If you employed 50 or more full-time employees (including full-time equivalent employees) in 2015, you are an "Applicable Large Employer" or "ALE" in accordance with the Affordable Care Act's ("ACA") Employer Shared Responsibility provisions under Section 4980H of the Internal Revenue Code. As such, you are required to:
- Send Form 1095-C to each employee who was full time for at least one month in 2015, by February 1, 2016; and
- Report to the Internal Revenue Service ("IRS") via Forms 1094-C and 1095-C, on the health insurance coverage offered to your employees during 2015 by February 29, 2016 (for paper filings) and March 31, 2016 (for electronic filings) (employers with 250 or more employees are required to file electronically).
The purpose of the forms is to provide the IRS with information to determine if the ALE complied with the requirement to offer minimum essential and affordable coverage, and if employees are eligible for premium assistance. If an ALE does not offer minimum essential and affordable coverage to 70% of its full-time employees and their dependents in 2015 (after 2015, the threshold changes to 90%), the employees may purchase health insurance on an Exchange. If they purchase health insurance on an Exchange, they may be eligible for premium assistance and Form 1095-C is used to make that determination. If at least one employee purchases health insurance on an Exchange and receives premium assistance because an employer failed to offer minimum essential and affordable coverage, an ALE may be subject to penalties, as discussed below.
Are you an ALE?
Your first step in determining whether you must report to the IRS is to determine if you are an ALE, which is not necessarily an easy determination and oftentimes requires a fair degree of analysis. Making this determination includes calculating how many full-time and full-time equivalent employees you employed in 2015, and determining whether you are part of a controlled group.
You must count the number of full-time employees, which are those employees who work on average, per month, at least 30 hours per week (or 130 hours in a calendar month). You must also calculate the number of full-time equivalent employees, by counting the hours worked per month by part-time employees and then dividing by 120. For example, an employer with 45 full-time employees and 10 part-time employees who averaged 15 hours per week would be treated as having 50 full-time employees. There are also rules for calculations if you employ seasonal employees. Finally, you must determine whether you and other entities are under common ownership, in accordance with IRS regulations and therefore classified as a controlled group.
Add up all your full-time employees, full-time equivalent employees and, if you are a member of a controlled group, the full-time employees and full-time equivalent employees of all members of the group for each month of the prior year. If it's at least 50, you are an ALE.
Fully insured and self-insured employers must file Forms 1094-C and 1095-C, but the information that must be reported will depend on whether the employer is fully insured or self-insured.
- Form 1094-C is a transmittal form and summarizes the information that is included in Form 1095-C.
- Form 1095-C must be filed with the IRS for each full-time employee (including each full-time equivalent employee) and a copy of the form must be provided to the employee.
- Form 1095-C is used to report information about health insurance coverage offered and any safe harbors or other relief available to the employer, or reports that no offer of coverage was made. It also reports enrollment information from employers who offer self-insured plans.
Employers will face strict financial penalties* for failing to comply with their obligations under the ACA. The following penalties will be imposed by the IRS on employers if they:
- do not offer any coverage at all;
- Penalty: $2,000 per full-time employee (minus first 80 employees (in 2015)) if one full-time employee receives premium assistance for coverage purchased through an Exchange;
- offer coverage, but the coverage does not provide minimum value and is unaffordable;
- Penalty: Lesser of:
- $3,000 per full-time employee receiving premium assistance for coverage purchased through an Exchange, or
- $2,000 per full-time employee (minus first 80 employees (in 2015);
- Penalty: Lesser of:
- fail to file the forms with the IRS;
- Penalty: $250 for each unfiled form, up to a maximum of $3,000,000 for non-willful failures; or
- fail to provide a Form 1095-C to employees.
- Penalty: $250 for each unfiled form, up to a maximum of $3,000,000 for non-willful failures.
The requirements included in the Employer Shared Responsibility provisions of the ACA are robust and confusing. With the deadlines fast approaching, employers are advised to seek guidance from their benefit advisor and legal counsel to determine reporting requirements.