IRS Won’t Accept 2017 Individual Tax Returns without ACA Information

October 25 - Posted at 8:26 AM Tagged: , , , , , , , , , , , , , , , , ,

In a recent statement released by the IRS it advised that it would not accept individual 2017 tax returns that did not indicate whether the individual had health coverage, had an exemption from the individual mandate, or will make a shared responsibility payment under the individual mandate. Therefore, for the first time, an individual must complete line 61 (as shown in previous iterations) of the Form 1040 when filing his/her tax return. This article explains what the new IRS position means for the future of ACA compliance from an employer’s perspective.

First, it will be critical (more so this year than in year’s past) that an employer furnish its requisite employees the Form 1095-C by the January 31, 2018 deadline. In previous years, this deadline was extended (to March 2, 2017 last year). However, with the IRS now requiring the ACA information to be furnished by individual tax day, April 17, 2018, employers will almost certainly have to furnish the Form 1095-C to employees by the January 31, 2018 deadline. This is a tight deadline and will require employers to be on top of their data as the 2017 calendar year comes to a close.

An employee who is enrolled in a self-insured plan will need the information furnished in part III of the Form 1095-C to complete line 61 on his/her tax return. It is reasonable to assume that an employee is more likely to inquire as to the whereabouts of the Affordable Care Act information necessary to complete his/her 2017 tax return. Therefore, the possibility of word getting back to the IRS that an employer is not furnishing the Form 1095-C statements to employees is also likely greater in 2017 compared to past years. Remember, an employer can be penalized $260 if it fails to furnish a Form 1095-C that is accurate by January 31, 2018 to the requisite employees. This penalty is capped at $3,218,500. The $260 per Form penalty and the cap amount can be increased if there is intentional disregard for the filing requirements. 

The IRS statement continues the IRS’ trend of being more strenuous with ACA requirements. Many employers have received correspondence from the IRS about missing Forms 1094-C and 1095-C for certain EINs. Frequently, this has been caused by the employer incorrectly filing one Form 1094-C for the aggregated ALE group as opposed to a Form 1094-C for each Applicable Large Employer member (ALE member). While the IRS’ latest statement does not ensure that enforcement of the employer mandate (the section 4980H penalties) is coming soon, one could infer that the IRS will soon be sending out penalty notices with respect to the employer mandate.

With the actions taken by the IRS in 2017, all employers need to be taking the reporting of the Forms 1094-C and 1095-C seriously. As of the date of this publication, the Form 1095-C must be furnished to an employer’s requisite employees by January 31, 2018.

ACA Affordability Standard for 2018 Released

July 26 - Posted at 1:05 PM Tagged: , , , , , ,
Since the inception of the employer mandate under the Affordable Care Act (ACA) in 2015, the affordability percentage for 2018 has been reduced and is now back to 9.56% per a recently released IRS publication.

Groups will need to carefully consider if a reduction in employee premium contributions is necessary in 2018 in order to ensure their medical coverage continues to meet affordability standards per ACA requirements.

With the Republicans’ failure to pass a bill to repeal and replace the Affordable Care Act (ACA), employers should plan to remain compliant with all ACA employee health coverage and annual notification and information reporting obligations.

Even so, advocates for easing the ACA’s financial and administrative burdens on employers are hopeful that at least a few of the reforms they’ve been seeking will resurface in the future, either in narrowly tailored stand-alone legislation or added to a bipartisan measure to stabilize the ACA’s public exchanges. Relief from regulatory agencies could also make life under the ACA less burdensome for employers.

“Looking ahead, lawmakers will likely pursue targeted modifications to the ACA, including some employer provisions,” said Chatrane Birbal, senior advisor for government relations at the Society for Human Resource Management (SHRM). “Stand-alone legislative proposals have been introduced in previous Congresses, and sponsors of those proposals are gearing up to reintroduce bills in the coming weeks.”

These legislative measures, Birbal explained, are most likely to address the areas noted below.
(more…)

Congress Passes 21st Century Cures Act with HRA Provisions

December 15 - Posted at 4:20 PM Tagged: , , , , , , , , , , , , , , , , , ,

Earlier this week, President Obama signed the 21st Century Cures Act (“Act”). This Act contains provisions for “Qualified Small Business Health Reimbursement Arrangements” (“HRA”). This new HRA would allow eligible small employers to offer a health reimbursement arrangement funded solely by the employer that would reimburse employees for qualified medical expenses including health insurance premiums. 


The maximum reimbursement that can be provided under the plan is $4,950 or $10,000 if the HRA provided for family members of the employee.  An employer is eligible to establish a small employer health reimbursement arrangement if that employer (i) is not subject to the employer mandate under the Affordable Care Act (i.e., less than 50 full-time employees) and (ii) does not offer a group health plan to any employees. 


