IRS Publishes Notice Providing Transition Relief in Response to ACA Delay

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As outlined in our prior Alert, the Obama administration recently announced a one-year delay in the effective date of three key provisions of the Patient Protection and Affordable Care Act (ACA): (1) the annual information reporting requirements applicable to insurers, self-insuring employers and certain other providers of minimum essential coverage, (2) the annual information reporting requirements applicable to large employers (i.e., those with 50 or more full-time equivalent employees); and (3) the employer shared responsibility provisions. These provisions of the ACA will now be fully effective for 2015.

The Internal Revenue Service (IRS) has followed up its decision to delay these three key provisions by publishing Notice 2013-45, which outlines the transition relief that is available during 2014. In Notice 2013-45, the IRS states that this transition relief will provide additional time for input from employers and other reporting entities in an effort to simplify information reporting consistent with effective implementation of the ACA. In addition, the transition relief is intended to provide time for employers, insurers and other providers of minimum essential coverage to adapt their health coverage and reporting systems.

Notice 2013-45 is divided into four Q-&-As, which are set forth below:

  1. When will the rules be published regarding the information reporting obligations under the ACA and how will these provisions apply for 2014?

    Notice 2013-45 states that the proposed rules for the information reporting provisions are "expected to be published this summer" and that they will reflect the fact that transition relief will be provided for 2014. Despite this one-year delay to provide employers, insurers and other reporting entities additional time to develop their systems for assembling and reporting the needed data, the IRS states that all of those entities are "encouraged to voluntarily comply with these information reporting provisions for 2014 (once the information reporting rules have been issued) in preparation for the full application of the provisions for 2015." However, the IRS clarifies that such information reporting is optional for 2014, and therefore, no penalties will be applied for failure to comply with the information reporting provisions for 2014.

  2. What does the transition relief for information reporting mean for administration of the employer shared responsibility provisions for 2014?

    Notice 2013-45 provides that the information reporting provisions of the ACA are integral to the administration of the employer shared responsibility provisions. This appears particularly true because employers are not required to calculate a payment with respect to the employer shared responsibility provisions or file returns submitting such payment; rather, after receiving information returns filed by applicable large employers and information about employees claiming a premium tax credit for any given calendar year, the IRS will determine whether any employer's full-time employees received the premium tax credit and, if so, whether a payment may be due.

    It is for this reason that the transition relief from the information reporting requirements is likely to make it impractical to determine which employers owe shared responsibility payments for 2014. Accordingly, no employer shared responsibility payments will be assessed for 2014. However, as with the information reporting requirements, the IRS encourages employers to maintain or expand health coverage in 2014, as real-world testing of reporting systems and plan designs will contribute to a smoother transition to full implementation in 2015.

  3. Does the transition relief affect employees' access to the premium tax credit?

    No. Individuals will continue to be eligible for the premium tax credit by enrolling in a qualified health plan through the Exchanges established by the ACA beginning in 2014 if their household income is within a specified range and they are not eligible for other minimum essential coverage, including an eligible employer-sponsored plan that is affordable and provides minimum value.

  4. What does the transition relief mean for other provisions of the ACA?

    The transition relief outlined above for 2014 is stated to have "no effect" on the effective date or applicability of other ACA provisions. Notice 2013-45 specifically references the continued applicability of the premium tax credit and the individual shared responsibility provisions—however, those examples are not meant to exclude the implementation of any other provisions beginning in 2014.

    Notice 2013-45 provides the expected IRS response to the surprising announcement by the Obama administration last week regarding the delay in the information reporting and employer shared responsibility provisions of the ACA. There are still a number of issues that employers, insurers and other reporting entities may wish to work through with their employee benefits counsel and consultants—for example, will they use 2014 as a "test run" for the information reporting and employer shared responsibility provisions in order to provide for a smoother transition in 2015, when those provisions are fully applicable?