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A New Employer Healthcare Plan: Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

March 02 - Posted at 3:00 PM Tagged: , , , , , , , , , , , , , , , , , , ,

Until very recently, employers were at risk of receiving steep fines if they reimbursed employees for non-employer sponsored medical care – the Affordable Care Act (ACA) included fines of up to $36,500 a year per employee for such an action. Late in 2016, however, President Obama signed the 21st Century Cures Act and established Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). As of January 1, 2017, small employers can offer these tax-free medical care reimbursements to eligible employees.


How Do QSEHRAs Work?


If an employee incurs a medical care expense, such as health insurance premiums or eligible medical expenses under IRC Section 213(d), the employer can reimburse the employee up to $4,950 for single coverage or $10,000 for family coverage. Employees may not make any contributions or salary deferrals to QSEHRAs.


The maximum amount must be prorated for those not eligible for an entire year. For example, an employer offering the maximum reimbursement amount should only reimburse up to $2,475 to an employee who has been working for the company for six months. For a complete list of medical expenses covered under IRC 213(d), see https://www.irs.gov/pub/irs-pdf/p502.pdf. Employers may tailor which expenses they will reimburse to a certain extent, and do not have to reimburse employees for all eligible medical expenses.


Much like other healthcare reimbursement arrangements, employees may have to provide substantiation before reimbursement. The IRS has discretion to establish requirements regarding this process, but has not yet done so. Although reimbursements may be provided tax-free, they must be reported on the employee’s W-2 in Box 12 using the code “FF.”


Which Employers Can Offer QSEHRAs?


To offer QSEHRAs, an employer cannot be an applicable large employer (ALE) under the ACA. Only employers with fewer than 50 full-time equivalent employees can offer this benefit. Further, a group cannot offer group health plans to any employees to qualify.

Which Employees Are Eligible For QSEHRAs?


Typically, an employer that chooses to offer a QSEHRA must offer it to all employees who have completed at least 90 days of work. The few exceptions to this rule include part-time or seasonal employees, non-resident aliens, employees under the age of 25, and employees covered by a collective bargaining agreement.


Employers may offer differing reimbursement amounts based on employee age or family size. However, such variances must be based on the cost of premiums of a reference policy on the individual market. It is currently unclear which reference policy will be selected or how permitted discrepancies will be calculated.


To be eligible for a tax-free reimbursement, employees must have proof of minimum essential coverage. It is uncertain how closely employers will have to scrutinize such proof, although guidance will hopefully be available soon.


Interaction Between QSEHRAs And Health Exchanges


Eligible employees must disclose to health exchanges the amount of QSEHRA benefits available to them. The exchanges will account for the reported amount, even if the employee does not utilize it, and will likely reduce the amount of the subsidies available. Employers should take this into account before adopting a QSEHRA.


Other Administrative Issues


In order to establish a QSEHRA, employers will have to set up and administer a plan. Group health plan requirements, such as ACA reporting and COBRA requirements, do not apply to QSEHRAs. But in order to properly provide reimbursements to employees, employers will likely have to establish reimbursement procedures.


Additionally, any eligible employees must be notified of the arrangements in writing at least 90 days before the first day they will be eligible to participate. For the current year, the IRS is giving employers who implement QSEHRAs an extension until March 13, 2017 to provide a notice. The notice must provide the amount of the maximum benefit, and that eligible employees inform health insurance exchanges this benefit is available to them. It also must inform eligible employees they may be subject to the individual ACA penalties if they do not have minimum essential coverage.

FINAL 1094 C AND 1095 C FORMS AND INSTRUCTIONS FOR 2016 POSTED BY IRS

October 28 - Posted at 6:50 PM Tagged: , , , ,

The IRS has released final 1094 C and 1095 C forms for 2016 and has posted final instructions as well. The changes from the 2015 forms were minor. However, the instructions for completing the 1094 C and 1095 C forms for 2016 have changed significantly. The changes primarily were more extensive explanations on how to complete the forms.


The final forms and instruction can be found at:


As of now, a full cycle of reporting and penalty determinations has not yet been seen. The due dates for providing the forms and submitting them to the IRS were delayed for the 2015 forms. Employers may not see penalty determinations from the IRS for these forms.


The reporting requirements will affect applicable large employers (ALEs) every year. Employers should establish a process for populating the forms and submitting them to the IRS. If you are responsible for completing these forms, we recommend reviewing the final instructions to ensure understanding of the requirements for completing &submitting the forms.


FINAL INSTRUCTIONS

The following summarizes key points from the 2016 final instructions:

