May 7, 2015

Plan Now – New ACA Employer Reporting Requirements Effective Now – Reports Due at the Beginning of 2016

By: Batts Morrison Wales & Lee

Please click here to access a summary of the applicable forms related to this Nonprofit Special AlertTM.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together, the Affordable Care Act) and the regulatory guidance issued thereunder, imposes additional reporting requirements for employers and insurers.  The first of these reporting requirements, which pertains to W-2s, is already required for certain employers.  The other two reporting requirements, which require completion and submission of new IRS forms, begin with respect to 2015 (with reporting due at the beginning of 2016).  Employers should begin planning now to address these new reporting requirements.

Form W-2 Reporting of Employer-Sponsored Health Coverage

The Affordable Care Act requires employers to report the aggregate cost of “applicable employer-sponsored coverage” under a group health plan on the employee’s Form W-2.  This reporting is for informational purposes only and the stated purpose is to provide useful, comparable consumer information to employees regarding the cost of their health care coverage.  It does not affect whether such coverage is taxable; the value of an employer’s contribution to health care coverage generally continues to be nontaxable to the employee.

Who must report

This reporting requirement is generally applicable to all employers (including tax-exempt organizations) that provide applicable employer-sponsored coverage during the calendar year.  However, certain employers are not subject to the mandatory reporting requirements.  Specifically:

  • Employers that provide coverage under a self-insured plan not subject to any federal continuation coverage requirements (e.g., COBRA continuation coverage) are not required to report the aggregate cost of such coverage. (Generally, (i) an employer (which includes the related entities/employers under common control with the employer, if any) that does not employ 20 or more employees (full-time or part-time) for at least half of its typical business days during the preceding calendar year, and (ii) church plans are not subject to the federal continuation coverage requirements, if benefits are provided under a self-insured plan.)  This relief from the reporting requirements remains effective until the IRS issues additional guidance.
  • Employers that were required to file fewer than 250 Forms W-2 for the preceding calendar year are not required to report the aggregate cost of employer-sponsored health coverage on current-year Forms W-2.  This relief from the reporting mandate remains effective until the IRS issues additional guidance.  The reporting relief applies based on the federal employer identification number (EIN) used on the Forms W-2. For purposes of applying the relief for small employers, the Form W-2 count is determined including any W-2s filed by an agent on its behalf but without application of any entity aggregation rules for related employers.  Therefore, related employers that issue Forms W-2 using separate EINs do not have to aggregate the total Forms W-2 issued to determine if the 250 forms limit is met.

What must be reported

The amount reported on Form W-2 in box 12, using code DD, is the aggregate cost of applicable employer-sponsored insurance coverage subject to the reporting requirements.  If an employer does not provide health insurance coverage, it is not required to report zero in box 12, using code DD.  The aggregate cost generally includes the portion of the insurance costs paid by the employer and the portion paid by the employee, whether the employee paid his or her portion with pretax or after-tax contributions.  Note, however, that in the case of a health FSA, the amount reported should not include the amount of any salary reduction contributions.

The aggregate costs reported are not only amounts applicable to the employee, but amounts for any person covered under the plan because of a relationship to the employee (e.g., spouse and children), including amounts that may be included in the employee’s taxable income (e.g., premiums paid for coverage for someone who does not qualify as the employee’s spouse or dependent).

Generally, an employer determines the aggregate cost that is reported on Form W-2 using one of three methods set forth by the IRS: (1) the COBRA applicable premium method, (2) the premium charged method, or (3) the modified COBRA premium method.  A discussion of each of these methods is beyond the scope of this document; employers may wish to contact their health insurance provider or employee benefits counsel for additional information.

