Reporting Requirement. The Affordable Care Act (“ACA”) reporting requirements take effect on January 1, 2015. Forms will be due in 2016 with respect to the 2015 calendar year. There are two basic reporting obligations: 1) Filing (with the IRS) and 2) Furnishing (to employees). Applicable Large Employers (“ALEs”) have filing and furnishing obligations. Providers of insurance have separate filing and furnishing obligations, even when the provider of insurance is not an ALE. Employers that self-insure can be both an ALE and a provider of insurance – and therefore must fulfill both reporting obligations. These reporting requirements originally took effect with respect to the 2014 year (with forms due early in 2015), but were postponed for one year. The discussion in this article primarily relates to employers, but considers reporting issues applicable to providers of insurance which overlap with obligations that may affect employers.
Applicable Large Employer. ALEs are employers which, with respect to a calendar year, employed an average of at least 50 full time employees (including full time equivalent employees, or “FTEs”) on business days during the preceding calendar year. Employers which themselves qualify as an ALE must fulfill the filing and furnishing obligations, and all employers that together comprise an Aggregated ALE Group (generally, controlled groups or affiliated service groups) are each considered “ALE Members” and must each fulfill the ACA reporting obligations – even if one of the ALE Members standing alone is not large enough to be an ALE. Importantly, ALEs must file and furnish even if they do not offer health insurance.
Purpose. The reporting process is designed by IRS to determine an ALE’s obligation for the employer mandate penalties under the ACA, an individual’s eligibility for premium tax credits (“PTC”) on the ACA health insurance Exchanges, and an individual’s obligation to pay a penalty for failure to have health insurance.
Penalties. Each form that is incomplete, incorrect, or untimely filed or furnished, triggers a $100 penalty. Such penalty applies for each form to be filed with the IRS and each form required to be furnished to each employee. Penalties can be reduced, but not eliminated, if an ALE corrects a problem within certain timeframes after the applicable deadline. Note that reporting penalties are in addition to any penalties under the employer mandate for failure by an ALE to offer affordable health insurance to its full time employees and their dependents. The IRS has indicated that it intends to assess penalties under the employer mandate after the annual reporting process is complete. Therefore, it is important to track information throughout the year because it may not become apparent that an employee will trigger an employer mandate penalty for the ALE until the year is closed and penalties have accumulated to a large amount.
Forms. The IRS has proposed new draft forms for the reporting requirement. ALEs use forms 1094-C and 1095-C. Providers of insurance use forms 1094-B and 1095-B. If an employer is not large enough to be an ALE, but it offers a self-insured health insurance plan, it still must file forms 1094-B and 1095-B. ALEs that self-insure must fulfill both reporting obligations. There are, however, special rules to prevent filing duplicate information for ALEs that self-insure. The IRS proposed draft forms and instructions during the summer of 2014 and updated drafts as recently as October 15, 2014. Please note that the reporting forms and instructions have only been issued in draft form. We expect further detail and possible changes when the forms and instructions are finalized.
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Note that forms 1094-A and 1095-A are used by the health insurance marketplace (also called the “Exchange”). The “A” forms are not filed by employers.
Employee Statements. ALEs will prepare form 1095-C for each full time employee even if such employee does not actually participate in the employer’s group-sponsored health insurance plan. In preparing form 1095-C, the employer must include its name, address, Employer Identification Number (“EIN”), and the name and telephone number of a contact person regarding the reporting and forms. More importantly, the employer must include all of the information required by form 1095-C and the IRS instructions to the forms, when it furnishes form 1095-C to the employee. Incomplete statements or incorrect statements will trigger penalties. ALEs will furnish one form 1095-C to each employee with that individual employee’s information contained therein; and also file with the IRS all of its forms 1095-C, together with the transmittal form 1094-C.
Step 1: Start Collecting Information, Beginning January 1, 2015. ALEs must begin collecting certain information during 2015 in order to be able to report in 2016 with respect to the 2015 calendar year:
- The name, address, and EIN of the ALE, and the calendar year for which the information is reported;
- The name and telephone number of the ALE’s contact person;
- A certification as to whether the ALE Member offered to its full time employees (and their dependents) the opportunity to enroll in minimum essential coverage (“MEC”) under an eligible employer-sponsored plan, by calendar month;
- The number of full time employees and FTEs for each calendar month during the calendar year, by calendar month;
- For each full time employee, the months during the calendar year for which MEC under the plan was available;
- For each full time employee, the employee’s share of the lowest cost monthly premium for self-only coverage providing minimum value (“MV”) offered to that full time employee under an eligible employer-sponsored plan, by calendar month; and
- The name, address, and taxpayer identification number (“TIN”) of each full time employee during the calendar year and the months, if any, during which the employee was covered under an eligible employer-sponsored plan.