  • For all ALEs, Part II communicates ACA full-time employee status, coverage offered or not offered to full-time employees and the reason the full-time employee will not trigger a penalty under ACA rules. For employers that self-fund their plans, the forms also explain who is covered for individual mandate purposes (Part III).
  • Employers must either keep copies of the 1094 C and 1095 C forms that they file with the IRS or be able to reconstruct the forms for at least three years after the due date of the returns.
  • The new instructions explain more clearly how ALEs file. The IRS first determines whether the organization is an ALE (50 or more full-time and full-time equivalents). Status as an ALE is determined based on the IRS controlled group. A 1094 C must be completed for each EIN that has employees associated with it. An employer may submit more than one 1094 C for an EIN but one must be marked as the authoritative transmittal. At least one 1094 C must be submitted for each employer with a different EIN that is part of an IRS control group and has employees associated with that EIN.
  • The due dates remain the same. Employers must send 1095 C forms to employees by January 31st. Employers must also send the 1094 C and 1095 C forms to the IRS. The due date depends on how the forms are submitted. Forms submitted on paper (under 250 forms) must be sent to the IRS by February 28th. Forms submitted electronically (250 or more forms) must be sent to the IRS by March 31st.
  • Extensions were available in 2015 but they didn’t apply because the submission dates were delayed. Going forward, the following potential extensions are available:
    • Employers can get an automatic 30-day extension on IRS submissions by completing Form 8809 before the due date. They can file Form 8809 on paper or electronically through the FIRE system.
    • Under certain hardship conditions, an employer can follow the instructions on Form 8809 to apply for an additional 30-day extension.
  • Employers issuing more than two hundred fifty 1095 Cs must submit them to the IRS electronically. Employers can apply to waive electronic filing by submitting Form 8508. This Form should be submitted at least 45 days before the due date. The IRS will not process any waiver requests before January 1 of the calendar year in which the forms are due. Waivers must be applied for and approved each year. If a waiver is approved, it will apply to any corrected forms submitted for that same year. If you submit the initial forms electronically, you can submit corrections on paper as long as there are 250 or fewer. If there are more than 250 corrected forms, they need to be submitted electronically or you need an approved waiver for submitting the forms on paper. If you fail to file electronically when you are required to and do not have an approved waiver, you may have to pay a penalty of up to $260 per form. Penalties may be waived if you can show reasonable cause for not filing electronically. This penalty will not apply to the first 250 forms.
  • Employers who want to send electronic 1095 C forms to employees must first obtain their employees’ consent. The same process and rules apply to these forms that apply to providing the W-2 electronically. Employers need consent specific to Form 1095 C in order send electronically.
  • Instructions include details on filing corrected forms. Most employers had their filing accepted even though there were errors. Many filed corrected forms this year. The correction process did not change for 2016.
  • New instructions update the penalties:
    • Penalty for failing to file a correct information return with the IRS is generally $260/per return. The total penalties that can be assessed for failing to file a correct return in a calendar year is capped $3,193,000
    • Penalty for failing to give an individual a correct form is generally $260/per form. The total penalties that can be assessed for not giving an individual a correct form in a calendar year is capped $3,193,000.
    • Special rules apply that may increase the per form penalty and penalty caps. An increased penalty applies if the employer intentionally disregards the requirement to file the forms and/or provide the forms to eligible individuals.
    • Penalties may be waived if the failure was due to reasonable cause and not willful neglect.
  • The final 2016 instructions explain how to report coverage under a Health Reimbursement Arrangement (HRA).
  • The final 2016 instructions clarify COBRA reporting situations. A qualified beneficiary may become COBRA eligible for different reasons and the reason may impact how to report the situation.
  • The 2016 instructions also clarify how to report on post-employment coverage, for example, retiree health plan coverage. 


The 2016 instructions are much clearer than the filing instructions from 2015.


FORM 1094 C

The following summarizes key points from the final 2016 Form 1094 C:

  • On 1094 C Form, line 22, some of the transition relief options have been removed, and others remain. The options that were removed did not apply beyond 2015.
  • Line 22 relates to offers of coverage and transitional relief. The instructions clearly indicate you need to either check box “A” (the “qualifying offer method”) if you intend to use code 1A on line 14 for at least one employee or provide a substitute statement to any full-time employee.
  • On page 2, column A, the circumstances for checking “yes” to Minimum Essential Coverage Offer Indicator have changed. 
  • On page 2, column (b), do not include any employees in a limited non-assessment period in the full-time employee headcount for the month.
  • On page 2, column ©, you are required to enter a total employee count. This count does include full-time and part-time employees. It also includes employees in limited non-assessment periods.

 


The 1094 C has changed minimally for 2016.


FORM 1095

The following summarizes key points from the final 2016 Form 1095 C:

  • An employee in a limited non-assessment period is not considered an employee for reporting purposes. Limited non-assessment periods include time spent in a new hire waiting period as well as the new hire measurement period for employees that are look-back measured.
  • The instructions clarify how self-funded employers need to report. 
  • New instructions note that ALEs offering coverage through an insured plan or a multi-employer health plan should not complete Part III on Form 1095 C. In these cases, the insurance carrier or plan sponsor of the multi-employer health plan provides Form 1095 B to indicate who was covered under the contract during the year.
  • The new instructions state there may be more than one way to report an employee offer of coverage. Employers can report using any code combination that accurately reflects coverage situations.
  • Self-funded employers can use Forms 1094 B and 1095 B to report coverage on non-employees who may be covered under the self-funded plan. This could include non-employee directors, those retired for the entire year, or a non-employee COBRA qualified beneficiary. These individuals can be reported on the 1095 C forms as well.
  • The 2016 1095 C Form includes the Plan Start Month. This box is optional again in 2016. The employer simply enters a two-digit code to indicate the first month of the plan year. For example, January is 01, February is 02 and so on.
  • The approach for reporting individuals covered by a multi-employer arrangement (for example, union trust plans) remains the same in 2016.This process may change in 2017.
  • Line 14 has two new code options. New codes show conditional spouse coverage:
    • 1J – Minimum essential coverage (MEC) providing minimum value is offered to employee. MEC is conditionally offered to spouse. No coverage offered to dependent children.
    • 1K – Minimum essential coverage providing minimum value is offered to employee. MEC is offered to dependent children. MEC is conditionally offered to the spouse.

 


A conditional coverage offer to a spouse does not include a spousal surcharge. It does include spousal force outs (spouse not offered coverage if coverage is available through spouse’s employer). Another conditional offer would be if you required spouses to enroll in their employers’ plan, before they could be eligible for your plan.

  • The 2016 instructions note that an employer can’t enter safe harbor codes (2F, 2G, 2H) in line 16 if the employer fails to offer 95% of full-time employees/dependent children minimum essential coverage (MEC).
  • Instructions note that the safe harbors apply the indexed percentage amount going forward. It is 9.66% in 2016 and 9.69% in 2017.
  • The 2016 instructions cover situations where two or more employees of an ALE are married or parent and child. 

