Update on Affordable Care Act Employer Reporting Requirements

August 31, 2015 Update on Affordable Care Act Employer Reporting Requirements

KEEPING YOU INFORMED…

As we advised you in our January 20, 2015 client memo (copy attached), the Patient Protection and Affordable Care Act (“the ACA”) requires certain large employers to annually report whether and what health insurance coverage has been offered to full-time employees. This reporting requirement is set forth in Internal Revenue Code (IRC) Section 6056. The ACA also requires health care providers to report certain information about individuals who are covered by the plan. This reporting requirement is set forth in Section 6055. The IRS has issued draft updated forms that can be used to report this information. These forms are available at: http://www.irs.gov/pub/irs-dft/i109495c–dft.pdf.

Recent legislation has been enacted that dramatically increases the penalties for failing to report the required information. This memo summarizes the general requirements in a Q&A format.[1]

IRC Section 6056 Reporting

Section 6056 requires an applicable large employer (ALE) to report to the IRS its offer of health insurance coverage to its full-time employees (and their dependents up to age 26) and to furnish a related statement to each full-time employee. The purpose of this reporting requirement is to assist the IRS in determining whether an ALE may be subject to a penalty pursuant to IRC Section 4980H; i.e., the ACA employer shared responsibility provisions. Pursuant to Section 4980H(a), an ALE may be subject to a penalty if it fails to offer coverage to at least 95% of its full-time employees (70% for 2015). Pursuant to Section 4980H(b), an ALE may be penalized if it fails to offer affordable coverage providing minimum value to one or more full-time employees.

• Who is required to report? 

The Section 6056 reporting requirement applies to all ALEs. An ALE is an employer employing at least 50 full-time and full-time equivalent employees. A part-time employee is calculated as a fraction of a full-time employee and is included in the total number of employees.

• Which forms must be filed with the IRS and furnished to full-time employees?

The IRS has designated two forms that can be used to comply with the reporting requirements. They are IRS Forms 1094-C and 1095-C.

Form 1094-C is a transmittal form. It is essentially a cover letter that reports certain information about the ALE and its offer of coverage.

Form 1095-C is an information return or employee statement. It contains information specific to each full-time employee and the ALE’s offer of coverage (or lack thereof) to him/her.

To comply with the reporting requirements, an ALE offering coverage through a fully insured plan (not a self-insured plan) must complete Parts I and II of Form 1095-C for each full-time employee. A copy of the Form 1095-C must be furnished to the full-time employee and filed with the IRS. Any time an ALE submits one or more Forms 1095-C to the IRS, the form(s) must be accompanied by a Form 1094-C.

An ALE offering coverage through a self-insured plan is subject to both reporting requirements (Sections 6055 and 6056). This includes any ALE that is a participating agency or employer with the New York State Health Insurance Plan (NYSHIP). The IRS permits “combined reporting” for these ALEs; i.e., an ALE may satisfy its Section 6055 and 6056 reporting obligations by completing Parts I, II and III of Form 1095-C for each full-time employee. A copy is then furnished to the employee and filed with the IRS.

Section 6055 Reporting

IRC Section 6055 requires any person or entity providing health insurance coverage to report to the IRS the individuals who are covered by the plan and to furnish a related statement to those individuals. The purpose of this requirement is to report to the IRS any individual who is covered by minimum essential coverage and therefore not subject to the individual mandate penalty.

• Who is required to report?

Section 6055 applies to every health care provider. Included in this definition are all employers, regardless of the number of full-time and full-time equivalent employees employed, offering health insurance coverage through a self-insured plan, such as the NYSHIP.

• Which forms must be filed with the IRS and furnished to responsible individuals?

The IRS has designated two forms that can be used to comply with the reporting requirements. They are IRS Forms 1094-B and 1095-B.

Form 1094-B is a transmittal form. It is a cover letter that reports certain information about the individual or entity filing one or more statements on behalf of a covered individual(s).

Form 1095-B is an information return. It contains information specific to each responsible individual (in most cases, the policy holder or employee), the coverage provider and the individuals covered under the responsible individual’s policy.

Pursuant to the combined reporting option described above, an ALE providing coverage through a self-insured plan can complete Part III of Form 1095-C in lieu of Form 1095-B on behalf of each full-time employee and responsible individual.[2] A copy of the form must be furnished to the individual and filed with the IRS. Again, any time an ALE submits one or more information returns to the IRS, the appropriate transmittal form must accompany the submission.

A small employer providing coverage through a self-insured plan will use Forms 1094-B and 1095-B.

Furnishing Statements to Full-Time Employees and Responsible Individuals

• What is the deadline by which to furnish the statements?