- Name and EIN of other ALE Members in the Aggregated ALE Group, if applicable.
- Whether any safe harbors apply, and documentation confirming such, if applicable.
- Whether any transition relief applies, and which type, if applicable.
Additional information to be tracked by providers of insurance, such as employers who offer self-insured health insurance coverage.
- The name, address, and TIN, or date of birth if a TIN is not available, of the primary insured person (called the “responsible individual”).
- The name and TIN, or date of birth if a TIN is not available, of each individual who is covered under the policy or program of insurance (called a “covered individual”).
- For each covered individual, the calendar months for which the individual was enrolled in coverage and entitled to receive benefits for at least one day during the month.
- Type of health insurance coverage provided to the primary policy holder and covered individuals, by month. Particularly important is the source of insurance provided for a particular employee – whether coverage was provided through employer-sponsored coverage, a multi-employer plan, or some other source.
Step 2: Prepare to Report Early in 2016.
Prepare to report early in 2016. Information must be organized by the end of January and ready to report early in 2016. ALEs will gather the required information, complete the forms accordingly, furnish to employees, and file with the IRS. ALEs and providers of insurance may furnish form 1095-B or 1095-C and an employee’s form W-2 together in the same mailing to an employee. The February 1, 2016 deadline to furnish statements to employees is intended to provide employees sufficient time to accurately file their income tax returns for the 2015 calendar year. Note ALEs with non-calendar year health insurance plans must comply with the same filing and furnishing timeframes.
Electronic Filing and Furnishing.
- Electronic Filing. Electronic filing with the IRS is required for ALEs filing at least 250 informational returns with the IRS (forms 1095-C). Electronic filing also is required by providers of insurance filing at least 250 informational returns (forms 1095-B). Note that the applicable transmittal form, (form 1094-B or form 1094-C), is not treated as a separate return from its associated forms 1095, but must be electronically filed in the same form and manner required by the IRS when the forms 1095 are electronically filed.
- Authoritative Transmittal. In general, each ALE that is a member of an Aggregated ALE Group must file separate information returns, and furnish separate employee statements from the other ALE Members of the Aggregated ALE Group. ALE Members that are part of an Aggregated ALE Group may, however, facilitate the filing of returns and the furnishing of employee statements on behalf of one or more of the other ALE Members of the Aggregated ALE Group. Each other ALE Member of the group, for example, could have the ALE Member that operates the employer-sponsored plan facilitate the filing of its returns with the IRS and the furnishing of its employee statements on its behalf (but, importantly, each ALE Member still remains responsible for its own filing and furnishing obligations). In addition, if more than one transmittal is filed for an ALE Member, such as an ALE with multiple divisions that wants to report separately by division, there must be one authoritative transmittal (form 1094-C) reporting aggregate employer-level data for all full time employees of the ALE Member.
- Electronic Furnishing of Statements to Employees. ALEs must satisfy certain rules and obtain an employee’s consent to furnish forms to employees electronically. An employer may simultaneously request an employee’s consent to furnish form W-2 and forms 1095-B/1095-C electronically; however, each form must be specifically listed in the request for consent. Moreover, it is important to note that a general consent from an employee to receive documents electronically does not establish that an employee may receive or access the ACA reporting forms electronically, nor does it certify that the employee consented to receiving the ACA forms electronically.
- Disclosure by an ALE or a Provider of Insurance Before Consent for Electronic Furnishing of Statements to Employees. An ALE or provider of insurance must provide a disclosure statement containing specific information to the recipient before obtaining his/her consent to receive electronic statements. The disclosure statement must contain each of the following disclosures: (1) A statement can be furnished on paper if the recipient does not consent to receive the form electronically; (2) the scope and duration of the recipient’s consent; (3) proper procedure for the recipient to obtain a paper copy of the form after consenting electronically and whether a request for a paper form qualifies as a withdrawal of consent; (4) terms of withdrawing consent; (5) conditions upon which the ALE or provider of insurance will stop providing forms electronically; (6) procedures for a recipient to update his/her contact information; and (7) a description of hardware and software needed to access and retain the forms and the date upon which the forms will no longer be accessible on the website, if applicable. The furnisher of a disclosure statement also must advise the recipient that the electronic statement may be required to be printed and attached to a Federal, State, or local income tax return.