 

CONCLUDING THOUGHTS

Employers should start addressing how they will handle reporting for 2016. If you are responsible for completing or checking the forms, read through the instructions. The final 2016 instructions explain more practically the reporting requirements. More examples are included as well.


If you are a self-funded plan and choose to use the B forms for specific non-employees, the B forms and instructions can be found at:


Both the 1095 B forms and the 1095 C forms have a VOID box in the upper right hand corner. Employers are instructed to never check the VOID box.


Both the 1095 B and 1095 C forms include instructions for taxpayers to retain the form with their tax records. It appears these forms will not have to be submitted with tax returns in 2017.


The good faith compliance standard will not apply in 2016 unless the IRS decides at a later date to extend it. In addition, the original deadlines will apply.


Employers should be gearing up now to complete the necessary forms for 2016. 

The Affordable Care Act (ACA) established Health Insurance Marketplaces (also called Exchanges) where individuals can shop and enroll in health coverage. Individuals who meet certain criteria are eligible for premium subsidies and cost-sharing reductions for coverage on the Marketplace.


For the first time, in 2016 some employers will receive a notice from a Marketplace indicating that one of their employees signed up for health coverage through the Marketplace and received advanced premium subsidies. Many employers are asking what these notices mean and what actions they should take if they receive one.

Background

 

Premium subsidies and cost-sharing reductions are designed to expand healthcare coverage by making insurance, and its utilization, more affordable. Premium subsidies, more accurately referred to as a premium tax credit, are claimed on an individual’s income tax return at the end of the year. What is unique about this tax credit is that an individual can choose to have the expected premium tax credit advanced throughout the year, in which case the government makes payments directly to the health insurer on the individual’s behalf. Importantly, individuals who have access to health coverage through an employer that is affordable and meets minimum value are not eligible to receive the premium tax credit or advances of the premium tax credit for their coverage.


The ACA generally requires that applicable large employers – generally employers with 50 or more full-time employees, including full-time equivalents – offer health coverage that is affordable and of minimum value to their full-time employees (and their dependents) or face an Internal Revenue Service (IRS) tax. This is often referred to as the employer “pay or play” or employer mandate provision. Tax liability under this employer provision is triggered if one of the employer’s full-time employees receives a premium tax credit and the amount of the tax liability is determined by the number of full-time employees who received the premium tax credit.


Marketplace Notices

During the Marketplace application process, individuals are asked a host of questions, including questions about access to health coverage through an employer. If the Marketplace determines that the individual does not have access through an employer to coverage that is affordable and meets the required minimum value, and assuming the individual meets other eligibility criteria, advance payments of the premium tax credit can begin.


In such an instance, the Marketplace is required to send the employer a Marketplace notice. This will be the first year the Federally Facilitated Marketplace (FFM) is sending out these notices. It is worth noting that there is not a commitment to send a notice to all employers, and the FFM has said it can send a notice only if the individual provides a complete employer address. Consequently, some employers expecting Marketplace notices may not receive them and notices may not be mailed to the preferred employer address.


Potential Tax Liabilities

The Marketplace notices will give employers advance warning that they may have potential tax liability under the employer mandate of the ACA. However, there are reasons that receiving a notice does not necessarily mean the IRS will be in hot pursuit, including:


  • The Marketplace cannot distinguish whether the employer is large enough to be subject to the employer mandate. That is, the Marketplace will be sending out notices to smaller employers that are not subject to the tax. An employer receiving a Marketplace notice may want to confirm whether it is an applicable large employer subject to the employer mandate.

 


  • Even if the employer is an applicable large employer, the individual identified in the notice may not be a full-time employee. Determining whether a particular employee is a full-time employee, as defined by the law and related regulations, is not always easy. An employer receiving a Marketplace notice may want to confirm whether the individual identified in the notice is an employee and whether, in fact, the employee was, or is, a full-time employee.


  • In addition to considering its potential tax liability under the employer mandate, an employer should also be mindful of its employees’ potential tax liability. As noted above, an individual with access through an employer to health coverage that is affordable and meets minimum value is not eligible for a premium tax credit. Consequently, any advance payments of the premium tax credit made on that individual’s behalf throughout the year will be subject to repayment when the individual files their income tax return. This will be an unwanted and unexpected surprise to many individuals.


Sample Notice Clarifications

The FFM recently posted a sample of its 2016 notice which can be found here.


Please note that the notice suggests that employers should call the IRS for more information if they have questions, however, IRS telephone assistors will be unable to provide information on the Marketplace process, including the appeals process, and will be unable to tell an employer whether they owe a tax under the employer mandate.


Considerations for Employers

An employer who receives a Marketplace notice may want to appeal the decision that the individual was not offered employer coverage that was affordable and of minimum value. An employer has 90 days from the date of the notice to file an appeal, which is made directly to the Marketplace. Importantly, the IRS will independently determine whether an employer has a tax liability, and the employer will have the opportunity to dispute any proposed liability with the IRS. Similarly, an individual will have the opportunity to challenge an IRS denial of premium tax credit eligibility. Any contact by the IRS, however, will occur late in the game after the year’s tax liabilities have already been incurred. Therefore, although an appeal is not required, it may be advisable.


Regardless of whether an employer pursues an appeal, an employer, particularly one that offers affordable, minimum value health coverage, should communicate to its employees about its offering. Although an applicable large employer is required to furnish IRS Form 1095-C to full-time employees detailing the employer’s offer, a better option is providing employees with information before they enroll in Marketplace coverage.


