-in-interest—keep them out of the passenger seat 

Much like driver’s ed., fiduciary responsibility boils down to knowing the rules—plan fiduciaries need to have a strong working knowledge of what constitutes a prohibited transaction in order to ensure their compliance with ERISA. The full criteria are too detailed for this article, but one sure sign is the presence of a party-in-interest.

ERISA’s definition of a party-in-interest

The definition includes any plan fiduciary, the plan sponsor, its affiliates, employees, and paid and unpaid plan service providers, and 50%-or-more owners of stock in the plan sponsor. If you’d like to take a deeper dive into ERISA’s definition of parties-in-interest, see “ERISA's definition of parties-in-interest" at right.

Prohibited transactions—red lights on fiduciary road 

Now that we know who fiduciaries shouldn’t transact with, let’s look at what they shouldn’t transact on. ERISA’s definition of a prohibited transaction includes: 

  • Sale, exchange, and lease of property 
  • Lending money and extending credit 
  • Furnishing goods, services, and facilities 
  • Transferring plan assets 
  • Acquiring certain securities and real property using plan assets to benefit the plan fiduciary 
  • Transacting on behalf of any party whose interests are adverse to the plan’s or its participants’ 

Transacting in any of the above is akin to running a red light—serious penalties are unlikely, but there are other consequences you want to avoid. Offenders are subject to a 15% IRS-imposed excise tax that applies for as long as the prohibited transaction remains uncorrected. That tax applies regardless of the transaction’s intent and even if found to have benefited the plan. 

The IRS provides a 14-day period for plan fiduciaries to correct prohibited transactions and avoid associated penalties. 

Much like owning a car, regular preventative maintenance can help you avoid the need for costly repairs. Plan fiduciaries should periodically refresh their understanding of ERISA requirements and re-evaluate their current and future business activities on an ongoing basis. Need help navigating the fiduciary road? Reach out to the BerryDunn employee benefit consulting team today. 
 

Article
Prohibited transactions: Rules of the road for benefit plan fiduciaries

Read this if you are a residential living facility.

At the end of last year, Congress and the IRS brought about changes to the application of the business interest expense deduction limitation rules with regard to taxpayers that wish to make a real property trade or business (RPTOB) election. This change may benefit owners and operators of qualified residential living facilities. Here’s what we know.

Background

Section 163(j) generally limits the amount of a taxpayer’s business interest expense that can be deducted each year. The term “business interest” means any interest that is properly allocable to a “trade or business,” which could include an electing RPTOB. The term “trade or business” has not been separately defined for purposes of Section 163(j), however, it has been defined for purposes of the passive activity loss rules under Section 469(c)(7)(C) as any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage trade or business.

In general, a taxpayer engaged in a trade or business that manages or operates a “qualified residential living facility” may elect to be treated as an RPTOB solely for the purpose of applying the interest expense rules under Section 163(j). Taxpayers that make an RPTOB election to avoid being subject to the business interest deduction limitation under Section 163(j) must use the alternative depreciation system (ADS) to compute depreciation expense for property described in Section 168(g)(8), which includes residential rental property.

In Notice 2020-59, issued on July 28, 2020, the IRS and Treasury proposed a revenue procedure providing a safe harbor for purposes of determining whether a taxpayer meets the definition of a qualified residential living facility and is therefore eligible to make the RPTOB election. Following review of comments submitted in response to Notice 2020-59, the Treasury Department and IRS published Revenue Procedure 2021-9 (Rev. Proc. 2021-9) on December 29, 2020. Rev. Proc. 2021-9 modifies the proposed safe harbor under Notice 2020-59 to make it more broadly applicable and less administratively burdensome. 

Additionally, the emergency coronavirus relief package signed into law on December 27, 2020 contains a taxpayer-favorable provision that modifies the recovery period applicable to residential rental property (including retirement care facilities) placed in service before January 1, 2018 for taxpayers making the RPTOB election.

Modifications to the RPTOB safe harbor under Rev. Proc. 2021

Under Rev. Proc. 2021-9, a residential living facility will be eligible to make the RPTOB election providing the facility:

  1. Consists of multiple rental dwelling units within one or more buildings or structures that generally serve as primary residences on a permanent or semi-permanent basis to individual customers or patients;
  2. Provides supplemental assistive, nursing, or other routine medical services; and
  3. Has an average period of customer or patient use of individual rental dwelling units of 30 days or more.