To be a qualified small employer HRA, the arrangement must be provided on the same terms to all eligible employees, although the Act allows benefits under the HRA to vary based on age and family-size variations in the price of an insurance policy in the relevant individual health insurance market.


Employers must report contributions to a reimbursement arrangement on their employees’ W-2 each year and notify each participant of the amount of benefit provided under the HRA each year at least 90 days before the beginning of each year.


This new provision also provides that employees that are covered by this HRA will not be eligible for subsidies for health insurance purchased under an exchange during the months that they are covered by the employer’s HRA. 

Such HRAs are not considered “group health plans” for most purposes under the Code, ERISA and the Public Health Service Act and are not subject to COBRA.


This new provision also overturns guidance issued by the Internal Revenue Service and the Department of Labor that stated that these arrangements violated the Affordable Care Act insurance market reforms and were subject to a penalty for providing such arrangements.  


The previous IRS and DOL guidance would still prohibit these arrangements for larger employers. The provision is effective for plan years beginning after December 31, 2016.  (There was transition relief for plans offering these benefits that ends December 31, 2016 and extends the relief given in IRS Notice 2015-17.)

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.

Limiting Employee Hours To Avoid ACA Could Violate ERISA

March 03 - Posted at 3:00 PM Tagged: , , , , , , , , , , , ,

In a first-of-its-kind decision, a federal court recently upheld the right of employees to sue their employer for allegedly cutting employee hours to less than 30 hours per week to avoid offering health insurance under the Affordable Care Act (ACA). Specifically, the District Court for the Southern District of New York denied a defense Motion to Dismiss in a case where a group of workers allege that Dave & Buster’s (a national restaurant and entertainment chain) “right-sized” its workforce for the purpose of avoiding healthcare costs.


Although this case is in the very early stages of litigation and is far from being decided, you should monitor this for developments to determine whether you need to take action to deter potential copycat lawsuits. 

Reducing Workforce Hours In Response To ACA

The ACA requires employers who employ 50 or more “full-time equivalents” to offer affordable minimum-value coverage to full-time employees and their dependents or pay a penalty if any of their full-time employees receive federal premium assistance to purchase individual coverage in the Health Insurance Marketplace. This requirement is also known as the “Employer Mandate”.  


One of the initial concerns by ACA critics is that many employers would respond to the Employer Mandate by reducing full-time employee hours to avoid the coverage obligation and associated penalties, increasing the number of part-time workers in the national economy. This is because the ACA does not require an employer to offer affordable, minimum-value coverage to employees generally working less than 30 hours per week.  


Although the initial economic data analyzing the national workforce suggests that the predictions of wide-scale reduction in employee hours have not materialized, some employers have increased their reliance on part-time employees as an ACA strategy to manage the costs of the Employer Mandate.


Could That Reduction Violate ERISA?

Although an employer who reduces employee hours would not violate any specific provision of the ACA, there is an open question as to whether such an action would violate another federal law. As alleged by employees of Dave & Buster’s, such a reduction creates a cause of action under the Employee Retirement Income Security Act of 1974 (ERISA). A group of employees filed a class action lawsuit against the restaurant chain last year making such an argument.


Section 510 of ERISA prohibits discrimination and retaliation against plan participants and beneficiaries with respect to their rights to benefits. More specifically, ERISA Section 510 prohibits employers from interfering “with the attainment of any right to which such participant may become entitled under the plan.” Because many employment decisions affect the right to present or future benefits, courts generally require that plaintiffs show specific employer intent to interfere with benefits if they want to successfully assert a cause of action under ERISA Section 510.  


Round One Goes To Employees

Dave & Buster’s moved to dismiss the class action lawsuit, arguing that the complaint failed to demonstrate that it reduced work hours with the specific intent to deny employees the right to group health insurance. However, the district court disagreed and recently denied the employer’s motion, clearing the case for further litigation.


The court found that the class of plaintiffs showed sufficient evidence in support of their claim that their participation in the health insurance plan was discontinued because the employer acted with “unlawful purpose” in realigning its workforce to avoid ACA-related costs. In this regard, the employees claimed that the company held meetings during which managers explained that the ACA would cost millions of dollars, and that employee hours were being reduced to avoid that cost.


What Should Employers Do Now?

The lawsuit against Dave & Buster’s is the first case to address whether a transition to a substantially part-time workforce in response to the Employer Mandate constitutes a violation of ERISA Section 510. The case is far from over and we do not know when it will be resolved. 


However, if you are considering reducing your employee hours, you should carefully consider how such reductions are communicated to your workforce. Employers often have varied reasons for reducing employee hours, and many of those reasons have legitimate business purposes. It is vital that any communications made to your employees about such reductions describe the underlying rationale with clarity. 