In summary, the Marketplace notice serves as an advance warning that either the employer or the employee may have a tax liability. Given this exposure, employers should review Marketplace notices and their internal records and consider taking action.

Beginning in Spring 2016, the Affordable Care Act (ACA) Exchanges/Marketplaces will begin to send notices to employers whose employees have received government-subsidized health insurance through the Exchanges. The ACA created the “Employer Notice Program” to give employers the opportunity to contest a potential penalty for employees receiving subsidized health insurance via an Exchange.


What are the Potential Penalties?

The notices will identify any employees who received an advance premium tax credit (APTC). If a full-time employee of an applicable large employer (ALE) receives a premium tax credit for coverage through the Exchanges in 2016, the ALE will be liable for the employer shared responsibility payment. The penalty if an employer doesn’t offer full-time equivalent employees (FTEs) affordable minimum value essential coverage is $2,160 per FTE (minus the first 30) in 2016. If an employer offers coverage, but it is not considered affordable, the penalty is the lesser of $3,240 per subsidized FTE in 2016 or the above penalty. Penalties for future years will be indexed for inflation and posted on the IRS website. The Employer Notice Program does provide an opportunity for an ALE to file an appeal if employees claimed subsidies they were not entitled to.

Who Will Receive Notices?

The first batch of notices will be sent in Spring 2016 and additional notices will be sent throughout the year.  For 2016, the notices are expected to be sent to employers if the employee received an APTC for at least one month in 2016 and the employee provided the Exchange with the complete employer address.


Last September, the Centers for Medicare and Medicaid Services (CMS) issued FAQs regarding the Employer Notice Program. The FAQs respond to several questions regarding how employers should respond if they receive a notice that an employee received premium tax credits and cost sharing reductions through the ACA’s Exchanges.


Appeal Process

Employers will have an opportunity to appeal the employer notice by proving they offered the employee access to affordable minimum value employer-sponsored coverage, therefore making the employee ineligible for APTC. An employer has 90 days from the date of the notice to appeal.  If the employer’s appeal is successful, the Exchange will send a notice to the employee suggesting the employee update their Exchange application to reflect that he or she has access or is enrolled in other coverage.  The notice to the employee will further explain that failure to provide an update to their application may result in a tax liability.


An employer appeal request form is available on the Healthcare.gov website. For more details about the Employer Notice Program or the employer appeal request form visit www.healthcare.gov.


Advice

Although CMS has provided these guidelines to apply only to the Federal Exchange, it is likely that the state-based Exchanges will have similar notification programs.


Employers should prepare in advance by developing a process for handling the Exchange notices, including appealing any incorrect information that an employee may have provided to the Exchange.  Advance preparation will enable you to respond to the notice promptly and help to avoid potential employer penalties.

Many employers offer affordable health coverage that meets or exceeds the minimum value requirements of the Affordable Care Act (ACA). However, if one or more of their full-time employees claims the coverage offered was not affordable, minimum value health coverage, the employee could (erroneously) get subsidized coverage on the public health exchange. This would cause problems for applicable large employers (ALEs), who potentially face employer shared responsibility penalties, and for employees, which may have to repay erroneous subsidies.


If an employee does receive subsidized coverage on the public exchange, most employers would want to know about it as soon as possible and appeal the subsidy decision if they believed they were offering affordable, minimum value coverage. There are two ways employers might be notified: (1) by the federally facilitated or state-based exchange or (2) by the Internal Revenue Service (IRS).

Employer notices from exchanges

The notices from the exchanges are intended to be an early-warning system to employers. Ideally, the exchange would notify employers when an employee receives an advance premium tax credit (APTC) subsidizing coverage. The notice would occur shortly after the employee started receiving subsidized coverage, and employers would have a chance to rectify the situation before the tax year ends.


In a set of Frequently Asked Questions issued September 18, 2015, the Center for Consumer Information and Insurance Oversight (CCIIO) stated the federal exchanges will not notify employers about 2015 APTCs and will instead begin notifying some employers in 2016 about employees’ 2016 APTCs. The federal exchange employer notification program will not be fully implemented until sometime after 2016.


In 2016, the federal exchanges will only send APTC notices to some employers and will use the employer address given to the exchange by the employee at the time of application for insurance on the exchange. CCIIO realizes some employer notices will probably not reach their intended recipients. Going forward, the public exchanges will consider alternative ways of contacting employers.


Employers that do receive the notice have 90 days after receipt to send an appeal to the health insurance exchange.


Employers that do not receive early notice from the exchanges will not be able to address potential errors until after the tax year is over, when the IRS gets involved.


Employer notices from IRS

The IRS, which is responsible for assessing and collecting shared responsibility payments from employers, will start notifying employers in 2016 if they are potentially subject to shared responsibility penalties for 2015. Likewise, the IRS will notify employers in 2017 of potential penalties for 2016, after their employees’ individual tax returns have been processed. Employers will have an opportunity to respond to the IRS before the IRS actually assesses any ACA shared responsibility penalties.


Regarding assessment and collection of the employer shared responsibility payment, the IRS states on its website:


An employer will not be contacted by the IRS regarding an employer shared responsibility payment until after their employees’ individual income tax returns are due for that year—which would show any claims for the premium tax credit.

If, after the employer has had an opportunity to respond to the initial IRS contact, the IRS determines that an employer is liable for a payment, the IRS will send a notice and demand for payment to the employer. That notice will instruct the employer how to make the payment.


Bottom line

For 2015, and quite possibly for 2016 and future years, the soonest an employer will hear it has an employee who received a subsidy on the federal exchange will be when the IRS notifies the employer that the employer is potentially liable for a shared responsibility payment for the prior year. The employer will have an opportunity to respond to the IRS before any assessment or notice and demand for payment is made. The “early-warning system” of public exchanges notifying employers of employees’ APTCs in the year in which they receive them is not yet fully operational.