Alternatively, if the residential living facility qualifies as residential rental property under Section 168(e)(2)(A), it will be treated as an RPTOB for purposes of the revenue procedure. Thus in response to comments submitted to the Treasury Department and the IRS, Rev. Proc. 2021-9 modified the proposed safe harbor published in Notice 2020-59 in several important ways, including the following:

  • The definition of a qualified residential living facility has been modified to reduce the required average period of customer or patient use from 90 to 30 days. Further, the average period of use may be determined by reference to either the number of days paid for by Medicare or Medicaid, or the number of days under a formal contract or other written agreement.

This modification is a welcome change from the proposed safe harbor contained in Notice 2020-59. Medicare and Medicaid frequently cover patient stays of less than 90 days. Consequently, reducing the required number of days of use and allowing for determination with reference to days paid by Medicare or Medicaid should allow a greater number of facilities to qualify under the safe harbor.

  • Rev. Proc. 2021-9 provides an alternative test for purposes of determining whether a taxpayer meets certain requirements of the definition of a qualified residential living facility. Under this alternative test, if a taxpayer operates or manages residential living facilities that qualify as residential rental property for depreciation purposes, then the facility will be considered a qualified residential living facility for purposes of Section 163(j).

The administrative burden on taxpayers should be significantly reduced by allowing reliance on separate determinations made for depreciation purposes. Taxpayers will not be required to consider two distinct tests.

  • Rev. Proc. 2021-9 clarifies that the determination of whether a facility meets the definition of a qualified residential living facility must be determined on an annual basis. 

Under general rules, once a taxpayer makes the RPTOB election, the election remains in effect for subsequent years. Taxpayers relying on this safe harbor cannot depart from these rules as there is a continuing requirement to evaluate qualification on an annual basis. To the extent a taxpayer fails to meet the safe harbor requirements, it may become subject to the business interest deduction limitations under Section 163(j). Unless otherwise provided in future guidance, this would not appear to constitute an accounting method change.

Important Considerations to apply the safe harbor under Rev. Proc. 2021-9

Qualifying taxpayers may rely on the safe harbor contained in Rev. Proc. 2021-9 for tax years beginning after December 31, 2017. Further, if a taxpayer relies on the safe harbor, the taxpayer must use the ADS of Section 168(g) to depreciate the property described in Section 168(g)(8), as discussed above.

The changes under Rev. Proc. 2021-9 could open the door for taxpayers who qualify in a previous year (i.e., 2018 and 2019) as a result of the new rules to amend prior returns (for example, taxpayers that now qualify for the RPTOB election using the 30-day threshold average use instead of the 90-day average).

For purposes of applying the safe harbor, for any taxable year subsequent to the taxable year in which a taxpayer relies on the safe harbor to make the RPTOB election in which a taxpayer does not satisfy the safe harbor requirements, the taxpayer is deemed to have ceased to engage in the electing RPTOB (i.e., the taxpayer will likely be subject to the business interest expense limitations of Section 163(j)). However, for any subsequent taxable year in which a taxpayer satisfies the safe harbor requirements after a deemed cessation of the electing trade or business, the taxpayer’s initial election will be automatically reinstated.

To rely on this safe harbor, a taxpayer must retain books and records to substantiate that all of the above requirements are met each year. Taxpayers are not eligible to rely on the safe harbor in this revenue procedure if a principal purpose of an arrangement or transaction is to avoid Section 163(j) and its regulations in its entirety, and in a manner that is contrary to the purpose of Rev. Proc. 2021-9.

If you have specific questions about your facility or tax situation, please contact Jason Favreau or Matthew Litz. We’re here to help.

Article
Taxpayer-friendly changes for qualified residential living facilities

Read this if you are a business owner. 

Now that the Democrats have control of the Presidency, House of Representatives, and Senate, many in Washington, DC and around the country are asking “What is going to happen with business taxes?” 

While candidate Biden expressed interest in raising taxes on corporations and wealthy individuals, it is best to think of that as a framework for where the new administration intends to go, rather than a set-in-stone inevitability. We know his administration is likely to favor a paring back of some of the tax cuts made by the 2017 Tax Cuts and Jobs Act (TCJA). Biden has indicated his administration may consider changes to the corporate tax rate, capital gains rate, individual income tax rates, and the estate and gift tax exemption amount.