In July 2015, President Obama signed into law the Trade Preferences Extension Act of 2015. Included in the bill was an important provision that affects welfare and retirement benefit plans. The Act sizably increases filing penalties for information return and statement failures under the Internal Revenue Code, effective for filings after December 31,2015. Employers now face significantly larger penalties for failing to correctly file and furnish the ACA forms 1094 and 1095 (shared responsibility reporting requirements) as well as Forms W-2 and 1099-R. 

Background

Sections 6721 and 6722 of the IRC impose penalties associated with failures to file- or to file correct- information returns and statements. Section 6721 applies to the returns required to be filed with the IRS, and Section 6722 applies to statements required to be provided generally to employees.These penalty provisions apply to the ACA shared responsibility reporting Forms 1094-B, 1094-C, 1095-B, and 1095-C (Sections 6055 & 6056) failures as well as other information returns and statement failures, like those on Forms W-2 and 1099.


For ACA:

  • Section 6055 reporting supports IRS enforcement of the individual mandate
  • Section 6056 reporting supports IRS enforcement of the employer mandate and low-income subsidies for coverage purchased in the public marketplace.


The Sections 6055 & 6056 reporting requirements are effective for medical coverage provided on or after January 1, 2015, with the first information returns to be filed with the IRS by February 29, 2016 (or March 31,2016 if filing electronically) and provided to individuals by February 1, 2016. 


Increase in Penalties

The Trade Preferences Extension Act of 2015 (Act) contains several tax provisions in addition to the trade measures that were the focus of the bill. Provided as a revenue offset provision, the law significantly increases the penalty amounts under Sections 6721 and 6722. A failure includes failing to file or furnish information returns or statements by the due date, failing to provide all required information, as well as failing to provide correct information. 


The law increases the penalty for:

  • General failures- from $100 to $250 per return and increases the annual cap on penalties from $1.5 million to $3 million. 
  • Intentional failures- from $250 to $500 per return with no annual cap on penalties


Other penalty increase also apply, including those associated with timely filing a corrected return. Penalties could also provide a one-two punch under the ACA for employers and other responsible entities. For example, under Sec 6056, applicable large employers (ALE) must file information returns to the IRS (the 1094-B and 1094-C) as well as furnish statements to employees (the 1095-B and 1095-C). So incorrect information shared on those forms could result in a double penalty- one associated with the information return to the IRS and the other associated with individual statements to employees. 


Final regulations on the ACA reporting requirements provide short-term relief from these penalties. For reports files in 2016 (for 2015 calendar year info), the IRS will not impose penalties on ALE members that can show they made a “good-faith effort” to comply with the information reporting requirements. Specifically, relief is provided for incorrect or incomplete info reported on the return or statement, including Social Security numbers, but not for failing to file timely.

Even small employers notsubject to the Affordable Care Act’s (ACA) coverage mandate can’t reimburse employees for nongroup health insurance coverage purchased on a public exchange, the Internal Revenue Service confirmed. But small employers providing premium reimbursement in 2014 are being offered transition relief through mid-2015.


IRS Notice 2015-17, issued on Feb. 18, 2015, is another in a series of guidance from the IRS reminding employers that they will run afoul of the ACA if they use health reimbursement arrangements (HRAs) or other employer payment plans—whether with pretax or post-tax dollars—to reimburse employees for individual policy premiums, including policies available on ACA federal or state public exchanges.


This time the warning is aimed at small employers—those with fewer than 50 full-time employees or equivalent workers. While small organizations are not subject to the ACA’s “shared responsibility” employer mandate to provide coverage or pay a penalty (aka Pay or Play), if they do provide health coverage it must meet a range of ACA coverage requirements.

“The agencies have taken the position that employer payment plans are group health plans, and thus must comply with the ACA’s market reforms,” noted Timothy Jost, J.D., a professor at the Washington and Lee University School of Law, in a Feb. 19 post on the Health Affairs Blog. “A group health plan must under these reforms cover at least preventive care and may not have annual dollar limits. A premium payment-only HRA or other payment arrangement that simply pays employee premiums does not comply with these requirements. An employer that offers such an arrangement, therefore, is subject to a fine of $100 per employee per day. (An HRA integrated into a group health plan that, for example, helps with covering cost-sharing is not a problem).”


Transition Relief

The notice provides transition relief for small employers that used premium payment arrangements for 2014. Small employers also will not be subject to penalties for providing payment arrangements for Jan. 1 through June 30, 2015. These employers must end their premium reimbursement plans by that time. This relief does not extend to stand-alone HRAs or other arrangements used to reimburse employees for medical expenses other than insurance premiums.


