Understand the new requirements so your business is ready to collect the necessary data.
The Affordable Care Act imposes significant information reporting responsibilities on employers starting with the 2015 calendar year. The IRS is currently developing new systems for reporting the required information and recently released draft forms and instructions. According to the IRS, the forms and instructions will be finalized later this year.
The new reporting systems will be similar to the current Form W-2 reporting systems in that an information return (Form 1095-B or 1095-C) will be prepared for each applicable employee, and these returns will be filed with the IRS using a single transmittal form (Form 1094-B or 1094-C). Electronic filing is required if the employer files at least 250 returns.
Employers must file these returns annually by February 28th (or March 31st, if filed electronically). Therefore, employers will be filing these forms for the 2015 calendar year by February 28th or March 31st of 2016. A copy of Form 1095, or a substitute statement, must be given to the employee by January 31st and can be provided electronically with the employee's consent. Employers will be subject to penalties of up to $200 per return for failing to file the returns in a timely manner or failing to furnish statements to employees.
The filing requirements are based on an employer's health plan and number of employees. Form 1095-B (Health Coverage) and Form 1094-B (Transmittal of Health Coverage Information Returns) will be filed by insurance companies to report individuals covered by insured employer-sponsored group health plans. Small employers with self-insured health plans will also use them to report the name, address and Social Security number (or date of birth) of employees and their family members who are covered under the self-insured plan. Employees who are offered coverage but decline it are not reported on this form.
Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) and Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns) will be filed by applicable large employers. These forms will be required if the employer offers an insured or self-insured health plan, or does not offer any group health plan. Applicable large employers are those that had, on average, at least 50 full-time employees (including full-time equivalent employees) during the preceding calendar year. Full-time employees are those who work, on average, at least 30 hours per week.
Small employers with fewer than 50 full-time employees and equivalents will be required to file Forms 1095-C and 1094-C if they are members of a controlled or affiliated service group that collectively has at least 50 full-time employees and equivalents. Companies could be in a controlled or affiliated service group if they have common owners, provide services for each other, or work together to provide services to third parties.
For example, Smith and Jones each own 50 percent of Company A and Company B. Because of this ownership, A and B are a controlled group, and the filing requirements are based on the number of employees they have collectively. If A and B together had at least 50 full-time employees (including equivalents) in the prior calendar year, then both are members of an "applicable large employer group" for the current year, and both would be required to file the forms. Thus, if A had 35 full-time employees in the prior calendar year and B had 30, A and B would each be a member of an applicable large employer group with 65 employees, and both would have to file Forms 1095-C and 1094-C. If A had 35 full-time employees and B had only 10, then A and B would not be members of an applicable large employer group since, collectively, they had only 45 employees. In that case, neither A nor B would file Forms 1095-C and 1094-C.
Use of Information
The IRS will use the information submitted on these forms to determine whether employees are subject to the new shared responsibility penalty for not having health coverage or are eligible for premium tax credits on insurance purchased through the health insurance marketplace. It will also allow the IRS to determine if an employer is liable for a shared responsibility penalty.
The employer shared responsibility penalty can be imposed on any applicable large employer group member that does not offer affordable, minimum-value health coverage to all of its full-time employees. Health coverage is affordable if the amount the employer charges an employee for self-only coverage does not exceed 9.5 percent of the employee's Form W-2 wages, rate of pay or the federal poverty level for the year. A health plan provides minimum value if the plan is designed to pay at least 60 percent of the total cost of medical services for a standard population. In the case of a controlled or affiliated service group, the penalties apply to each member of the group individually.
Forms 1095-C and 1094-C
Applicable large employer group members must prepare a Form 1095-C for each full-time employee regardless of whether he or she is participating in an employer-sponsored group health plan. In addition, the employer will complete a Form 1095-C for each non-full-time employee in the plan. The employer will not prepare Form 1095-C for non-full-time employees who are not in the plan.
Form 1095-C will report the following information to the IRS:
- Employee's name, address and Social Security number
- Employer's name, address and employer identification number
- Whether the employee and family members were offered health coverage each month that met the minimum value standard
- Employee's share of the monthly premium for the lowest-cost minimum value health coverage offered
- Whether the employee was a full-time employee each month
- The affordability safe harbor applicable for the employee
- Whether the employee was enrolled in the health plan
- If the health plan was self-insured, the name and Social Security number (or birth date if the Social Security number is unavailable) of each employee and family member covered by the plan by month.
An applicable large employer group member will file Form 1094-C to transmit its Forms 1095-C to the IRS. The Form 1094-C will report the following information:
- Employer's name, address, employer identification number and contact person
- Total number of Forms 1095-C filed
- A certification by month as to whether the employer offered its full-time employees (and their dependents) the opportunity to enroll in minimum essential health coverage
- Number of full-time employees for each month of the calendar year
- Total number of employees for each month
- Whether special rules or transition relief applies to the employer
- The names and employer identification numbers of other employers that are in a controlled group or affiliated service group with the employer.
Members of an applicable large employer group with fewer than 100 full-time employees are generally eligible for transition relief from the employer shared responsibility penalty for their 2015 plan year. Nonetheless, these employers are required to file Forms 1095-C and 1094-C for the 2015 calendar year.
As noted above, each applicable large employer group member is required to file Forms 1095-C and 1094-C for its own employees, even if it participates in a health plan with other employers (e.g., when the parent company sponsors a plan in which all subsidies participate). Special rules apply to governmental entities and to multi-employer plans for collectively-bargained employees.
A company with multiple divisions or payroll centers may elect to file a Form 1094-C for each division or payroll center. However, in that case, one of the filings must report the aggregate employer-level data for all of the employer's full-time employees. This is referred to as the authoritative transmittal by checking the box on Line 19 of the form.
In light of the complexity of these new requirements, employers should take the following actions:
- Learn about the new information reporting requirements and review the draft IRS forms and instructions.
- Develop procedures for determining and documenting each employee's full-time or non-full-time status by month.
- Develop procedures to collect information about offers of health coverage and health plan enrollment by month.
- Review ownership structures of related companies and engage professionals to perform a controlled/affiliated service group analysis.
- Discuss the reporting requirements with the health plan's insurer or third-party administrator and the company's payroll vendor to determine responsibility for data collection and form preparation.
- Ensure that systems are in place to collect the needed data for the forms. iBi
Bill O’Malley is a director at McGladrey with more than 30 years of experience advising businesses on executive compensation arrangements, employee benefit plan issues, and pension and 401(k) plan matters.