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Deadline alert: Affordable Care Act shared responsibility IRS reporting requirements

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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.

Filing requirements

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:

    • 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
      • Report summary information for each employee to the IRS
      • Certify eligibility for transition relief
      • Transmittal form for the 1095-C
      • Data needed on this form
        • Employer name, address, EIN and contact information, total number of 1095-Cs submitted, ALEM information, total number of full-time employees, total number of employees for each calendar month and IRC Section 4980H transition relief indicators for each calendar month.
    • 1095-C, Employer-Provided Health Insurance Offer and Coverage
      • Report information about each employee (see data needed below)
      • Required code for offer of coverage
      • Employee share of lowest-cost monthly premium for self-only minimum value (MV) coverage
      • ALEs with self-funded plans combine 6055 and 6056 reporting requirements on this form and must complete Part III of this form, which requires information on covered individuals such as spouses and children.
        • Tip: Use the upcoming enrollment period in October 2015 to gather any missing data, especially on covered individuals.
      • Data needed on this form
        • Employer name, EIN, employee name, TIN and contact information, offer of coverage by month (each month in 2015), and covered individuals.
        • Tip: Start gathering this data now for first half of 2015, as the reporting forms show monthly coverages starting with January 2015 data.

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:

  • Qualifying Offer Method: Simplification on coverage reporting for a Section 4980H employer that certifies that, for all months during the year the employer made a Qualifying Offer to the full-time employee. The simplification is on Form 1095-C. The employer could use code 1A in lieu of reporting the monthly contribution for the lower-cost, employee-only coverage providing minimum value. In addition, the employer can use a simplified employee statement sent to employees rather than furnishing a copy of Form 1095-C.
  • Qualifying Offer Method Transition Relief: This is a 2015 only relief that would be used if an employer certifies that it made a qualifying offer for one or more months of 2015 to at least 95 percent of its full-time employees. Simplification is similar to the Qualifying Offer Method, except code 1L is used for the months it qualifies for transition relief and 1A is used for Qualifying Offer months. In addition, the employer can use a simplified employee statement sent to employees rather than furnishing a copy of Form 1095-C.
  • Section 4980H Transition Relief: This relief is offered to qualifying employers under the mandate as follows: 1) 50-99 Transition Relief — ALE group with fewer than 100 full-time and full-time equivalent (FTE) employees for 2014. Under this relief, no employer mandate penalty applies for 2015. 2) 100 or More Transition Relief — ALE group with 100 or more full-time employees in 2014. Under this relief, the penalty is calculated by reducing the employer’s number of full-time employees by 80. This is a selection on Part III of Form 1094-C indicating it is eligible for the relief.
  • 98 percent Offer Method: Simplification on Form 1094-C for an employer that certifies it offered, for all months of the calendar year, affordable health coverage providing minimum value to at least 98 percent of its employees and dependents for each Form 1095-C. The simplification on Form 1094-C is not having to report the number of full-time employees in Part III or identifying which of the employees for whom it is filing were full-time employees.

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

  1. Start reviewing the information reporting requirements and IRS Forms 1094-C and 1095-C. (See links below.)
  2. Review ownership structures to identify any controlled groups in determining ALEs and ALEMs.
  3. Develop monthly procedures for determining and documenting each employee’s full-time or part-time status.
  4. Develop monthly procedures to collect information about offers of health care coverage and health care plan enrollment.
  5. Meet and discuss reporting requirements with your third-party administrators and payroll vendors to determine data collection and, if any, form preparation assistance provided.
  6. Ensure systems are in place to collect the needed data.
  7. Develop a game plan for processing these reports in January 2016 and identify the potential need for outsourcing.

Definitions

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.)

Links

http://www.irs.gov/uac/About-Form-1095-C

http://www.irs.gov/uac/About-Form-1094-C

http://www.irs.gov/instructions/i109495c/ar01.html

http://www.irs.gov/Affordable-Care-Act/Employers/Information-Reporting-by-Applicable-Large-Employers

http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Reporting-of-Offers-of-Health-Insurance-Coverage-by-Employers-Section-6056

http://www.irs.gov/Affordable-Care-Act/Employers/Transition-Relief