The following types of coverage are not required to be reported on Form W-2 under current guidance (subject to change) because either they are not considered applicable employer-sponsored coverage or they are subject to transition relief from the reporting requirements:

  • Dental or vision coverage that qualifies as an “excepted benefit” for HIPAA purposes.
  • Employer and employee contributions to health savings accounts (HSAs) (but employer contributions [and employee contributions made via 125 cafeteria plan] must be reported in box 12 using code W).
  • Employer contributions to Archer medical savings accounts (but must be reported in box 12 using code R).
  • Coverage under a health reimbursement arrangement.
  • Health flexible spending arrangements (FSA) funded solely by salary-reduction amounts.
  • The following benefits if they are offered as independent, noncoordinated benefits and the payment for the benefits is includible in the employee’s gross income:
    • Coverage only for a specified disease or illness.
    • Hospital indemnity or other fixed indemnity insurance.
  • Long-term care insurance.
  • The following benefits described under section 9832(c)(1) of the Internal Revenue Code:
    • Accident-only coverage, disability income insurance, or any combination of these.
    • Supplemental liability insurance coverage.
    • Liability insurance, including general liability insurance and automobile liability insurance.
    • Workers compensation or similar insurance.
    • Automobile medical payment insurance.
    • Credit-only insurance (e.g., credit life).
    • Other similar insurance coverage under which benefits for medical care are secondary or incidental to other insurance benefits.
  • Coverage under an employee assistance program, wellness program, or on-site medical clinic if the employer does not charge a COBRA premium for that type of coverage.
  • Coverage under a multiemployer plan.
  • Coverage provided under a governmental plan maintained primarily for members of the military and their families.

Note while the IRS indicates that reporting of some coverage is optional (e.g., HRA contributions), in other instances voluntary reporting is prohibited (e.g., FSA contributions funded solely by salary reductions).  Information about the W-2 reporting requirement is available on the IRS website, which includes a table describing the types of coverage that should and should not be reported.  An employer should contact its advisor if it has questions about whether the coverage it is providing is required, optional, or prohibited.

Penalties

Employers that are required to, but do not, report the aggregate cost of employer-sponsored health coverage on Forms W-2, are subject to penalties ranging from $30 – $100 per W-2 for filing incorrect Forms W-2 with the Social Security Administration, and penalties ranging from $30 – $100 per W-2 for furnishing incorrect Forms W-2 to employees.

Minimal Essential Coverage Reporting on Forms 1094-B/1095-B
(Section 6055 reporting)

Beginning with respect to 2015 (with reporting due at the beginning of 2016), all persons providing minimum essential health insurance coverage to individuals, including small employers (i.e., those with fewer than 50 full-time employees) with self-insured health plans, must report such coverage to the IRS.

The primary purpose of this reporting requirement is to help the IRS enforce the individual mandate (i.e., the requirement for individuals to have minimum essential health insurance coverage or pay the individual shared responsibility penalty).  The reporting information allows the IRS to verify that the taxpayers had minimum essential coverage and the months during the calendar year they were enrolled in such coverage.

Who Must Report

Every person providing minimum essential coverage to an individual is required to file an information return reporting such coverage.  For this purpose, persons required to report include: (a) health insurance issuers or carriers, and (b) “plan sponsors” (discussed below in more detail) of self-insured group health plan coverage.

The health insurance issuer or carrier, rather than the employer itself, must file the Forms 1094-B and 1095-B for fully insured group health plans.

In contrast, plan sponsors of self-insured group health plan coverage are required to report health insurance coverage for their employees (and their dependents).  Generally, small employers that are not subject to the employer shared responsibility will meet this requirement by filing Forms 1094-B and 1095-B.

Applicable large employers subject to the employer shared responsibility provisions (discussed below) with self-insured health plans will satisfy the reporting requirement by completing Part III of Form 1095-C (discussed below), rather than by filing Forms 1094-B and 1095-B.

For purposes of this rule, the entity qualifying as the plan sponsors of self-insured group health plan coverage include:

  1. The employer, for a self-insured group health plan or arrangement established or maintained by a single employer.
  2. Each participating employer, for a plan or arrangement established or maintained by more than one employer (other than a multiemployer plan or a multiple employer welfare arrangement (MEWA), which are discussed in items c. and e., respectively).
  3. The association, committee, joint board of trustees, or other group of representatives who establish or maintain the plan for a self-insured group health plan or arrangement that is a multiemployer plan (e.g., a union plan).
  4. The employee organization for a self-insured group health plan or arrangement maintained solely by an employee organization.
  5. Each participating employer (with respect to its employees) for a self-insured group health plan or arrangement maintained by a MEWA.
  6. If the plan sponsor is not otherwise identified above, the person designated by the plan terms as the plan sponsor or plan administrator or, if no person is designated as the administrator and a plan sponsor cannot be identified, each entity that maintains the plan or arrangement.

