IRS Issues Updated Guidance on ACA Reporting Requirements for Large Employers
The IRS has released updated guidance on the reporting requirements for applicable large employers ("ALEs") under Internal Revenue Code Sections 6055 and 6056. Beginning in 2016, ALEs must file Forms 1094 and 1095 to give information to the IRS and plan participants about health coverage provided in the prior year. The IRS will use these forms to enforce the employer penalties, individual mandate and tax credit eligibility rules under the Affordable Care Act ("ACA").
Background. ALEs (i.e., an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year) will be required to file and distribute information reporting forms under Code Sections 6055 and 6056. Employers must report whether: (i) an individual is covered by minimum essential coverage; and (ii) an offer of minimum essential coverage that provides minimum value was made to each full-time employee.
Employers will use Form 1095-C to report whether or not they comply with the ACA's mandate requiring them to offer coverage to at least 95 percent of full-time employees (70 percent for 2015). Form 1095-C requires employers to report: whether the offered coverage meets the ACA's minimum essential coverage standards for minimum value; whether the employer offered such coverage to dependents and spouses; the name of every full-time employee; which months of the year they were employed; and which months they were covered or had an offer of coverage.
IRS Guidance.The latest guidance consists of an updated Q&A document covering basic reporting requirements and a new Q&A document addressing more specific issues that may arise when completing Forms 1094 and 1095. The following are some highlights from the guidance:
Clarification on ALEs that must Report. An ALE with no full-time employees for any month of the year is not obligated to report unless the ALE sponsors a self-insured health plan in which any employee, spouse, or dependent is actually enrolled. In that case, the ALE must still file Forms 1094-C and 1095-C even if it has no full-time employees. In addition, ALEs must file and furnish Forms 1095-C to all full-time employees regardless of whether they were offered coverage during the year.
Controlled Groups. The guidance provides examples demonstrating how reporting differs when an ALE reports for separate divisions and when ALEs are part of a controlled group. In the former situation, employees working for multiple divisions must receive aggregated information on a single Form 1095-C; in the latter situation, employees must receive a separate Form 1095-C for full-time employment with each ALE in the controlled group.
Qualifying Offer Method of Reporting. Under the qualifying offer method of reporting, ALEs are allowed to furnish a simplified employee statement to employees receiving qualifying offers for all 12 months of the year. The guidance confirms that ALEs may not use simplified statements for employees who actually enroll in the ALE's self-insured plan.
Delivery to Employees. Forms 1095-C may be delivered to employees in any manner permitted for delivery of Forms W-2.
New Hires and Terminating Employees. When reporting offers of coverage on Part II of Form 1095-C, ALEs may indicate that an offer of coverage was made for a month only if the offer would have provided coverage for every day of the month. Similarly, if a terminating employee's coverage ends before the end date of the month of termination, the ALE must report that no coverage was offered for that month. However, when reporting coverage information under Part III of Form 1095-C, an employee should be reported as having coverage if the employee is enrolled on any day of the month.
Reporting Offers of COBRA Coverage. The guidance explains how ALEs that sponsor self-insured plans should report enrollment information for non-employee COBRA beneficiaries (e.g., ex-spouses) and illustrates reporting under various COBRA scenarios. Qualifying beneficiaries electing COBRA independently from the employee must receive separate forms, while those who receive COBRA due to an employee's election should be included on the same form that is provided to the employee.
A COBRA offer made due to termination of employment is reported as an offer of coverage only if the former employee enrolls in COBRA coverage and the employee's cost of coverage reflects the COBRA premium for the lowest-cost, self-only coverage providing minimum value. Conversely, a COBRA offer made to an active employee due to a reduction of hours must be reported as an offer of coverage on Form 1095-C even if the employee declines COBRA coverage.
Important Takeaways for Employers. With mandatory reporting for ALEs beginning in 2016, understanding the reporting requirements is critical. Accordingly, employers should give careful attention to this and all future IRS guidance as the reporting deadline rapidly approaches.
The IRS guidance may be accessed at: https://www.irs.gov/affordable-care-act/employers/questions-and-answers-about-information-reporting-by-employers-on-form-1094-c-and-form-1095-c