IRS Releases “Final” Versions and Instructions for Forms 1094 and 1095: Start Collecting Data

February 18 - Posted at 3:00 PM Tagged: , , , , , , , , , , ,

Last week, the IRS issued its “final” versions of the forms 1094-B,1094-C1095-B and 1095-C along with instructions for the “B” forms and instructions for the “C” forms. The good news is that the forms are pretty much the same from the drafts released in mid 2014.  What has changed is that the revised instructions have filled in some gaps about reporting, some of which are highlighted below:


1.      Employers with 50-99 FTEs who were exempt from compliance in 2015 must still file these forms for the 2015 tax year.


2.      For employers that cover non-employees (COBRA beneficiaries or retirees being most common), they can use forms 1094-B and 1095-B instead of filing out 1095-C Part III to report for those individuals.

3.      With respect to reporting for employees who work for more than one employer member of a controlled group aggregated “ALE”, the employee may receive a report from each separate employer.   However, the employer for whom he or she works the most hours in a given month should report for that month.


4.      Under the final instructions, a full-time employee of a self-insured employer that accepts a qualifying offer and enrolls in coverage, the employer must provide that employee a 1095-C. The previous draft indicated that it would be enough to simply provide an employee a statement about the offer rather than an actual form


5.      For plans that exclude spouses covered or offered health coverage through their own employers, the definition of “offer of health coverage” now provides that an offer to a spouse subject to a reasonable, objective condition is treated as an offer of coverage for reporting purposes.


6.      There are some changes with respect to what days can be used to measure the “count” for reporting purposes.  Employers are allowed to use the first day of the first payroll period of each month or the last day of the first payroll period of each month, as long as the last day is in the same month as when the payroll period starts.  Also, an employer can report offering coverage for a month only if the employer offers coverage for every day of that month.  Mid-month eligibilities would presumably be counted as being covered on the first day of the next month.  However, in the case of terminations of employment mid-month, the coverage can be treated as offered for the entire month if, but for the termination, the coverage would have continued for the full month.


Now as a refresher about what needs to be filed:


  • Each ALE member may satisfy the requirement by filing a Form 1094-C (transmittal) and, for each full-time employee, a Form 1095-C (employee statement).


  • Non-ALE members (meaning employers not subject to the employer shared responsibility provisions) that sponsor self-insured plans will file Forms 1094-B and 1095-B to satisfy the reporting requirements.


  • An employer must furnish a Form 1095-C to each of its full-time employees by January 31 of the year following the year to which the Form 1095-C relates. Filers of Form 1095-B must furnish a copy to the person identified as the responsible individual named on the form.

 


Bear in mind that there is a considerable amount of time between now and the final filing obligation so there may be additional revisions to these instructions, or at least some further clarification. But in the meantime, read the instructions and familiarize yourself with the reporting obligations as well as beginning the steps to collecting the necessary data to make completing the forms next year easier.

Beginning January 1, 2015, employers have new reporting obligations for health plan coverage, to allow the government to administer the “pay or play” penalties to be assessed against employers that do not offer compliant coverage to their full-time employees. 

 

    • Pay or play penalties apply to employers with 100 or more full-time equivalent (FTE) employees in 2015, and 50 or more FTE employees in 2016 and beyond.

 

    • For these employers, pay or play penalties are assessed if the employer does not offer compliant coverage to 70% of full-time employees in 2015 and 95% of full-time employees thereafter. 

 

Even though the penalties only apply if there are 100 or more employees for 2015, employers with 50 or more full-time equivalent employees are required to report for 2015.  Also, note this reporting is required even if the employer does not maintain any health plan.

 

Employers that provide self-funded group health coverage also have reporting obligations, to allow the government to administer the “individual mandate” which results in a tax on individuals who do not maintain health coverage.

These reporting obligations will be difficult for most employers to implement.  Penalties for non-compliance are high, so employers need to begin now with developing a plan on how they will track and file the required information.

 

Pay or Play Reporting.   Applicable large employers (ALEs) must report health coverage offered to employees for each month of 2015 in an annual information return due early in 2016.  ALEs are employers with 50 or more full-time equivalent (FTE) employees.  Employees who average 30 hours are counted as one, and those who average less than 30 hours are combined into an equivalent number of 30 hour employees to determine if there are 50 or more FTE employees.  All employees of controlled group, or 80%  commonly owned employers, are also combined to determine if the 50 FTE threshold is met.

 

Individual Mandate Reporting.  Self-funded employers, including both ALEs and small employers that are not ALEs, must report each individual covered for each month of the calendar year.  For fully-insured coverage, the insurance carrier must report individual month by month coverage.   The individual mandate reporting is due early in 2016 for each month of 2015. 

 

Which Form?   ALE employers have one set of forms to report both the pay or play and the individual mandate information – Forms 1094C and 1095C.  Insurers and self-insured employers that are not ALEs use Forms 1094B and 1095B to report the individual mandate information.  Information about employee and individual coverage provided on these forms must also be reported by the employer to its employees as well as to COBRA and retiree participants.  Forms 1095B and 1095C can be used to provide this information, or employers can provide the information in a different format.

 

The following chart summaries which returns are filed by employers:

 

Who Reports?  While ALE status is determined on a controlled group basis, each ALE must file separate reports.  Employers will need to provide insurance carriers, and third party administrators who process claims for self-funded coverage (if they will assist the employer with reporting), accurate data on the employer for whom each covered employee works.  If an employee works for more than one ALE in a controlled group, the employer for whom the highest number of hours is worked does the reporting for that employee. 