Note that a self-insured group health plan or arrangement covering employees of related entities (i.e., those under common control, as defined under the guidance issued by the IRS) is treated as sponsored by more than one employer and, therefore, each employer must file Forms 1094-B and 1095-B for its employees.  However, one member of the group may assist the other members by filing returns and furnishing statements on behalf of all members.

What Must Be Reported

Every person providing minimum essential coverage (other than an applicable large employer with a self-insured health plan) must prepare a separate Form 1095-B for each individual to whom it provides minimum essential coverage and a single Form 1094-B, which is the transmittal form used to submit Forms 1095-B to the IRS.  The following information must be reported on Form 1095-B:

  1. The name, address, and employer identification number (EIN) of the reporting entity required to file the return (i.e., the health insurance issuer/carrier of an insured plan or the plan sponsor of a self-insured plan).
  2. The name, address, and EIN of the employer, if the Form 1095-B is being filed by a health insurance issuer/carrier for an employer-sponsored fully-insured group health plan.
  3. The name, address, and social security number (SSN) (or tax identification number (TIN)[1] or date of birth if the SSN or TIN is not available)[2] of the person who enrolls one or more individuals, which may include him or herself, in minimum essential coverage (the “responsible individual”). The responsible individual may be the primary insured, employee, former employee, uniformed services sponsor, parent, or other related person named on an application who enrolls one or more individuals (including him or herself) in minimum essential coverage.
  4. The code identifying the origin of the policy (e.g., employer-sponsored coverage).
  5. The name and SSN (or date of birth if a SSN is not available) of each individual covered under the policy or program.
  6. For each covered individual, the months for which, for at least one day, the individual was enrolled in minimum essential coverage and entitled to receive benefits.

No reporting is required for the following health insurance coverage:

  1. Coverage in a qualified health plan obtained in the individual market of an Exchange (which instead is reported by the Exchange).  However, coverage that is purchased through a state SHOP marketplace must be reported.
  2. Arrangements that provide benefits in addition to or as a supplement to a health plan that provides minimum essential coverage (e.g., an HSA or HRA), if the primary and supplemental coverage have the same plan sponsor, or the coverage supplements government-sponsored coverage such as Medicare.
  3. For individuals who are offered coverage, but do not enroll in coverage.

The information reported on Form 1095-B covers a calendar year, even if the policy or plan year is on a different fiscal year.

When and How to File

If the Forms 1094-B and 1095-B are filed on paper, they generally must be filed with the IRS by February 28 of the year following the calendar year in which the minimum essential coverage is provided.  If they are filed electronically, the due date is extended until March 31.  Forms 1094-B and 1095-B are required to be filed electronically with the IRS if the reporting entity is required to file at least 250 Forms 1095-B for the calendar year.

By January 31 of the year following the year for which information is reported, filers of the Form 1095-B must furnish a copy of the Form 1095-B (or an approved substitute form) to the responsible individual identified on the Form 1095-B.

You will meet the requirement to file Forms 1094-B and 1095-B if the forms are properly addressed and mailed on or before the due date. If the regular due date falls on a Saturday, Sunday, or legal holiday, file by the next business day.  The first Forms 1095-B are due to individuals by February 1, 2016, because January 31, 2016 is a Sunday.

Statements to responsible individuals must be furnished on paper by mail to the last known address, unless the recipient affirmatively consents to receive the statement in an electronic format.   Note that there is no requirement to provide a statement to any individual who is not the responsible individual.