Procedurally, it is unclear how tax legislation would be formulated under the Biden administration. A tax package could be included as part of another COVID-19 relief bill. The TCJA could be modified, repealed, or replaced. It is also unclear how any package would proceed through Congress. Under current Senate rules, the legislative filibuster can limit the Senate’s ability to pass standalone tax legislation, thus leaving any such legislation to the budget reconciliation process, as was the case in 2017. It also remains unclear if the two parties will come together to work on any bill. Finally, it will be important to note who fills key Treasury tax positions in the Biden administration, as these individuals will have a strategic role in the development of administration priorities and the negotiation with Congress of any tax bill. Here are three ways tax changes could take shape:

  1. Part of a COVID-19 relief package
    With the Biden administration eager to provide immediate relief to individuals and small- and medium-sized businesses affected by the coronavirus pandemic, some tax changes could be included as part of an additional relief bill on which the administration is likely to seek bipartisan support. Such changes could take the form of tax cuts for some businesses and individuals, tax credits, expanded retirement contributions, and/or other measures. If attached to a COVID-19 relief bill, these changes would likely go into effect immediately and would provide rapid relief to businesses and individuals that have been particularly hard hit during the pandemic and economic downturn.
  2. Repeal and replace TCJA
    Another possibility is for Biden to pursue a full rollback of the TCJA and replace it with his own tax bill. This would be a challenge since the Democrats only have a slim majority in the Senate, meaning that Republicans could filibuster the bill unless Senate Democrats take steps to repeal the filibuster.

    Given that the Biden administration’s immediate priorities will be delivering financial assistance to individuals and businesses, ensuring the rollout of COVID-19 vaccines, and flattening the curve of cases, a repeal and replacement of the TCJA might not be voted on until at least late 2021 and likely would not go into effect until 2022 at the earliest.
  3. Pare back or modify the TCJA
    An overall theme of Biden’s campaign was not sweeping, radical change but making incremental shifts that he views as improvements. This theme may come into play in Biden’s approach to tax legislation. He may choose not to repeal the TCJA completely (prompting a return to 2016 taxation levels), but instead pare back some of the tax changes enacted in 2017. In practice, this could mean raising the corporate tax rate by a few percentage points, which could garner bipartisan support. Again, this likely would not be a legislative priority until after the country has passed through the worst of the COVID-19 pandemic.

Factors that will influence potential tax changes

Senate legislative filibuster

Currently, the minority party in the Senate can delay a vote on an issue if fewer than 60 senators support bringing a measure to a vote. Thus, Republicans would be likely to filibuster any bill that contains more ambitious tax rate increases. The uptick in the use of the filibuster in recent decades is perhaps a symptom of congressional deadlock, and there are calls from many Democrats to eliminate the filibuster in order to pass more ambitious legislation without bipartisan support (in fact, in recent years, the filibuster has been removed for appointments and confirmations). While President Biden and Senate Majority Leader Chuck Schumer may be open to ending or further limiting the filibuster, every Democratic senator would have to agree. West Virginia Senator Joe Manchin has said repeatedly that he will not vote to end the legislative filibuster.

If the filibuster remains in place as it appears it will, tax legislation would likely be passed as part of the budget reconciliation process, which only requires a simple majority to pass. However, the tradeoff is that any changes generally would have to expire at the end of the budget window, which typically is 10 years. This is how both the 2001 Economic Growth and Tax Relief Reconciliation Act and the TCJA were passed.

Appetite for bipartisanship

President Biden has signaled that he wants to work for all Americans and seek to heal the partisan divides in the country. He may be looking to reach across the aisle on certain legislation and seek bipartisan support, even if such support is not necessary to pass a bill. Biden stated during his campaign that he wants to increase the corporate tax rate—not to the 2017 rate of 35%—but to 28%. Achieving this middle ground rate might be viewed as a compromise approach.

As the new government takes office, it remains to be seen how much bipartisanship is desired, or even possible.

What this may mean for your business

It is important to note that sweeping tax changes probably are not an immediate priority for the incoming Biden administration. The new administration’s immediate focus likely will be on addressing the current fragmented approach to COVID-19 vaccinations, accelerating the distribution of the vaccines, taking steps to bring the spread of COVID-19 under control, and providing much needed economic relief. As noted above, there could be some tax changes and impacts resulting from future COVID-19 relief bills.

