By Jenny Smerud, CPA, AKT LLP – December 1, 2015
Original article by The Tax Adviser can be found here.
The deadline is approaching for employers with 50 or more full-time employees or full-time equivalents (FTEs) to file new information returns required under Secs. 6055 and 6056. The reporting requirements help administer the employer shared-responsibility mandate and the individual mandate added as a part of the Patient Protection and Affordable Care Act, P.L. 111-148. Below is a summary of what so-called applicable large employers (ALEs) need to know about the reporting requirements.
Most employers affected by the new regulations will be subject to the reporting requirements of Sec. 6056. The information reported by employers to satisfy the requirements of Sec. 6056 allows the IRS to identify employers that do not offer minimum essential coverage to their full-time employees and, if at least one such employee qualifies for a premium tax credit with respect to a qualified health plan, assess the applicable penalty to the ALE of $2,000 per year per full-time employee (or one-twelfth that amount for any month). Because employers that do offer coverage must also report specifics as to offers of coverage and cost to individuals by month, individual employees and the IRS can calculate the affordability of the coverage to the household and determine eligibility for premium credits. If an employee applies for insurance through a health care exchange and receives a premium tax credit because his or her employer’s offer of coverage was not affordable or did not provide minimum value, the IRS may assess the employer for the higher $3,000 annual penalty (or one-twelfth for any month) with respect to each such full-time employee.
To comply with Sec. 6056, an ALE must file Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, for each full-time employee and the related Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, with the IRS on or before Feb. 29, 2016 (March 31, 2016, if filed electronically), for the 2015 calendar year. The employer must furnish employee statements to employees on or before Feb. 1, 2016 (since Jan. 31, 2016, is a Sunday). Employers that do not self-insure for their health coverage will complete only Part I and Part II of Form 1095-C.
An ALE must gather a significant amount of information to complete Form 1095-C, including:
- Name, address, employer identification number (EIN), and contact information for the ALE;
- Name, address, and Social Security number (SSN) for each full-time employee;
- The type of offer of coverage made to each employee by month;
- Whether the employee enrolled in the offered coverage by month; and
- The employee’s share of the lowest-cost monthly premium for self-only minimum-value coverage by month.
To provide the required information, employers must track by month whether minimum essential coverage providing minimum value was offered to the employee and his or her spouse and dependents, as well as whether coverage was offered to the employee in a month the employee was not a full-time employee. Employers will need to be prepared to analyze this information by month starting Jan. 1, 2015, to compile a complete year of information to be reported starting in January 2016. This type of information is often in many separate systems, making gathering the data even more difficult.
Two alternative reporting methods are available that may simplify reporting for certain employers. A “qualifying offer” is an offer of minimum essential coverage for the employee (and his or her spouse and dependents) providing minimum value at an employee cost for self-only coverage of less than 9.5% of the mainland single federal poverty line ($93.18 per month in 2015). If an ALE makes a qualifying offer to an employee for all 12 months of the calendar year, the ALE can indicate this by a code entered on Form 1095-C and does not need to report the employee share of the lowest-cost monthly premium on the Form 1095-C. The ALE also does not need to furnish a copy of Form 1095-C to the employee; it can instead provide a simplified statement to the employee with certain prescribed information notifying the employee that he or she will not be eligible for a premium credit.
Sec. 6056 reporting is further streamlined if the ALE is eligible for and using the 98% offer method. If an employer certifies that it offered minimum essential coverage providing minimum value to at least 98% of its employees and their dependents, the ALE can provide the simplified statement to the employee, does not need to identify which employees were full-time, and does not need to complete the full-time employee count on Part III of Form 1095-C.
Most employers (unless an employer self-insures) will not have a reporting requirement under Sec. 6055, but all employees will receive statements filed by reporting entities (such as insurance providers) pursuant to Sec. 6055, so it is important for employers to understand the filing requirements. Sec. 6055 requires any issuer of minimum essential coverage to an individual to file Form 1095-B, Health Coverage, and report the following information:
- Name, address, and EIN of the employer sponsoring the coverage;
- Name, address, and EIN of the issuer;
- Name, address, date of birth, and SSN for the main policy holder; and
- Name, SSN (or date of birth if the SSN is unavailable), and months of coverage for each individual covered under the policy.
The issuer filing Forms 1095-B must also file the accompanying Form 1094-B, Transmittal of Health Coverage Information Returns.
If an ALE self-insures and already must report under Sec. 6056, the information required on Form 1095-B can be reported on Form 1095-C, and the ALE can satisfy its reporting requirements under both Secs. 6055 and 6056 in one filing. For a chart showing the reporting responsibilities of ALEs and smaller employees, visit this page.
Because of the complexity of information required to be reported and the potential size and impact of penalties for errors in information, employers may need to redesign their human resources and payroll functions to most efficiently gather and report the required information. Even what might seem a simple count of full-time employees is much more complex for employers that hire variable-hour or seasonal employees. Taking the extra time to evaluate systems and data now, even though time is running out, will reduce the burden during an already busy information return filing season.