As we head into the last half of the year, it is important to understand and prepare for the employer reporting requirements of the Affordable Care Act. Many pivotal elements of this law went into effect at the beginning of 2014. While employer information reporting was optional for calendar year 2014, it will become mandatory for all applicable large employers starting in early 2016 for calendar year 2015.
In brief, applicable large employers (an employer that employed an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year) will be required to track certain information related to employees health insurance. Specifically, they will have to track data that determines whether they offered full-time employees, and their dependents, minimum essential coverage that is affordable and whether these employees enrolled in that coverage.
Affordable coverage means that the employee’s required contribution to the health care plan does not exceed 9.5% of the employee’s household income for the year. As it is difficult to determine an employee’s household income for the year, there are various safe harbor tests (W-2 wages, rate of pay, federal poverty line) that can be performed in order to comply with this mandate. However the above mentioned safe harbor tests can only be used if the employer offers its full-time employees the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that provides minimum value (covers at least 60 percent of the total allowed cost of benefits expected to be incurred under the plan) with respect to the self-only coverage offered to the employee.
In order for the IRS to determine if employers are in compliance with the ACA, the applicable information will be reported in a manner similar to the W-2 reporting system in which an employer prepares an information return (Form 1095-B or 1095-C) for each applicable employee and then files a single transmittal form to the IRS (Form 1094-B or 1094-C). The Form 1094 is due annually by February 28th (or March 31st if filed electronically) and the Form 1095 is due annually to each applicable employee by January 31st. Employers who do not timely submit Form 1095 to their applicable employees will be subject to penalties of up to $200 per return that is late.
Form 1095-B and Form 1094-B will be filed by insurance companies, employers who use the SHOP Exchange, small self-funded groups, and individuals who get coverage outside of the health insurance Marketplace. That being said, it is the responsibility of the health insurance providers to send out Form 1095-B to each employee and file Form 1094-B to the IRS for both large and small employers (employers with less than 50 full-time equivalent employees) whom are FULLY INSURED (not self-insured). It is the responsibility of the small employer of a SELF-INSURED company to file Forms 1095-B and 1094-B. Form 1095-C and Form 1094-C will be filed by applicable large employers. It is also important to note that small employers (an employer that has fewer than 50 full-time employees) are also required to file form 1095-C and 1094-C if they are a part of an aggregate or controlled group.
In order to complete Forms 1095-B and 1094-B, a small self-insured employer will need to confirm whether each individual employee is covered by minimum essential coverage and, therefore, are not liable for the individual shared responsibility payment.
The list below, taken from IRS publication 5196, details the information applicable large employers should be tracking now in order to complete Forms 1095-C and 1094-C due in 2016.
Information you will need for Form 1095-C
Information you will need for Form 1094-C
- Names of full-time employees for each month
- Identifying information for employer and employee such as name and address
- Information about health coverage offered by month, if any.
- The employees share of the monthly premium for lowest-cost self-only minimum value coverage
- Months the employee was enrolled in your coverage
- Months the employer met an affordability safe harbor with respect to an employee and whether other relief applies for an employee for a month
- If the employer offers a self-insured plan, information about the covered individuals enrolled in the plan, by month.
- Identifying information for your organization
- Information about whether you offered coverage to 70% of your full-time employees and their dependents in 2015. (After 2015 this threshold changes to 95%)
- For the authoritative transmittal
- Total number of Forms 1095-C you issued to employees
- Information about members of the aggregated applicable large employer group, if any
- Full-time employee counts by month
- Total employee counts by month
- Whether you are eligible for certain transition relief
It is highly important to track the information mentioned above with the help of your payroll service providers and benefits administration vendors. If this information is not substantiated through the filing of these IRS Forms, you could be subject to an employer shared responsibility payment if you fail to provide health care coverage to70% or more (for 2015; after 2015 this threshold changes to 95%) of your full-time employees and their dependents or if you offered coverage to at least 70% (for 2015; after 2015 this threshold changes to 95%) of your full-time employees and their dependents, but at least one full-time employee receives a premium tax credit to help them afford health insurance purchased through the Health Insurance Marketplace.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.
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