No similar relief was given for large employers (those with 50 or more full-time employees or equivalents) for the $100 per day per employee penalties. Large employers are required to self-report their violation on the IRS’s excise tax form 8928 with their quarterly filings.


“Notice 2015-17 recognizes that impermissible premium-reimbursement arrangements have been relatively common, particularly in the small-employer market,” states a benefits brief from law firm Spencer Fane. “And although the ACA created “SHOP Marketplaces” as a place for small employers to purchase affordable [group] health insurance, the notice concedes that the SHOPs have been slow to get off the ground. Hence, this transition relief.”


Subchapter S Corps.

The notice states that Subchapter S closely held corporations may pay for or reimburse individual plan premiums for employee-shareholders who own at least 2 percent of the corporation. “In this situation, the payment is included in income, but the 2-percent shareholder can deduct the premiums for tax purposes,” Jost explained. The 2-percent shareholder may also be eligible for premium tax credits through the marketplace SHOP Marketplace if he or she meets other eligibility requirements.


Tricare

Employers can pay for some or all of the expenses of employees covered by Tricare—a Department of Defense program that provides civilian health benefits for military personnel (including some members of the reserves), military retirees and their dependents—if the payment plan is integrated with a group health plan that meets ACA coverage requirements.


Higher Pay Is Still OK

One option that the IRS will allow employers is to simply increase an employee’s taxable wages in lieu of offering health insurance. “As long as the money is not specifically designated for premiums, this would not be a premium payment plan,” said Jost. “The employer could even give the employee general information about the marketplace and the availability of premium tax credits as long as it does not direct the employee to a specific plan.”


But if the employer pays or reimburses premiums specifically, “even if the payments are made on an after-tax basis, the arrangement is a noncompliant group health plan and the employer that offers it is subject to the $100 per day per employee penalty,” Jost warned.


“Small employers now have just over four months in which to wind down any impermissible premium-reimbursement arrangement,” the Spencer Fane brief notes. “In its place, they may wish to adopt a plan through a SHOP Marketplace. Although individuals may enroll through a Marketplace during only annual or special enrollment periods, there is no such limitation on an employer’s ability to adopt a plan through a SHOP.” 

Healthcare Reform: Plan Eligibility Rules Need To Be In Writing

January 26 - Posted at 3:00 PM Tagged: , , , , , , ,

Healthcare Reform continues to roll on despite all of its opponents. While 2014 brought the implementation of the health insurance exchanges, the Individual Mandate, and a host of new rules relating to employer-provided health coverage, 2015 marks the start of yet another major component of the Affordable Care Act (ACA): the Employer Mandate.

 

In the a recent article written by Fisher & Phillips LLP attorney Steven Witt, he discusses the potential risks employers can face if they are not careful in how they implement (and document) their compliance strategies with regards to the Employer Mandate.

 

The Employer Mandate requires large employers to offer compliant group health coverage to their “full-time employees” and their dependents or face excise tax penalties. Say you are a large employer who has never offered health insurance (or perhaps only to a small subset of your employees). You do not want to bankrupt the company and offer health insurance to your entire workforce, nor do you want to face tax penalties. Instead, you opt for what the Employer Mandate calls for: you offer health insurance coverage to only your full-time employees.

 

If you decide to only offer coverage to your “full-time” employees, simply setting measurement period dates with your human resources department and running payroll reports to determine who is “full-time” will not sufficiently limit the risk of controversy and potential legal liability. You will be much better off to clearly define these eligibility rules in writing and make sure any old, conflicting eligibility rules are updated.

 

Leaving existing plan documents and other materials (e.g., employee handbooks) to define health insurance eligibility with something vague like “full-time employees: employees who regularly work 30 or more hours per week,” is only inviting trouble. You will no doubt have employees (with attorneys) who could make plausible arguments that they “regularly” work 30 or more hours a week and can point to your existing written documents as evidence they should have been offered health insurance. Without clearly setting out new eligibility rules, it will be a much steeper uphill battle for the employer to defend itself.

 

On the other hand, if such employees attempt to claim that they were unfairly denied health insurance coverage, an employer should be on much stronger footing to defend its position that those employees are not “full-time” if it can point to written documentation outlining items such as (a) date ranges used for measurement periods and stability periods; (b) waiting periods for newly-eligible employees; and © how to treat employees in special circumstances, such as those who are promoted from a part-time position to a full-time position, those on a leave of absence, or rehired employees.

 

If you have not already done this, it is not too late. Even employers subject to the Employer Mandate in 2015 can still timely revise their SPDs or perhaps draft stand-alone benefits eligibility documents or other “wrap” documents to fully outline new eligibility rules. Steven advises employers to pay close attention as additional regulations and agency guidance continues to roll out to ensure they stay in compliance with ERISA, the ACA, and other related federal and state health insurance-related laws.

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. 

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