This Advisory supplements our previous advisories addressing the requirements of the Affordable Care Act (“ACA”). Below is an overview of the provisions of the ACA that become effective in 2015 and require immediate attention by covered employers.
The ACA’s employer mandate and reporting requirements were previously scheduled to become effective on January 1, 2014, but were delayed to 2015. Under the employer mandate, beginning in 2015, covered employers may be subject to tax penalties if they do not offer affordable coverage with a minimum level of benefits to full-time employees (and their dependents). In addition, under ACA’s new reporting requirements, insurers and employers must annually report information about the coverage provided and individuals covered under their plans. A snapshot of the employer mandate and reporting requirements can be found at the end of this advisory.
Applicable Large Employer Status. Employers are subject to the employer mandate only if they are Applicable Large Employers (“ALEs”) for the relevant year. ALEs are employers who employed at least 50 full-time employees (including full-time equivalents) during the previous calendar year. An employer’s ALE status for 2015 will be based on how many full-time employees it had in 2014. For purposes of determining ALE status for 2015 only, the IRS is permitting the determination to be based on any six month period in 2014.
A full-time employee for any given month is an employee who performs an average of at least 30 hours of service per week for that month. In addition, hours worked by part-time employees must be converted into “full-time equivalents” and will be counted toward the 50 employee minimum. For purposes of determining its ALE status, an employer must determine its employees’ full-time and full-time equivalents status by counting their hours of service for each calendar month. The IRS has now published guidance regarding how to determine an employer’s total number of full-time employees, including how to count hours of service and convert part-time employees into full-time equivalents.
Affordable Coverage. Under the employer mandate, covered employers need to offer affordable coverage with a minimum level of benefits to at least 95% of their full-time employees. Enforcement of the employer mandate will be facilitated by ACA’s reporting requirements (described below).
Coverage is affordable if an employee’s required contribution for self-only coverage does not exceed 9.5% of the employee’s household income. IRS rules provide several affordability safe harbors as alternatives to using the household income measurement rule.
The effective date for covered employers to comply with the employer mandate was previously delayed until January 1, 2015 and as of that date, the employer mandate will apply to covered employers who are not otherwise exempt. Most recently, however, the IRS has provided further transition relief for complying with the employer mandate as follows:
- Mid-sized employers with 50 to 99 full-time employees will not be subject to the employer mandate until 2016 so long as the employer provides an exemption certification to the IRS.
- Employers with 100 or more full-time employees will be subject to the employer mandate as of January 1, 2015, but for 2015 they are only required to provide coverage to at least 70% of their full-time employees. Beginning January 1, 2016, the requirement that employers offer affordable coverage to at least 95% of full time employees will apply.
Penalty Taxes for Failure to Comply. There are two potential penalty taxes for failing to satisfy the employer mandate:
- Minimum Coverage Penalty: A covered employer that fails to offer coverage to at least 95% (70% in 2015) of its full-time employees will be subject to a penalty tax if at least one full-time employee certifies that he or she has enrolled in coverage through a health insurance exchange and received a premium tax credit. The penalty tax is currently equal to the number of full-time employees the employer employed for the month (minus up to 30) multiplied by $166.67 (i.e., 1/12th of $2,000) Thus, once the Minimum Coverage Penalty applies, it is based on the total number of the employer’s full-time employees, regardless of how many employees may have been provided minimum coverage.
- Affordable Coverage Penalty: A covered employer that fails to offer affordable coverage with a minimum level of benefits will be subject to a penalty tax for each full-time employee who certifies they have enrolled in coverage through a health insurance exchange and received a premium tax credit. The penalty tax is currently equal to the number of full-time employees who receive a premium tax credit for the month (minus up to 30) multiplied by $250 (i.e., 1/12 of $3,000). Thus, the Affordable Coverage Penalty applies only to “affected employees” of the employer.
A penalty tax is incurred separately for each month in which a covered employer fails to offer Minimum Coverage or Affordable Coverage to its full-time employees. The amount of the Affordable Coverage Penalty assessed cannot exceed the amount of the Minimum Coverage Penalty assessed.
Plan Reporting. ACA generally requires that providers of plan coverage report to the IRS certain information about the individuals covered, the coverage provided, and the period for which coverage is provided (“Plan Reporting”). The provider must also send a statement to each covered individual to report specific information about their health care coverage. Plan Reporting is effective for coverage provided in 2015 and, therefore, information returns and all individual statements will need to be filed and furnished respectively in early 2016.
Both insurers and employers sponsoring self-insured plans covering employees are responsible for Plan Reporting. An employer who offers coverage through an insured plan, however, is not subject to Plan Reporting as the health insurance provider is the party responsible for reporting information regarding that coverage.
The purpose of Plan Reporting is to provide individuals a way to prove, and the IRS to confirm, that such individuals have minimum essential coverage and are not subject to an individual responsibility tax payment. Therefore, Plan Reporting helps enforce the individual mandate.
To satisfy Plan Reporting, covered entities must file an information return for each individual to whom minimum essential coverage is provided, along with a transmittal form. A covered employer that sponsors a self-insured plan may file a Form 1095-C employee statement for each individual, accompanied by a single Form 1094-C transmittal form.
Employer Reporting. ACA also requires covered employers to report to the IRS specific information about the health care coverage, if any, offered to full-time employees (“Employer Reporting”). For these purposes, employers must send a statement to all full-time employees to report certain information about their health care coverage. Employer Reporting is effective for coverage offered (or not offered) in 2015 and, therefore, the first information returns and individual statements will need to be filed and furnished in early 2016.
The purpose of Employer Reporting is to assist the IRS in administering the employer mandate and to provide employees with a way to determine whether they are entitled to premium tax credits.
For employers who sponsor a self-insured health plan, Employer Reporting and Plan Reporting overlap. The IRS has recognized this and provides for a method of combined reporting-- an employer subject to both reporting requirements should file a combined return and furnish a combined individual statement. The top half of Form 1095-C includes the information needed for Employer Reporting and the bottom half of Form 1095-C includes the information needed for Plan Reporting.
To date, the IRS has issued drafts of Form 1095-C along with preliminary guidance on completing the Forms, but these are early releases subject to change.
Penalties for Failure to Comply. Failure to timely file or furnish complete and correct information returns and statements will subject an employer to two potential penalties, each imposing a tax of $100 per return for up to a maximum of $1,500,000 per year. For returns and statements filed and furnished in 2016 relating to coverage provided in 2015, the IRS will not impose penalties for incorrect or incomplete information if a good faith effort has been made to comply with then published regulations.
Employer Mandate Snapshot
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Reporting Requirements Snapshot
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