The Internal Revenue Service has provided transition relief for 2014 from the information reporting requirements under Internal Revenue Code Sections 6055 and 6056, and from the employer pay-or-play penalties under Code Section 4980H.
The Affordable Care Act (ACA) added Sections 6055, 6056 and 4980H to the Internal Revenue Code. Code Sections 6055 and 6056 require annual information reporting, including information related to health insurance coverage offered by an employer to its employees. Code Section 4980H requires employers to provide a minimum level of health care coverage to full-time employees or risk a shared responsibility tax penalty (otherwise known as the pay-or-play penalty). On July 9, 2013, the Internal Revenue Service (IRS) published Notice 2013-45, which provides transition relief for 2014 from the information reporting requirements under Code Sections 6055 and 6056, and from the employer pay-or-play penalties under Code Section 4980H.
What Employers Need to Know
- Proposed rules for the information reporting provisions under Code Sections 6055 and 6056 are expected to be published in summer 2013 and will reflect the 2014 transition relief. Once the proposed regulations have been issued, reporting under Code Sections 6055 and 6056 will be optional for 2014, and no penalties will be applied for failure to comply with the reporting provisions for 2014.
- No pay-or-play penalties will be assessed for 2014. This effectively means that employers are not required to provide health care coverage to employees working an average of 30 hours per week until 2015.
- The transition rules in the proposed pay-or-play regulations have not been extended for 2015. Therefore, absent subsequent guidance from the IRS, employers should be prepared to comply with the proposed regulations as they apply for 2015. For example, under the proposed regulations, employers wishing to adopt a 12-month measurement period, generally, were permitted to adopt a shorter measurement period (not less than six months) for 2014 coverage purposes only. This was an acknowledgment of the difficulties employers may have given the late publication date of the proposed pay-or-play rules. Employers should ensure that appropriate hours tracking systems are in place in 2013 and 2014 so that employers can identify full-time employees eligible for coverage in 2015.
- An individual will continue to be eligible to receive a premium tax credit under Code Section 36B if his or her household income is within a specified range and he or she is not eligible for other minimum essential coverage, including an eligible employer-sponsored plan that is affordable and provides minimum value. The individual must apply for the premium tax credit by completing an application form through the Health Insurance Marketplace.
- The 2014 transition relief does not affect the effective date or application of other ACA provisions. For example, in addition to other ACA requirements, employers must still (i) report and pay the Patient-Centered Outcomes Research Institute fee on IRS Form 720 by July 31, 2013; (ii) provide a summary of benefits and coverage as required under applicable guidance; (iii) report annual enrollment counts by November 15, 2013, for purposes of the transitional reinsurance program fee; (iv) report the cost of employer-sponsored health coverage on an employee’s W-2 by January 31, 2014; (v) provide a notice to employees regarding their coverage options under state and federally facilitated health insurance exchanges by October 1, 2013; and (vi) comply with the new cost-sharing requirements and prohibition on waiting periods in excess of 90 days, effective January 1, 2014.
In the Notice, the IRS emphasizes that voluntary compliance for 2014 will contribute to a smoother transition to full implementation for 2015. Therefore, employers sponsoring group health plans may consider voluntary compliance with the reporting requirements in 2014, because such compliance may help identify any issues with reporting systems prior to 2015. Employers should continue to analyze how best to comply with the employer shared responsibility regulations (i.e., whether to “pay or play”) and be prepared to implement any required plan design changes in 2015. The previously released pay-or-play regulations were issued in proposed form and may change based on this newly issued delay guidance. Employers that have already made plan design decisions for 2014 should review and amend enrollment materials and plan documents, update summary plan descriptions and revise other employee communications as necessary to reflect any changes. Employers should also be aware that future guidance may cause additional changes to some of the ACA requirements discussed above and possibly require further review and revision to plan documentation or participant communications.