Penalties

Employers that fail to timely file required Forms 1095-B with the IRS, to include all required information, or to include correct information on the returns are subject to penalties ranging from $30 – $100 per 1095-B, and penalties ranging from $30 – $100 per 1095-B for failure to furnish Forms 1095-B to employees.  The IRS will not assess penalties for incorrect or incomplete information reported in 2016 (for the 2015 calendar year), including SSNs or dates of birth, if the reporting entity makes a good faith effort to comply.  However, this relief does not apply to a failure to file timely or if no effort is made to comply.

Additional Reporting on Form 1094-C/1095-C by Applicable Large Employers Subject to Employer Shared Responsibility (Section 6056 reporting)

Beginning in 2015 (with reporting due at the beginning of 2016), applicable large employers (as defined below) are generally subject to the  employer shared responsibility provisions, and therefore must report certain information to the IRS on Forms 1094-C and 1095-C in connection with health insurance offerings made to their employees.  The information required to be reported on these forms is necessary for the IRS to enforce the employer mandate (i.e., the requirement for applicable large employers to offer minimum essential coverage that is affordable and provides minimum value[3] to substantially all full-time employees [and their dependents]).  Additionally, the IRS uses the information reported on these forms to identify individuals ineligible for the premium tax credit because they have been offered affordable employer-sponsored coverage that provides minimum value and to verify that an individual is not subject to the individual shared responsibility penalty because he or she enrolled in employer-sponsored coverage.

Who Must Report

Applicable large employers must file Forms 1094-C and 1095-C in connection with health insurance offerings made to their employees.

An applicable large employer is generally defined as an employer that employed on average at least 50 full-time employees on business days during the preceding calendar year.[4]

When determining if an employer is an applicable large employer, all related businesses treated as a single employer under the controlled group rules (defined by the IRS) are aggregated and treated as one employer.  Government entities and churches or conventions or associations of churches may apply a reasonable, good faith interpretation of these aggregation rules in determining their status as an applicable large employer (or member of an aggregated applicable large employer group, which is relevant for the 1095-C reporting rules).

Despite the application of the aggregation rules for application of the employer shared responsibility rules generally, the reporting requirements apply to each individual employer within the controlled group (i.e., each individual member is responsible for filing the Forms 1094-C and 1095-C for its employees).  A disregarded entity (such as a single member limited liability company) that is an applicable large employer is responsible for filing the forms for its employees (as opposed to the disregarded entity’s owner).

Applicable large employers with fewer than 100 full-time employees in 2014 (i.e., those employers with 50 – 99 employees) may be granted relief from the employer shared responsibility provisions for 2015 (and months in 2016 that are part of a 2015 plan year).  Despite this interim relief from the potential imposition of excise taxes, these employers are still required to comply with the Forms 1094-C and 1095-C reporting requirements for the entire 2015 calendar year.

What Must Be Reported

An applicable large employer must prepare a Form 1095-C for each employee who was a full-time employee for any month of a calendar year and a single Form 1094-C, which is the transmittal form used to submit the Forms 1095-C to the IRS.  The information reported on Forms 1094-C and 1095-C must be reported on a calendar-year basis (not a plan-year basis).  Therefore, information from two plan years may need to be taken into account when completing the forms.

The following information must generally be reported on Form 1094-C:

  1. Name, address, and employer identification number (EIN) of the applicable large employer.
  2. Name and telephone number of the applicable large employer’s contact person.
  3. Name and EIN of other applicable large employer members of the aggregated applicable large employer group of which the filing employer is a member (if applicable).
  4. The total number of Forms 1095-C submitted with the Form 1094-C.
  5. Certification, by calendar month, as to whether the applicable large employer offered its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan, and/or is deemed to have offered minimum essential coverage under various transition relief provisions applicable to the 2015 year.
  6. Number of full-time employees and total employees for each month during the calendar year.
  7. Certification as to whether the employer meets one of the following simplified reporting methods (for any one or more of its employees):

i. Qualifying Offer Method

To use this simplified method, the employer must certify that it made a qualifying offer (discussed below) to one or more full-time employees for all months during the year in which the employee was a full-time employee for whom an employer shared responsibility payment could apply (e.g., the employee was not in a permissible waiting period or initial measurement period).  For this purpose, a qualifying offer is an offer of minimum essential coverage providing minimum value at an employee cost for self-only coverage for each month not exceeding 9.5% of the federal poverty line divided by 12, and an offer of minimum essential coverage to the employee’s spouse and dependents.

