In March 2014, the IRS released final regulations implementing the Affordable Care Act’s (ACA’s) information reporting provision for large employers. The new rules were optional for the 2014 calendar year but will be mandatory for the 2015 calendar year for all applicable large employers (ALEs). Smaller employers that are self-insured or part of a “controlled group” ALE will also have reporting obligations.
With the deadline approaching, now is the time for affected employers to begin assembling the necessary information. The compliance obligation will likely require a joint effort by the payroll, HR and benefit departments to collect the relevant data.
Reporting requirements for ALEs
The ACA enacted Section 6056 of the Internal Revenue Code (IRC), which requires ALEs (generally those with at least 50 full-time employees or the equivalent) to report to the IRS information about what health care coverage, if any, they offered to full-time employees. Employers must report this information no later than February 28 (March 31, if filed electronically) of the year following the calendar year to which the reporting relates.
Sec. 6056 also requires ALEs to furnish statements to employees that the employees can use to determine whether, for each month of the calendar year, they can claim a premium tax credit. The statements must be provided by January 31 of the calendar year following the calendar year to which the Sec. 6056 reporting relates.
For the 2015 calendar year, the information not filed with the IRS electronically must be reported no later than February 29, 2016 (because 2016 is a leap year). Employee statements must be furnished no later than February 1, 2016.
The IRS will use the information to determine whether a penalty will be assessed against you under the ACA’s employer shared-responsibility (also known as “play or pay”) provision because you either: 1) didn’t offer “minimum essential” health care coverage to full-time employees (and their dependents), or 2) offered coverage that wasn’t “affordable” or didn’t provide at least “minimum value” — and at least one full-time employee received a premium tax credit for purchasing coverage on a Health Insurance Marketplace.
Bear in mind that this reporting is required even if you don’t offer health insurance coverage. And employers with at least 50 but fewer than 100 full-time employees or the equivalent who are eligible for the transitional relief from the employer shared-responsibility provision for 2015 must still comply with the information reporting requirements.
Reporting requirements for self-insured and smaller employers
Sec. 6055 of the IRC, also enacted by the ACA, requires health care insurers, including self-insured employers, to report to the IRS about the type and period of coverage provided and to furnish this information to covered employees in statements. The information generally must be reported by February 28 or, if filed electronically, March 31, of the year following the calendar year in which the coverage is provided. Employee statements must be provided by January 31.
Every self-insured employer must report information about all employees, their spouses and dependents who enroll in coverage under the reporting requirements for insurers. This reporting is required even for self-insureds not subject to the ACA’s employer shared-responsibility provisions or the ALE reporting requirements. Self-insured ALEs must comply with the insurer requirements in addition to the Sec. 6056 requirements.
Further, non-ALE employers must comply with the Sec. 6056 requirements if they’re members of a controlled group or treated as one employer for purposes of determining ALE status. The employers that compose such a controlled-group ALE are referred to as “ALE members,” and the reporting requirements apply separately to each member.
New reporting forms
The IRS has developed new forms for this type of information reporting: Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. (A non-ALE self-insured employer should file Forms 1094-B and 1095-B.)
The forms are similar to the separate Form W-2, Wage and Tax Statement, filed for each employee, and Form W-3, Transmittal of Wage and Tax Statements, filed as a summary for Form W-2. Forms 1095-C for each full-time employee are filed accompanied by the summary transmittal form, Form 1094-C.
To complete each Form 1095-C, you’ll need to know:
- Who is a full-time employee for each month,
- Identifying information for employer and employee,
- Information about the health coverage offered by month (if any),
- The employee’s share of the monthly premium for the lowest-cost self-only minimum value coverage,
- The months the employee was enrolled in your coverage,
- The months an affordability safe harbor applies for an employee and whether other relief applies for an employee for a month, and
- If you offer a self-insured plan, information (including Social Security number or, if the Social Security number isn’t available, date of birth) about the covered individuals enrolled in the plan (including spouses and dependents), by month.
You can satisfy the employee statement requirement by providing employees a copy of Form 1095-C. A substitute form may be used instead, as long as the form includes all of the required information and complies with the relevant IRS guidance.
To complete Form 1094-C, you’ll need:
- Identifying information for your organization,
- Information about whether you offered coverage to at least 70% of your full-time employees and their dependents in 2015 (after 2015, the threshold rises to 95%), and
- For the Authoritative Transmittal:
- Total number of Forms 1095-C you issued to employees,
- Information about members of the aggregated ALE group (if any),
- Full-time employee counts by month,
- Total employee counts by month, and
- Whether you’re eligible for certain transitional relief.
If an employer is a controlled group, it can file a separate Form 1094-C for each member, with each member’s full-time employees, but one of the forms must be designated as the “Authoritative Transmittal” reporting aggregate employer-level data for all of the members.
Both forms are subject to requirements related to electronic filing. Employers that will file 250 or more information returns must file electronically through the ACA Information Returns (AIR) system. This requirement applies separately to each type of return and separately to each type of corrected return.
IRS Publication 5165, Guide for Electronically Filing Affordable Care Act (ACA) Information Returns for Software Developers and Transmitters, provides detailed technical information for returns transmitted through the AIR system. Publication 5164, Test Package for Electronic Filers of Affordable Care Act (ACA) Information Returns (AIR), contains general and program-specific information on the testing that must be passed prior to using the system.
Alternative reporting methods
The IRS has developed two alternative methods that simplify reporting of the required information. The simplified methods require less detailed information from employers.
If the employer has made a “qualifying offer” for all 12 months to one or more full-time employees, it can use the “Reporting Based on Certification of Qualifying Offers” method for those employees. A qualifying offer satisfies three criteria:
- An offer of “minimum essential coverage” that provides at least “minimum value,”
- The employee cost for employee-only coverage for each month that doesn’t exceed 9.5% of the federal poverty line divided by 12, and
- An offer of minimum essential coverage made to the employee’s spouse and dependents.
Eligible employers can furnish a simplified statement to the employee, rather than a copy of Form 1095-C.
The other alternative is known as the “98 percent offer” method. Here, an employer may qualify for simplified reporting procedures if it certifies that it has: 1) offered, for all months of the calendar year, affordable coverage providing at least minimum value to at least 98% of its employees for whom it’s filing a Form 1095-C, and 2) offered minimum essential coverage to those employees’ dependents.
Penalties for noncompliance with reporting requirements
Failure to comply with the information reporting requirements may subject you to the general reporting penalty provisions. Those penalties will increase for information returns and payee (employee) statements filed after December 31, 2015, as follows:
- The penalty for failure to file an information return generally will be $250 for each return (up from $100), not to exceed a calendar-year total of $3 million (up from $1.5 million).
- The penalty for failure to provide a correct payee statement will be $250 for each statement (up from $100), with a calendar-year maximum of $3 million (up from $1.5 million).
Special rules apply to increase the per-statement and total penalties in the case of intentional disregard of the requirement to furnish a payee statement. Also, taxpayers with average annual gross receipts of no more than $5 million for the three preceding tax years are subject to lower maximum penalty amounts.
Clearly, the wide range of information required won’t reside in the system of a single department in your company. For example, payroll likely will have the information on wages or rate of pay necessary to determine the affordability of offered coverage, while HR or benefits will probably have requisite information on the lowest-cost self-only minimum value coverage.
Collaboration, therefore, will be critical. Please let your Citrin Cooperman advisor know if they can help you compile the necessary information, or if you have any questions about information reporting compliance or other issues related to the ACA.