Those will be the bills to watch for any early tax changes, including cuts or credits, that businesses may be able to take advantage of. Larger scale tax changes, particularly any tax increases, may not go into effect until 2022 at the earliest. Here are some of the current rules and how Biden is proposing to deal with them.

If you have questions about your particular situation, please contact our team. We’re here to help. 

Article
Biden's tax plan: Tax reform details remain unclear

Read this if you work in senior living. 

We are all pressed for time these days, especially in senior living and long-term care facilities, where the pandemic has taken a toll on the health of our residents, the well-being of our employees, and the state of our finances. Across the nation, losses from patient care have increased significantly from 2016-2020. In the Northeast, losses from patient care increased 17% from 2016-2019, and in the western United States, they increased by 52% from 2016-2019.

With so many time and financial pressures, why is the development of a labor management program an important investment of your time? Because labor management is important to the financial success of your facility.

Labor management factors to consider:

  • Labor is the largest expense in a facility—between 2016 and 2019 labor-related costs, including contract labor and employee benefits, represented between 48%-53% of the expenses reported on the Medicare cost report 
  • With a growing trend of hiring outsourced therapy, housekeeping, laundry, dietary, and other functions, actual labor related costs could be significantly higher
  • Increased COVID-19 expense may not be fully covered by reimbursement rates
  • Facilities are experiencing increased agency use to fill nursing vacancies, resulting in higher direct labor cost per patient day

The senior living industry is already facing severe nursing shortages and, according to the Bureau of Labor Statistics, at least 2.5 million more workers will be needed by 2030 to care for the so-called “silver tsunami”. Argentum has projected that 1.2 million new workers—mostly Certified Nursing Assistants, aides and Registered Nurses—will be needed in senior living through 2025.

Workforce shortages are not only occurring in nursing departments, but throughout all of our departments, as senior living competes with the retail and hospitality industry to fill ancillary positions.

The benefits of creating a labor management program

The development of a well-executed labor management program may result in:

Clarity on optimal staffing and competency levels in all departments
Labor budgets and schedules adjusted for both census and patient needs can help facilities have the right people in the right place at the right time. Time invested in this initiative improves patient outcomes, staff morale, and your organization’s bottom line. 

Stronger community integration and leadership
Most senior living facility positions are filled by recruiting locally. Understanding local demographic trends and developing a forward-looking strategy for staff acquisition, retention, and development (both personal and professional) may help a facility become an employer of choice and minimize vacancies. 

Achieving community recognition
A labor management program may help your facility better understand your CMS star rating as it relates to staffing, and tailor a response to publicly available ratings. 

Improved regulatory compliance and response to changes in tax and other policy
Many recent laws have varying provisions for organizations based on size, which is measured by number of employees or full-time employee equivalents. Well-structured labor reports may help your organization respond to regulatory changes promptly.

Opportunities for reimbursement optimization
By understanding your labor structure and compensation arrangements, you may be able to increase reimbursement though more accurate cost reporting (such as utilization review reimbursement on the Medicare cost report). Medicaid reimbursement methodologies vary by state. In many cases, correct classification of labor into reimbursable and non-reimbursable departments, as well as allocations between units, may be key. 

Improved bottom line
Understanding and managing labor statistics may help facilities improve their bottom line, both short and long term, by aligning costs and revenue trends.

Labor management is a key tool to drive efficiency and increase quality across all departments in your facility. Building a high-performing workforce culture and implementing labor management tools will help you gain efficiencies, reduce costs, and produce quality outcomes. The stakes are high right now—facilities that can build a strong culture and workforce will be the facilities that are successful in the future.

If you need assistance or have questions about your specific situation, please contact our senior living consulting team. We’re here to help. 

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Six steps for a successful labor management programĀ 

Read this if you’re considering (or in the middle of) an initiative that involves multiple Health and Human Services (HHS) programs or agencies.

During times of tight program budgets and rising need, the chance to collaborate with sister HHS agencies often presents a unique opportunity to do more with less. However, as you might find, these initiatives have their own challenges ranging from the minor (e.g., different program vocabulary) to major considerations (e.g., state and federal funding streams).