For those full-time employees who received a qualifying offer for all 12 months of the calendar year, with respect to Part II of Form 1095-C, the employer is only required to report on the Form 1095-C the employee’s name, address, and SSN, and confirm with an indicator code in Part II that the qualifying offer was made for all 12 months of the year.

For those employees who received a qualifying offer for fewer than 12 months of the year, the indicator code is used to report the months in which a qualifying offer was made. For other months, the applicable large employer must report all of the required information on Form 1095-C for that employee.

ii. Qualifying Offer Method Transition Relief

An alternate reporting method available only for calendar year 2015 coverage allows an applicable large employer that certifies it has made a qualifying offer for one or more months to at least 95% of its full-time employees (and their spouses and dependents) to furnish a statement to each of its full-time employees by January 31, 2016, informing the employee that he or she (and his or her spouse and dependents) does not qualify for a premium tax credit for some or all months of 2015 because a qualifying offer was made. The employer checks a box on Form 1094-C and uses an indicator code in Part II of Form 1095-C to indicate it is eligible for this reporting method.

ii. 98% Offer Method

To use the 98% offer method, an employer must certify that it offered, for all months of the calendar year, at least 98% of its employees for whom it is filing a Form 1095-C affordable (as determined under one of the applicable safe harbors), minimum value coverage and offered minimum essential coverage to those employees’ dependents.

In this case, the employer does not have to report on Form 1094-C the total number of its full-time employees for the year and does not have to identify on the Forms 1095-C filed for each employee if the employee is a full-time employee for each calendar month.

Note that, to the extent an employee included as part of a return using the 98% offer method declines the employer’s offer of coverage and properly claims a premium tax credit with respect to coverage provided through an Exchange for one or more months during the calendar year, and the employer is contacted by the IRS to determine whether the employer did or did not owe an assessable payment under section 4980H(b), the employer will be allowed to determine at that point whether the employee was a full-time employee for those months and supply that information to the IRS.

    h. Certification as to whether the employer meets one of the transition relief provisions in connection with the employer shared responsibility penalties for failure to offer minimum essential coverage to its employees. Briefly, those transition relief provisions are as follows:

i. 50 – 99 employee transition relief.  Generally, applicable large employers that had 50-99 full-time employees in 2014 are not subject to the employer shared responsibility penalty for months in 2015.  Additionally, such employers that sponsor non-calendar year plans are not subject to the penalty for months in 2016 that are part of the 2015 plan year.

ii. 100 or more employee transition relief.  Generally, when an applicable large employer is subject to the employer shared responsibility penalty, the penalty is calculated by multiplying the monthly penalty amount by the total number of full-time employees who are not in a limited non-assessment period, less a 30 full-time employee threshold.  For 2015, plus any calendar months in 2016 that are part of a 2015 plan year, the threshold amount is increased to 80 full-time employees.

An employer eligible for either of the relief provisions noted above is still subject to the Forms 1094-C and 1095-C reporting requirements for 2015 with respect to its full-time employees.

The following information must generally be reported on Forms 1095-C for each employee who was a full-time employee of the employer for any month of the calendar year[5]:

      1. Name, address, EIN, and contact telephone number of the applicable large employer.
      2. Name, address, and SSN of each full-time employee employed during the calendar year and the months, if any, during which the employee was covered under the employer-sponsored plan.
      3. For each calendar month, each full-time employee’s share of the lowest-cost self-only monthly premium for coverage providing minimum value offered to that full-time employee.
      4. Months during the calendar year for which plan coverage was available.
      5. Months, if any, that the employer was not subject to the employer shared responsibility penalty with respect to the employee, and the reason for such relief.  Briefly, these categories are as follows:
        1. The employee was not employed or was not a full-time employee.
        2. The employee enrolled in the minimum essential coverage offered.
        3. The employee was in a limited non-assessment period (generally a period, such as a waiting period) during which an applicable large employer will not be subject to an assessable payment under all or part of the shared responsibility provisions with respect to a full-time employee, regardless of whether that employee is offered health coverage during that period.
        4. Non-calendar year transition relief applied to the employee.
        5. The employer met one of the affordability safe harbors with respect to this employee.