 The deadline for providing the statements is January 31. If January 31 falls on a weekend or holiday, the deadline is the next business day. For 2016 (the first year in which a statement must be furnished), the deadline is February 1, 2016. This is the same deadline for an employer to furnish W-2 forms.

• Can the deadline be extended?

Extensions are not automatic, but may be requested by sending a letter to the IRS.[3] The letter must include: (a) the employer’s name; (b) the employer’s tax identification number; (c) the employer’s address; (d) the type of return; (e) a statement that the extension request is for providing a statement to an individual; (f) the reason for the delay; and (g) the signature of the employer or authorized agent. The letter must be postmarked on or before the date on which the form is due to the individual. If granted, the extension will generally be a maximum of 30 additional days.

• How must the statements be provided?

The statements may be mailed, hand-delivered or electronically provided on or before the due date.[4] If mailed, the statement must be sent to the individual’s last known permanent address or, if no permanent address is known, to his/her temporary address. In the alternative, the statement may be electronically provided by email or by informing the individual how to access the form on the employer’s or provider’s website. To use this method, the individual must affirmatively consent in writing on paper or electronically (e.g., by email) to receive the form in an electronic format. If consent is on paper, the individual must electronically confirm his/her consent. We recommend that the individual also be required to acknowledge in writing that he/she received the form.

Reporting to the IRS

• What is the deadline by which to file the forms with the IRS?

The first year for which an employer subject to the reporting requirements must report is 2015. Thus, the first set of annual forms will be due in 2016.

If filing by mail, the forms will meet the deadline if properly addressed and mailed on or before February 28. If February 28 falls on a weekend or holiday, the due date will be the next business day. The deadline in 2016 for paper forms is February 29.

If filing electronically, the forms will meet the deadline if filed by March 31. If that date falls on a weekend or holiday, the due date will be the next business day. The deadline in 2016 for electronic forms is March 31.

• Can the deadline be extended?

An employer may receive an automatic 30-day extension by filing the requisite form.[5] No signature or explanation is required. To be eligible for this extension, the form must be filed by the due date for the returns.

• How must the returns be filed with the IRS?

The forms can be filed electronically or by mail. An employer filing 250 or more forms must electronically file, unless it requested and received a waiver from the IRS.[6]

Penalties

The federal government recently enacted legislation increasing the reporting requirement penalties. The severity of the penalty depends upon whether the reporting entity failed to file/furnish the forms, filed/furnished incomplete forms or filed/furnished inaccurate forms. It also depends upon how quickly the mistake or omission was corrected, if at all.

A reporting entity could be subject to “double” penalties for reporting to the IRS and furnishing information returns to individuals. For example, an ALE that fails to file a Form 1095-C with the IRS may be subject to a $250 penalty. If the ALE also fails to provide a statement to an individual, it may be subject to an additional $250 penalty, for a total of $500 per form. Thus, the potential liability, other than for intentionally disregarding the reporting requirements, is actually capped at $6 million.

For forms filed in 2016, the IRS has advised that it will not impose penalties on entities that can show that they have made good faith efforts to comply with the information reporting requirements.[7] For returns filed thereafter, waiver or abatement of return penalties for reasonable cause may apply.[8]

We will continue to keep you updated on new developments with the ACA’s reporting forms and requirements. If you have any questions, please contact us.

THIS MEMORANDUM IS MEANT TO ASSIST IN GENERAL UNDERSTANDING OF THE CURRENT LAW. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. THOSE WITH PARTICULAR QUESTIONS SHOULD SEEK THE ADVICE OF COUNSEL.

© Lamb & Barnosky, LLP 2015

[1] For an explanation of the alternative reporting methods, please see our January 20, 2015 memo.

[2] For individuals who are not full-time employees, an ALE may use Form 1095-B.

[3] The mailing address is included in the instructions for the forms.

[4] The employer may truncate any social security number on the form; i.e., use asterisks or Xs for the first five digits and only show the last four digits. Truncation is not allowed on forms filed with the IRS.

[5] The requisite form is Form 8809 (Application for Extension of Time to File Information Returns). In certain hardship situations, an employer can apply for an additional 30-day extension. The employer must provide “sufficient cause” why it was unable to meet the deadline granted by the first extension, and the form must be signed.

[6] A waiver is requested by submitting Form 8508 (Request for Waiver from Filing Information Returns Electronically).[7] It appears that attempting to accurately complete the forms will constitute “good faith efforts,” so long as the forms were filed/furnished by the applicable deadline.

[8] A summary of the IRC’s general information reporting rules, including when a penalty may be imposed for failure to timely submit or correct a return, is set forth on page four of our January 20, 2015 client memo.

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