While interagency initiatives are worthwhile—usually aiming to reduce silos between HHS programs and better support citizens and staff—they can quickly grow complicated. Whether you’re just starting to think about your next interagency initiative or you’re halfway through, asking the right questions is half the battle. Answering those questions, of course, is the other—and more time-consuming—half!

In our team’s work with states on interagency initiatives, we have found it helpful to focus planning on the following four areas to minimize implementation timelines and maximize stakeholder support:

  • Policy: The sources, both internal and external, that govern who is covered by programs, what services are covered, how services are reimbursed, and how the program is administered
  • Funding: How a program is financed, including cost allocation methodologies, limitations on use of funds, and reporting mechanisms
  • Systems: The technical infrastructure that supports program operations
  • Operations: The staff and physical facilities that make every program possible, including staff resources such as training

Here are some questions you can ask to make the best use of available time, funding, and interagency relationships:

  • What is the goal? Do other departments or units have an aligning goal? Who do you know at those departments or units who could direct you to the best point of contact, the status of the other department or unit’s goal, and the current environment for change? Perhaps you can create a cross-unit team with the other unit(s), resulting in more resources to go around and stronger cross-unit relationships. If the other unit either isn’t ready or has already implemented its change, learning about the unit’s barriers or lessons learned will inform your efforts.
  • What does your governance model look like? Do you have one decision-maker or a consensus-builder leading a team? How does your governance model incorporate the right people from across all agencies so they have a voice? If the process is collaborative, can an oversight entity play a role in resolving disagreements or bottlenecks? Without a governance model, your team might be composed of subject matter experts (SMEs) who feel they do not have authority to make decisions, and the project could stall. On the other hand, if you only have leadership positions on the team without SME representation, the project plan might miss critical factors. Having the right people at the table—with defined lines of expertise, authority, and accountability—increases your chances of success.
  • Which federal partners are involved, who are the points of contact, and how open are they to this change? In addition to providing necessary approvals that could lead to funding, federal partners might offer lessons learned from other states, flexibilities for consideration, or even a pilot project to explore an initiative with you and your state partners. 
  • How will this initiative be funded? If more than one funding stream is available—for example, federal financial participation, grant dollars, state dollars—can (and should) all funding streams be utilized? What requirements, such as permissible use of funds and reporting, do you need to meet? Are these requirements truly required, or just how things have always been done? Some federal matches are higher than others, and some federal dollars can be combined while others must remain separate/mutually exclusive to be reimbursed. One approach for using multiple sources of funding is “braiding”—separate strands that, together, form a stronger strand—versus “blending,” which combines all sources into one pot of funding.
  • What systems are involved? After securing funding, system changes can be the largest barrier to a timely and effective interagency initiative. Many state agencies are already undertaking major system changes—and/or data quality and governance initiatives—which can be an advantage or disadvantage. To turn this into an advantage, consider how to proactively sync your initiative with the system or data initiative’s timing and scope.
     
    • When and how will you engage technical staff—state, vendor, or both—in the discussion?
    • Do these systems already exchange data? Are they modernized or legacy systems? 
    • Do you need to consult legal counsel regarding permissible data-sharing? 
    • Do your program(s)/agencies have a common data governance structure, or will that need to be built? 
    • What is the level of effort for system changes? Would your initiative conflict with other technical changes in the queue, and if so, how do you weigh priority with impacts to time and budget?
  • What policies and procedures will be impacted, both public-facing and internally? Are there differences in terminology that need to be resolved so everyone is speaking the same language? For example, the word “case” can mean something different for Medicaid business staff, child welfare staff, and technical staff.
  • Will this initiative result in fewer staff as roles are streamlined, or more staff if adding a new function or additional complexity? How will this be communicated and approved if necessary? While it’s critical to form a governance model and bring the right people to the table, it’s also imperative to consider long-term stakeholder structure, with an eye toward hiring new positions if needed and managing potential resistance in existing staff. For the project to have lasting impact, the project team must transition to a trained operations team and an ongoing governance model.

Ultimately, this checklist of considerations—goal-setting, decision-making, accountability, federal support, funding, systems, policies and procedures, and staffing—creates a blueprint for working across programs and funding streams to improve services, streamline processes, and better coordinate care.

For more information about interagency coordination, stay with us as we post more lessons learned on the following topics in the coming months: interagency policy, interagency funding, interagency systems, and interagency operations.
 

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Coordinating initiatives across state HHS: Questions to ask