There are two Fiscal/Employer Agent models that operate under section 3504 of the IRS Code, the Government Fiscal/Employer Agent and the Vendor Fiscal/Employer Agent.
Both models work well as the neutral site or "bank" for individuals' budget funds allowing funds to follow the individual program participant rather than the agency-based provider. Both F/EA models provide individuals and their representatives with a high level of choice and control over directing the use of their individual budget funds and managing their support services while providing fiscal accountability for state programs and reducing some of the fiscal burden for participants and their representatives. Both F/EA models are considered qualified Medicaid waiver services but not qualified State Plan services without a Medicaid 1115 waiver. In general, F/EAs should not be direct care providers because of the conflict of interest of being both the bank or public funds manager and a direct service provider.
Government Fiscal/Employer Agent
(In accordance with IRS Revenue Procedures 80- 4 and 2003-70)
Under the Government Fiscal/Employer Agent (F/EA) model, a state or local government entity may apply for and receive approval from the IRS (under Section 3504 of the IRS Code and IRS Revenue Procedure 80-4 and Proposed Notice 2003-70) to be an employer agent on behalf of individuals for the limited purpose of withholding, filing and depositing federal employment taxes (e.g., FICA and FUTA) and income tax withholding for workers they hire directly. It also may:
- Invoice a state for individuals' budget funds
- Act as a "bank for individuals' budget funds and disburse and track these funds
- Manage federal advanced earned income credits as necessary
- Withhold, file and deposit state income (if required) and employment taxes (e.g., SUTA and disability, if applicable)
- Collect, verify and process workers' timesheets
- Prepare and distribute payroll checks to support workers hired by individuals
- Process and pay non-labor related invoices as approved in the individual's budget
A Government F/EA also may broker worker's compensation and other insurance, conduct criminal background checks on prospective support workers, assist in verifying support workers' citizenship/legal alien status and generate standardized reports for state/county agencies and individuals, as required.
The Government Fiscal/Employer Agent model provides participants with a high level of choice and control over their individual budget funds and services while ensuring state programs fiscal accountability and reducing some of the fiscal burden for participants and their representatives (e.g., payroll and bill payment).
Government F/EAs can perform the "bank," employer and bill payment functions on behalf of participants (as their agent) without being considered the common law employer of participants' support workers.
A Vendor Fiscal/Employer Agent
Vendor Fiscal/Employer Agent (in accordance with IRS Revenue Procedure 70-6). Under the Vendor Fiscal/Employer Agent (F/EA) model, a private or public vendor entity or authority may apply for and be approved by the IRS (under IRS Rev. Proc. 70-6) to act as an employer agent on behalf of individuals and perform similar tasks as a Government F/EA described earlier.
The Vendor F/EA model is the most popular ISO option used by states. Public Partnerships, LLC (PPL) and NEPACIL (DBA) ACES$ choose to operate as Vendor F/EA models because they provide individuals with a high level of choice and control while ensuring state programs fiscal accountability and reducing some of the fiscal burden for participants and their representatives (e.g., payroll and bill payment). Vendor F/EAs can perform the "bank," payroll and bill payment functions for participants without being considered the common law employers of their support workers.
Historically, the Vendor F/EA models facilitated states being able to meet CMS' requirement for freedom of provider and the receipt of program match for F/EA costs for the purpose of the Federal Medicaid match.
The predominant role of ISOs is to enable program participants or their representatives to participate in consumer-directed support service programs. Some types of ISOs (Government and Vendor IRS Employer Agent-Fiscal ISOs) assist program participants and/or their representatives in performing employer-related tasks (e.g., computing, withholding, filing and depositing payroll taxes, processing payroll checks, arranging for employee benefits (e.g., workers compensation coverage). Some ISOs also verify legal immigration status and conduct criminal background checks on candidates for employment without being the legal employer of the worker and without the program participant receiving Medicaid benefits directly. Under these Fiscal ISO models the program participant or his/her representative is the legal employer of his/her support service worker.