How will the IRS find out if an employer is liable for a shared responsibility payment (pay-or-play penalty)? How will the IRS determine if individuals are disqualified from exchange subsidies due to an offer of employer coverage? The simple answer is: employers will tell the IRS.
Two sets of sample forms and instructions were recently published by the IRS describing how employers and insurers must prepare and file reports implementing the coverage provisions of the Affordable Care Act (ACA). The reports will:
- Disclose the number of full-time employees of an employer and those employees for whom the employer is or is not providing coverage. The IRS will use these reports to assess the $2,000 and $3,000/employee/year penalties against the employer;
- Describe whether the coverage offered by the employer, if any, will disqualify an individual from the exchange subsidies for individual purchases of health insurance; and
- Help the IRS determine whether an individual has obtained minimum essential coverage and is therefore exempt from the individual mandate penalty tax.
These reports are similar in form and use to the W-2 wage reports. Employers with insured plans must issue a Form 1095-C to employees describing whether the employee had coverage and then must send aggregate information to the IRS on form 1094-C. The information is compiled and reported on a month-by-month basis for each employee. However, simplified reporting is available for employers offering coverage to a higher percentage of their workforce or meeting other requirements.
Self-insured plans and insurance companies must supply separate reports to individuals describing the plan coverage on a similar set of forms. These reports will implement compliance with the individual “failure to obtain coverage” tax provisions (the individual shared responsibility obligations). A form 1095-B is given to each self-insured plan participant or insurance plan beneficiary and aggregate information is supplied to the IRS on form 1094-B. Must employers that sponsor self-insured plans provide both the 1095-B and 1095-C forms to employees? No. Employers sponsoring self-insured plans must provide only the form 1095-C since it contains information that will allow employees to ascertain their satisfaction of their individual shared responsibility obligation as well as eligibility for or disqualification from the exchange subsidies.
The employer reporting obligations generally apply only to an “applicable large employer” or “ALE.” An ALE is an employer with 50 or more full time equivalent employers.
Employers subject to these reporting requirements must file the reports on a calendar year basis. The reports record reportable activity in each month. The $2,000/$3,000 per year penalties, if any, will be assessed in a pro rata manner based on coverage levels in each month of the year. Plans using a non-calendar period for the plan year must file the reports on a calendar year basis. However, transition rules offer relief from the penalties for the period from January 1, 2015 to the first day of the plan year beginning in 2015 for employers qualifying for transition relief.
The due date for distribution of forms 1095-C to employees for the 2015 calendar year coverage is January 31, 2016, similar to the W-2 reporting cycle for wages earned in 2015. The information aggregating form 1094-C must be filed with the IRS by the end of February 2016 (end of March for electronically filed forms). Employers with 250 or more employees must file these forms electronically. A transition rule delays imposition of the $2,000/$3,000 penalties for employers of 50 to 99 employees until the 2016 coverage year. However, the reports must be filed for 2015 coverage for all employers of 50 or more.
These reports were originally scheduled for January of 2015 for coverage provided in 2014. However, this deadline was moved back one year. The IRS urges employers to voluntarily file these forms for 2014. There seems to be little to be gained by actually filing reports for 2014. However, we recommend that employers obtain these forms and prepare a “dry run” of these information reports based on their 2014 experience, but refrain from actually filing the “dry run” forms. This exercise will enable employers to:
- Fine-tune their recordkeeping
- Learn if they are satisfying their “play” obligations or be liable for the “pay” penalty
- Make adjustments to plan content, eligibility and employer subsidy, and
- Determine eligibility for simplified reporting.
This article is just a brief summary of ACA reporting obligations. The details are too numerous to cover in this article. In addition to the employer $2,000/$3,000 penalties for failure to offer coverage and the individual penalty taxes for failure to obtain coverage, there are also failure to file penalties and (in)accuracy penalties. Those responsible for reporting must study the reporting rules much more carefully.
ACA – What Must A Small Employer Do? Part 2: Mandatory Coverage
ACA – What Must A Small Employer Do? Part 4: Digging Deeper Into Pay-Or-Play Penalties
ACA – What Must A Small Employer Do? Part 5: A Closer Look at Penalties
ACA – What Must A Small Employer Do? Part 6: Account-based Plans (Medical FSAs and HRAs)
ACA – What Must A Small Employer Do? Part 7: IRS Wake-up Call on HRAs
If you have questions about alternative forms of coverage and their impact on your exposure to penalties or the impact on your employees, contact any member of the Mika Meyers Labor and Employment Group.