As employers prepare to comply with the upcoming ACA information reporting requirements, Congress has sneaked higher penalties for failing to meet these requirements into a trade bill. The Trade Preferences Extension Act of 2015 (H.R. 1295), passed on June 29, provides for significant increases in the previously set penalties for failing to file correct ACA information returns or furnish correct payee statements to employees. Originally, the basic penalty for failure to file/furnish was set at $100; this newly passed bill increases the penalty to $250 per statement (with the cap increased from $1.5 million to $3 million). If the employer fails to file/furnish both an information return and a payee statement, the penalties are doubled to $500 per statement (with a cap of $6 million).
These increases serve to further remind employers of the importance of preparing now for this upcoming obligation by putting procedures in place and ensuring they have the infrastructure to capture and provide the required information.
Any good news? There is still a one year “transition rule” in place which provides that penalties will not be assessed for the first year of reporting if an employer or insurer can establish that it made a good faith effort to comply, if incorrect or incomplete information was furnished. Thus it seems that an employer who does not file or furnish at all could not establish a good faith effort.
With all of this in mind, here is a quick summary of the required reporting:
Sec. 6056 – Applicable Large Employer (ALE) Reporting
- Applies to employers with 50+ FTEs (full-time equivalents).
- Transition rules do not apply.
- Determined on “controlled group” basis.
- Reporting of health care coverage offered or provided by the employer to employees and dependents.
- ALE files Form 1095-C (on each employee) with the IRS by February 28 (March 31 if filed electronically).
- Use Form 1094-C for transmittal of the Form 1095- Cs.
- Purpose – helps IRS identify employers subject to the Employer Mandate penalties and helps IRS identify individuals who are eligible for a premium tax credit (subsidy).
Form 1095-C – Employer-Provided Health Insurance Offer & Coverage
- One must be filed for each employee who was a full- time employee for any month of the calendar year and for each part-time employee who enrolled in the employer’s self-insured plan.
- The Form 1095-Cs are transmitted to the IRS with a 1094-C transmittal form which will also report the total number of full time employees for each month during the calendar year.
- Employer must furnish to employee by January 31, by mail unless the employee affirmatively consents to receive it in electronic format.
- Form 1095-C includes basic information on the employee and the employer’s certification as to whether the employer offered its full-time employees and dependents the opportunity to enroll in coverage, by calendar month, as well as the employee’s share of the lowest cost monthly premium (self-only) for coverage providing minimum value offered to that employee under an eligible employer-sponsored plan, by calendar month. The IRS has provided detailed instructions on the “indicator codes” to be used regarding the type of coverage offered and the employee’s share of the premium. Draft instructions for completing these forms may be found at: http://www.irs.gov/pub/irs- dft/i109495c--dft.pdf
Sec. 6055 - Minimum Essential Coverage Reporting
- Requires ALL health insurance issuers, self-insured employers, certain government agencies and other entities that are not subject to the employer mandate to file 1094-B & 1095-B to report minimum essential coverage provided to employees and dependents during a calendar year.
- Plan sponsor (entity that establishes or maintains the plan) is responsible for this reporting for self-insured group plan. The employer is the plan sponsor for self-insured group health plans established or maintained by a single employer.
- Sec. 6055 reporting is not required for supplemental coverage such as HRAs, on site medical clinics, HSAs and wellness programs.
- Furnish 1095-B to employee by January 31.
- Form 1095-Bs due to IRS by February 28, 2016 for 2015 returns OR March 31, 2016 if filed electronically.
- Use 1094-B for transmittal of the Form 1095-Cs.
- Purpose – helps IRS identify individuals who are eligible for a premium tax credit.
Links to the Forms referenced in this article:
Form 1094-B - www.irs.gov/pub/irs-pdf/f1094b.pdf
Form 1094-C - www.irs.gov/pub/irs-pdf/f1094c.pdf
Form 1095-B - www.irs.gov/pub/irs-pdf/f1095b.pdf
Form 1095-C - www.irs.gov/pub/irs-pdf/f1095c.pdf
Employers must begin now, if they have not already done so, preparing for these requirements to ensure they are ready to provide all of the information required. As stated above, the failure to do so can be quite costly. It is recommended that employers implement procedures now for capturing all of the information required on the ACA information returns, including documentation regarding employees (and their dependents) to whom health insurance was offered, whether or not coverage was accepted or declined, the employee’s share of the premium, as well as COBRA continuation coverage. Employers should coordinate with their HR department, payroll department, payroll vendor, benefits administration system, benefits broker/consultant and tax advisors to determine how each is managing – or will manage – all of the information required to be reported.