The employer was eligible for multiemployer interim rule relief for this employee. If the employer offers employer-sponsored self-insured health coverage in which an employee or other individual enrolled, then Part III of Form 1095-C must also be completed (in lieu of filing Form 1095-B) for any employee (full or part time) that was enrolled in the plan (or who had dependents enrolled in the plan) for one or more calendar months of the year. The following information must be reported:

      1. The name and SSN (or date of birth if a SSN is not available) of each individual covered under the policy or program.
      2. For each covered individual, the months for which, for at least one day, the individual was enrolled in minimum essential coverage and entitled to receive benefits.

When and How to File

If the Forms 1094-C and 1095-C are filed on paper, then they generally must be filed with the IRS by February 28 of the year following the calendar year in which the minimum essential coverage is provided.  If they are filed electronically, the due date is extended until March 31.  Forms 1095-C are required to be filed electronically with the IRS if the reporting entity is required to file at least 250 Forms 1095-C for the calendar year.

By January 31 of the year following the year for which information is reported, a copy of the Form 1095-C (or an approved substitute form) must be provided to the responsible individual identified on the Form 1095-C.

You will meet the requirement to file Forms 1094-C and 1095-C if the forms are properly addressed and mailed on or before the due date. If the regular due date falls on a Saturday, Sunday, or legal holiday, file by the next business day.  The first Forms 1095-C are due to individuals by February 1, 2016, because January 31, 2016 is a Sunday.

Penalties

Employers that fail to timely file required Forms 1095-C with the IRS, to include all required information, or to include correct information on the return are subject to penalties ranging from $30 – $100 per 1095-C, and penalties ranging from $30 – $100 per 1095-C for failure to furnish Forms 1095-C to employees.  The IRS will not assess penalties for incorrect or incomplete information reported in 2016 (for the 2015 calendar year), including SSNs or dates of birth, if the reporting entity makes a good faith effort to comply.  However, this relief does not apply to a failure to file timely or if no effort is made to comply.

Professional Assistance

Due to the complexity of these rules, we encourage our clients to contact their healthcare insurance plan provider and/or their employee benefits counsel to address specific questions about the applicability of these new reporting requirements to their organizations.  For any of our clients who may need to retain employee benefits counsel, please reach out to us for contact information for attorneys with whom we have worked who practice in this area.

 

 

[1] A TIN is a tax processing number issued by the IRS in a nine-digit format like a SSN (starting with a “9”) only available for certain nonresident and resident aliens, their spouses, and dependents who cannot get a SSN.

[2] The reporting entity must make reasonable efforts to obtain social security numbers before it can report birthdates.  The regulations include guidance on what qualifies as a reasonable effort.

[3] The term “minimum value” is defined in the law and related authoritative guidance.

[4] For this purpose, a full-time employee is an employee who, for a calendar month, is employed (i.e., entitled to payment) an average of at least 30 hours of service per week with the employer. The IRS has stated that 130 service hours in a calendar month is treated as the monthly equivalent of at least 30 hours per week. Employers use the 130 hours in a month standard under either a monthly measurement method or a look-back measurement method to determine if an employee is a full-time employee who must be offered coverage.  A retiree (meaning an individual who was not an employee at the end of the applicable period) is not a full-time employee.  However, if the retiree was a full-time employee for any month of the calendar year (for example, before retiring mid-year), the employer must provide information regarding that individual on Form 1095-C for all twelve months of the calendar year.

[5] An employer must complete information for all twelve months of the calendar year for any of its employees who were full-time employees for one or more months of the calendar year.

This publication is for general informational and educational purposes only, and does not constitute legal, accounting, tax, financial, or other professional advice. It is not a substitute for professional advice. For permission to reprint, please contact us.  © 2023 Batts Morrison Wales & Lee, P.A.  All rights reserved.
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