 

Due Date for Filing.  The due date of the forms matches the due dates of Forms W-2, and employers may provide the required employee statements along with the W-2.  Employee reporting is due January 31st and reporting to the IRS is due each February 28th, although the date is extended until March 31st if the forms are filed electronically.  If the employer files 250 or more returns, the returns must be filed electronically.   Reporting to employees can only be made electronically if the employee has specifically consented to receiving these reports electronically. 

 

Penalties.    Failure to file penalties can total $200 per individual for whom information must be reported, subject to a maximum of $3 million per year.  Penalties will not be assessed for employers who make a good faith effort to file correct returns for 2015.

 

What Information is Required?  For the pay or play reporting, each ALE must file a Form 1094C reporting the number of its full-time employees (averaging 30 hours) and total employees for each calendar month, whether the ALE is in a “aggregated” (controlled) group, a listing of the name and EIN of the top 30 other entities in the controlled group (ranked by number of full-time employees), and any special transition rules being used for pay or play penalties.  ALE’s must also file a 1095C for each employee who was a full-time employee during any calendar month of the year.  The 1095C includes the employee’s name, address and SSN, and month by month reporting of whether coverage was offered to the employee, spouse and dependents, the lowest premium for employee only coverage, and identification of the safe-harbor used to determine affordability.  This information is used to determine pay or play penalty taxes and to verify the individuals’ eligibility for subsidies toward coverage costs on the Federal and state exchanges.

 

If the ALE provides self-funded coverage, the ALE must also report on the 1095C the name and SSN of each individual provided coverage for each calendar month.  If an employer is not an ALE, but is self-funded, the name and SSN of each covered individual is reported on the 1095B and the 1094B is used to transmit the forms 1095B to the IRS.

 

A chart is available that sets out what data must be reported on each form, to help employers determine what information they need to track. Click here to access the chart. 

 

Next Steps.  Employers will need to determine how much help their insurance carrier or TPA can provide with the reporting, and then the employer’s HR, payroll and IT functions will need to work together to be sure the necessary information is being tracked and can be produced for reporting in January 2016.  

The Affordable Care Act will require Applicable Large Employers (i.e. large employers subject to the employer mandate) and employers sponsoring self-insured plans to comply with new annual IRS reporting requirements.  The first reporting deadline will be February 28, 2016 as to the data employers collect during the 2015 calendar year.  The reporting provides the IRS with information it needs to enforce the Individual Mandate (i.e. individuals are penalized for not having health coverage) and the Employer Mandate (i.e. large employers are penalized for not offering health coverage to full-time employees).  The IRS will also require employers who offer self-insured plans to report on covered individuals.

 

Large employers and coverage providers must also provide a written statement to each employee or responsible individual (i.e. one who enrolls one or more individuals) identifying the reported information.  The written statement can be a copy of the Form.

 

The IRS recently released draft Forms 1094-C and 1095-C and draft Forms 1094-B and 1095-B, along with draft instructions for each form.

 

Which Forms Do I File? 

 

  • Applicable Large Employer (ALE) Offering Fully Insured Coverage
    • Form 1094-C and 1095-C (except Part III)
  • Applicable Large Employer Sponsoring Self-Insured Coverage
    • Form 1094-C and 1095-C (including Part III)
  • Applicable Large Employer Offering Self-Insured Coverage to Non-Employees (i.e. retirees/COBRA/etc)
    • 1094-C and 1095-C (except Part III) as well as 1094-B and 1095-C
  • Small Employer (non-ALE) Sponsoring Self-Insured Coverage
    • 1094-B and 1095-C
  • Small Employer Offering Fully Insured Health Plans
    • Not Applicable

 

When?

Statements to employees and responsible individuals are due annually by January 31.  The first statements are due January 31, 2016.

 

Forms 1094-B, 1095-B, 1094-C and 1095-C are due annually by February 28 (or by March 31, if filing electronically).  The first filing is due by February 28, 2016 (or March 31, 2016, if filing electronically). 

 

Even though the forms are not due until 2016, the annual reporting will be based on data from the prior year.  Employers need to plan ahead now to collect data for 2015.  Many employers have adopted the Look Back Measurement Method Safe Harbor (“Safe Harbor”) to identify full-time employees under the ACA.  The Safe Harbor allows employers to “look back” on the hours of service of its employees during 2014 or another measurement period.  There are specific legal restrictions regarding the timing and length of the periods under the Safe Harbor, so employers cannot just pick random dates.  Employers also must follow various rules to calculate hours of service under the Safe Harbor.  The hours of service during the measurement period (which is likely to include most of 2014) will determine whether a particular employee is full-time under the ACA during the 2015 stability period.  The stability period is the time during which the status of the employee, as full-time or non-full-time, is locked in.  In 2016, employers must report their employees’ full-time status during the calendar year of 2015.  Therefore, even though the IRS forms are not due until 2016, an employee’s hours of service in 2014 will determine how an employer reports that employee during each month of 2015.  Employers who have not adopted the Safe Harbor should consider doing so because it allows an employer to average hours of service over a 12-month period to determine the full-time status of an employee.  If an employer does not adopt the Safe Harbor, the IRS will require the employer to make a monthly determination, which is likely to increase an employer’s potential exposure to penalties.

 

What Must the Employer Report?

 

 

Form 1095-C

There are three parts to Form 1095-C.  An applicable large employer must file one Form 1095-C for each full-time employee.  If the applicable large employer sponsors self-insured health plans, it must also file Form 1095-C for any employee who enrolls in coverage regardless of the full-time status of that employee.

 

Form 1095-C requires the employer to identify the type of health coverage offered to a full-time employee for each calendar month, including whether that coverage offered minimum value and was affordable for that employee.  Employers must use a code to identify the type of health coverage offered and applicable transition relief.

