Part of the goal of the Patient Protection and Affordable Care Act (ACA) is to expand health care coverage to more individuals, and to do that, new reporting requirements are necessary to help enforce several key mandates. The individual mandate responsibility payment incentivizes individuals to buy coverage, while the employer shared responsibility payment incentivizes employers to offer coverage that is both affordable and meets certain minimum standards. In addition to the enforcement efforts, these new reporting requirements will be used by the IRS to determine whether an employee is eligible for a premium tax credit under Internal Revenue Code (IRC) Section 36B for exchange coverage.
Employers subject to the ACA shared responsibility mandate, often referred to as play or pay, are required to file IRS Forms 1094-C and 1095-C in early 2016 to show that the health care coverage offered to their employees is compliant with the reporting obligation requirements outlined in IRC Section 6056.
To avoid running afoul of the law, you need to ask the following questions. Does your company meet the reporting requirements? Do you have procedures and systems to capture the necessary data? Have you started gathering the necessary data? Do you know who will be preparing your returns?
Here’s how to make sure you get it right.
Who must file
Applicable Large Employers (ALEs) must report to the IRS information about the health care coverage, if any, they offered to full-time employees. ALEs also must furnish to all full-time employees a statement that includes the same information provided to IRS.
ALE status is determined by looking at all members of a controlled group (common ownership), and examples include organizations structured as a parent and subsidiary, or a parent and other affiliated entities. However, liability under IRC Section 4980H applies on an ALE member-by-member basis.
What you must file
ALE members (ALEM) must file transmittal Form 1094-C to the IRS and a copy of Form 1095-C (or a substitute form) for each full-time employee who was employed as such for any month of the calendar year.
Forms for IRC Section 6056 reporting:
When to file
The IRS reporting is due annually on or before the last day of February of the following year, or March 31 if filed electronically. Electronic filing is required for employers remitting 250 or more Forms 1095-C per calendar year. The full-time employee reporting is due annually by January 31.
Alternative reporting methods may be used for eligible ALEs to simplify and reduce the cost of reporting. Alternative methods of reporting are:
Information reporting penalties
Penalties apply for failure to timely file, failure to include all required information, or including incorrect information. (See links below for additional information on reporting penalties.) ALEM with at least 50 but fewer than 100 full-time employees (including FTEs) are eligible for transition relief for 2015 under the employer shared responsibility provision. However, that does not exempt the ALEM from the reporting requirements above. Further, the employer should be prepared to defend such assessments based upon records of coverage offered, who are full-time employees and affordability of the coverage.
Steps to take now
Applicable large employer — An employer that employed at least 50 full-time employees on average, including FTEs, during the prior calendar year
Applicable large employer member — Individual employer member of the ALE group. Shared responsibility payment and reporting duties are applied to each ALEM separately.
Full-time employee — An employee engaged in at least 30 hours of service per week (130 hours in a calendar month) on average
Full-time equivalents — Part-time employees with no more than 120 hours of service per employee for the month and then dividing total hours worked by 120. For example, a part time employee who worked 75 hours for the month would be .625 FTE (75 hours/120 baseline=.625). FTEs are used solely for determining ALE status and not for determining shared responsibility payments.
IRC Section 4980H — Employer shared responsibility provisions
Qualifying offer — An offer of minimum essential coverage providing minimum value for all months during the year. Cost to the employee for self-only coverage can be no more than 9.5 percent of the federal poverty line. The offer extends to the employee’s spouse and dependents as well.
Minimum essential coverage — An employer-sponsored health plan
Minimum value — Plan’s share of total allowed costs of benefits provided under the plan must be at least 60 percent of those costs.
Transition Relief—Supplemental measures offered for various aspects of the shared responsibility provisions (See link below for more information.)