- Filing – Automatic Extension. Persons required to file forms 1095-B or 1095-C are allowed one automatic 30-day extension past the required filing date to file the forms with the IRS. In order to receive the automatic 30-day extension, filers must submit IRS form 8809 before the required filing date. Filers may apply for an additional discretionary 30-day extension by submitting an additional form 8809 before the expiration of the first automatic 30-day extension period. Among other requirements, the second form 8809 must explain in detail why additional time is needed. It is important to note that the grant of an automatic extension to file forms with the IRS does not extend the deadline for furnishing a required statement to an individual employee or person covered under an insurance policy.
- Furnishing – Discretionary Extension, Only for Good Cause. ALEs and providers of insurance are not entitled to an automatic extension to furnish forms to individuals. However, an ALE or provider of insurance may receive a discretionary extension of up to 30 days from the IRS. To apply for such discretionary extension, the ALE or provider of insurance must provide a written application to the IRS on or before January 31 of the year following the year being reported on, stating a full recital of the reasons for requesting the extension. Under the ACA rules, a signed, written letter may suffice as such an application to the IRS.
Step 3: Consider Alternative Methods of Reporting to Reduce the Compliance Burden
The ACA reporting rules provide three alternative methods of reporting intended to reduce the compliance burden on ALEs. These three methods are intended to simplify data collection and reporting for certain employers who meet the specific requirements of an alternative reporting method with respect to a group of employees. An ALE indicates in its transmittal form to the IRS (form 1094-C) that it is using one of the alternative methods by selecting the appropriate box on Line 22. Also, in Part II of form 1095-C, an ALE utilizes certain codes to indicate transition relief with respect to an employee. The codes are described in the instructions to the forms. Each of the alternative reporting methods is described below.
- Qualifying Offer. To be eligible to use the qualifying offer alternative method with respect to full time employees, an ALE must certify with respect to an employee, that for all months during the year in which the employee was a full time employee, the ALE (1) offered MEC that provided MV to the employee, and the employee’s cost for employee-only coverage did not exceed 9.5 percent of the mainland single federal poverty line; and (2) offered such coverage to the employee’s spouse and If an ALE meets the qualifying offer method, it can fulfill its furnishing obligations to employees by providing, by January 31, a copy of the form 1095-C that was filed with the IRS.
- 2015 Qualifying Offer Method Transition Relief. Solely for the 2015 calendar year, an ALE may further simplify the information required to be reported if it can certify, by month, that it made a qualifying offer (as described above) to at least 95% of its full time employees and to their spouses and dependents for one or months during the year, and provides an appropriate statement to each full time employee by January 31, 2016. Note that it would appear February 1, 2016 would be the appropriate date for this 2015 relief since January 31, 2016 falls on a Sunday. However, the ACA rules for the 2015 Qualifying Offer Method Transition Relief, which is only applicable for 2015, specifically state “January 31” as the deadline.
- 98% Offer Method. An ALE may use the 98% offer method of reporting if it certifies that it offered an affordable group sponsored health insurance plan that qualifies as MEC and provides MV to at least 98% of its employees and their dependents. If so, the ALE still must submit form 1095-C for every full time employee but it is not required to distinguish the number of full time employees from part time employees on its transmittal (form 1094-C). This alternative could be useful, for example, if an ALE offers health insurance to a broader group of employees than just its full time employees (such as anyone with 20 or more hours of service per week, rather than the required 30 hours of service threshold under the employer mandate). Practically, however, the 98% offer method may prove unhelpful. If an employee receives a tax credit or cost sharing reduction through an exchange, the IRS may request additional information from the ALE which would require the ALE to determine whether the employee was full time or not. Thus, the ALE still must track information to determine full time status of an employee, even if it uses the 98% offer method to reduce its obligation to report such information. Further, employers who are members of an Aggregated ALE Group will still need to determine their number of full time employees for penalty purposes.
Transition Relief Reporting. The ACA rules provide various types of transition relief to certain ALEs, depending on the size of the ALE and other factors. If applicable, some types of transition relief can reduce or even eliminate an ALE’s liability under the employer mandate for the 2015 year. ALEs must fulfill reporting obligations with respect to 2015, regardless of whether any transition relief applies for the employer mandate penalties. ALEs must report specific codes indicating whether any of the various types of transition relief apply and which specific type of transition relief applies.