 

Employers that offer self-insured health plans also must report information about each individual enrolled in the self-insured health plan, including any full-time employee, non-full-time employee, employee family members, and others. 

 

Form 1094-C

Applicable large employers use Form 1094-C as a transmittal to report employer summary information and transmit its Forms 1095-C to the IRS.  Form 1094-C requires employers to enter the name and contact information of the employer and the total number of Forms 1095-C it submits.  It also requires information about whether the employer offered minimum essential coverage under an eligible employer-sponsored plan to at least 95% of its full-time employees and their dependents for the entire calendar year, the number of full-time employees for each month, and the total number of employees (full-time or non-full-time) for each month.

 

Form 1095-B

Employers offering self-insured coverage use Form 1095-B to report information to the IRS about individuals who are covered by minimum essential coverage and therefore are not liable for the individual shared responsibility payment.  These employers must file a Form 1095-B for eachindividual who was covered for any part of the calendar year.  The employer must make reasonable efforts to collect social security numbers for covered individuals.

 

Form 1094-B

Employers who file Form 1095-B will use Form 1094-B as a transmittal form.  It asks for the name of the employer, the employer’s EIN, and the name, telephone number, and address of the employer’s contact person. 

 

Failure to Report – What Happens?

The IRS will impose penalties for failure to timely provide correct written statements to employees.  The IRS will also impose penalties for failure to timely file a correct return.  For the 2016 reporting on 2015 data, the IRS will not impose a penalty for good faith compliance.  However, the IRS specified that good faith compliance requires that employers provide the statements and file the returns. 

Health Care Reform: Employers Should Prepare Now for 2015 to Avoid Penalties

August 20 - Posted at 2:00 PM Tagged: , , , , , , , , , , , , , , , ,

Under the Patient Protection and Affordable Care Act (PPACA), beginning in 2015, certain large employers who do not offer affordable health insurance that provides minimum value to their full-time employees may be subject to significant penalties.

 

In a nutshell, in 2015, “applicable large employers” will be subject to an annualized employer “shared responsibility” penalty of $2,000 (indexed) per full-time employee (minus the first 80 full-time employees in 2015) if the employer does not offer health insurance to at least 70% of their full-time employees and their dependents. This amount will be increase from 70% to 95% after 2015. This is commonly referred to as the “Pay or Play” penalty.

 

Even if an applicable large employer offers insurance coverage to full-time employees, the employer still could be subject to an annualized penalty of $3,000 (indexed) per employee who receives an Exchange subsidy if  the offered employer-sponsored health coverage does not meet minimum value standards or is not affordable. This $3000 penalty is capped at the amount that would apply if the $2,000 penalty described above were to apply.

 

What should an employer do now to prepare for these penalties?

 

(A) Determine if they are an “applicable large employer” -To do this, employers should count both full-time employees and part-time employee hours as follows:

 

1) Count the full-time employees for each month in the prior year.

 

2) Count the full-time equivalents for each month in the prior year.

 

a) Add total hours for non-full-time employees but count no more than 120 hours per month for any one non-full-time employee.

 

b) Divide the number obtained in (a) by 120. This is the full-time equivalent number.

 

3) Add the numbers obtained in (1) and (2) above (i.e., the full-time employee and full-time equivalent numbers) for each month.

 

4) Add the 12 sums obtained in (3) and divide by 12. This is the average number of full-time employees and full-time equivalents.

 

5) If this number obtained in (4) is under 50 (or under 100 for the 2015 determination for certain employers), the employer is not an applicable large employer for the year being determined.

 

Note: The applicable large employer is determined on a controlled group basis. For example, if there are three companies, each of which is wholly owned by the same parent company, the companies are all considered one employer for this calculation. Also note that, special transition rules apply in determining applicable large employer status for 2015 and that a special seasonal employee exception may apply even if the threshold in (5) is exceeded.

 

(B) If an employer will be an applicable large employer in 2015, it should determine whether it could be subject to penalties in 2015. For example, the employer should review its group health plan to determine if the insurance coverage is “offered” to full-time employees meets minimum value standards and is considered affordable to employees.

 

© An employer also will need to address how it will determine the full-time status of employees – will it use the “monthly measurement period” or the “look back measurement period.” This is particularly important for employers who have many variable-hour employees or seasonal employees.

 

(D) If the employer’s group health plan does not meet the threshold tests to avoid the penalties noted above, the employer should evaluate whether it wants to restructure its health care offerings or pay the penalties (which are non-deductible).

 

 

(E) Finally, employers should review their data collection procedures to ensure that they will be able to report the healthcare information required to be reported for 2015 (the actual reporting will occur in 2016 for the 2015 calendar year). Insurers, sponsors of self-insured plans, and other entities that provide minimum essential coverage during a calendar year will be required to report certain information to the IRS and to participants. In addition, applicable large employers will be required to report about the coverage they provide to both the IRS and to their employees. Drafts of the IRS forms to be used in reporting this information have recently been published (Form 1095-BForm 1095-B TransmittalForm 1095-CForm 1095-C Transmittal). Employers should review these forms to understand the data that will need to be reported. 

 

It is not too late for employers to take action now to avoid penalties in 2015. 

The Affordable Care Act (ACA) imposes significant information reporting responsibilities on employers starting with the 2015 calendar year. One reporting requirement applies to all employer-sponsored health plans, regardless of the size of the employer. A second reporting requirement applies only to large employers, even if the employer does not provide health coverage. The IRS is currently developing new systems for reporting the required information and recently released draft forms, however instructions have yet to be released.

 

Information returns

The new information reporting systems will be similar to the current Form W-2 reporting systems in that an information return (Form 1095-B or 1095-C) will be prepared for each applicable employee, and these returns will be filed with the IRS using a single transmittal form (Form 1094-B or 1094-C). Electronic filing is required if the employer files at least 250 returns. Employers must file these returns annually by Feb. 28 (March 31 if filed electronically). Therefore, employers will be filing these forms for the 2015 calendar year by Feb. 28 or March 31, 2016 respectively. A copy of the Form 1095, or a substitute statement, must be given to the employee by Jan. 31 and can be provided electronically with the employee’s consent. Employers will be subject to penalties of up to $200 per return for failing to timely file the returns or furnish statements to employees.

 

The IRS released drafts of the Form 1095-B and Form 1095-C information returns, as well as the Form 1094-B and Form 1094-C transmittal returns, in July 2014 and is expected to provide instructions for the forms in August 2014. According to the IRS, both the forms and the instructions will be finalized later this year. 

 

Health coverage reporting requirement

The health coverage reporting requirement is designed to identify employees and their family members who are enrolled in minimum essential health coverage. Employees who are offered coverage, but decline the coverage, are not reported. The IRS will use this information to determine whether the employees are exempt from the individual mandate penalty due to having health coverage for themselves and their family members. 

 

Insurance companies will prepare Form 1095-B (Health Coverage) and Form 1094-B (Transmittal of Health Coverage Information Returns) for individuals covered by fully-insured employer-sponsored group health plans. Small employers with self-insured health plans will use Form 1095-B and Form 1094-B to report the name, address, and Social Security number (or date of birth) of employees and their family members who have coverage under the self-insured health plan. However, large employers (as defined below) with self-insured health plans will file Forms 1095-C and 1094-C in lieu of Forms 1095-B and 1094-B.

 

Large employer reporting requirement

“Applicable large employer members (ALE)” are subject to the reporting requirement if they offer an insured or self-insured health plan, or do not offer any group health plan. ALE members are those employers that are either an applicable large employer on their own or are members of a controlled or affiliated service group with an ALE (regardless of the number of employees of the group member). ALEs are those that had, on average, at least 50 full-time employees (including full-time equivalent “FTE” employees) during the preceding calendar year. Full-time employees are those who work, on average, at least 30 hours per week. Employers with fewer than 50 full-time employees and equivalents are not applicable large employers and, thus, are exempt from this health coverage reporting requirement.

 

As referenced above, an employer’s status as an ALE is determined on a controlled or affiliated service group basis. For example, if Company A and Company B are members of the same controlled group and Company A has 100 employees and Company B has 20 employees, then A and B are both members of an ALE. Consequently, Company A and Company B must each file the information returns.

 

Each ALE member must file Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) and Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns) with the IRS for each calendar year. The IRS will use this information to determine whether (1) the employer is subject to the employer mandate penalty, and (2) an employee is eligible for a premium tax credit on insurance purchased through the new health insurance exchange. ALEs with fewer than 100 full-time employees are generally eligible for transition relief from the employer mandate penalty for their 2015 plan year. Nonetheless, these employers are still required to file Forms 1095-C and 1094-C for the 2015 calendar year.

 

The employer mandate penalty can be imposed on any ALE member that does not offer affordable, minimum value health coverage to all of its full-time employees starting in 2015. Health coverage is affordable if the amount that the employer charges an employee for self-only coverage does not exceed 9.5 percent of the employee’s Form W-2 wages, rate of pay, or the federal poverty level for the year. A health plan provides minimum value if the plan is designed to pay at least 60 percent of the total cost of medical services for a standard population. In the case of a controlled or affiliated service group, the employer mandate penalties apply to each member of the group individually.

 

ALE members must prepare a Form 1095-C for each employee. The return will report the following information:

  • The employee’s name, address and Social Security number
  • Whether the employee and family members were offered health coverage each month that met the minimum value standard,
  • The employee’s share of the monthly premium for the lowest-cost minimum value health coverage offered,
  • Whether the employee was a full-time employee,
  • The affordability safe harbor applicable for the employee,
  • Whether the employee was enrolled in the health plan, and
  • If the health plan was self-insured, the name and Social Security number (or birth date if the Social Security number is unavailable) of each family member of the employee covered by the plan by month.

 

An ALE member will file with the IRS one Form 1094-C transmitting all of its Forms 1095-C. The Form 1094-C will report the following information:

  • The employer’s name, address, employer identification number and contact person,
  • The total number of Forms 1095-C filed,
  • A certification by month as to whether the employer offered its full-time employees (and their dependents) the opportunity to enroll in minimum essential health coverage,
  • The number of full-time employees for each month of the calendar year,
  • The total number of employees for each month,
  • Whether special rules or transition relief applies to the employer, and
  • The names and employer identification numbers of other employers that are in a controlled group or affiliated service group with the employer.

 

As noted above, each ALE member is required to file Forms 1095-C and 1094-C for its own employees, even if it participates in a health plan with other employers (e.g., when the parent company sponsors a plan in which all subsidies participate). Special rules apply to multiemployer plans for collectively-bargained employees.

 

Action required

In light of the complexity of the new information reporting requirements, it is recommended that employers should begin taking steps now to prepare for the new reporting requirements:

 

  • Learn about the new information reporting requirements and review the draft IRS forms
  • Develop procedures for determining and documenting each employee’s full-time or part-time status by month
  • Develop procedures to collect information about offers of health coverage and health plan enrollment by month
  • Review ownership structures of related companies and engage professionals to perform a controlled/affiliated service group analysis
  • Discuss the reporting requirements with the health plan’s insurer/third-party administrator and the company’s payroll vendor to determine responsibility for data collection and form preparation
  • Ensure that systems are in place by Dec. 31, 2014 to collect the needed data for the 2015 reports

 

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