Recently issued final regulations on the employer reporting requirements under the Affordable Care Act (ACA) clarify and streamline the process for reporting information relating to the provision of minimum essential coverage and health insurance coverage offered under employer-sponsored plans. The reporting requirements are intended to help the Internal Revenue Service enforce the individual and employer shared responsibility requirements under the ACA and to administer premium tax subsidies for exchange coverage. Most significantly, the final regulations permit an employer to satisfy its reporting obligations using a combined single form.
The U.S. Department of the Treasury (Treasury) issued final regulations on March 10, 2014, regarding the reporting requirements under Sections 6055 and 6056 of the Internal Revenue Code of 1986 (Code) (hereafter, the Reporting Requirements). The Reporting Requirements originally were intended to take effect on January 1, 2014, but employers received relief this past year when Internal Revenue Service (IRS) Notice 2013-45 delayed the effective date and enforcement until January 1, 2015.
Proposed regulations on the Reporting Requirements were issued on September 5, 2013. The final regulations maintain many of the same requirements as the proposed regulations, with some important clarifications.
Reporting of Minimum Essential Coverage
Under the proposed regulations for Code Section 6055, covered entities, including health insurance insurers and plan sponsors of self-insured group health plans (including applicable large employers subject to the employer shared responsibility requirements of Code Section 4980H) that provide minimum essential coverage to an individual during a calendar year, are required to file an annual information return and transmittal, as well as provide an employee statement to relevant employees. The reporting is designed to assist the IRS in enforcing the individual mandate under the Affordable Care Act (ACA). Minimum essential coverage is defined in Code Section 5000A(f)(1), and includes coverage under an eligible employer-sponsored plan. An eligible employer-sponsored plan includes a group health plan or group health insurance coverage offered by an employer to an employee that is a plan or coverage offered in the small or large group market within a state.
Code Section 6055(a) requires entities that provide minimum essential coverage to file annual returns that report information about the entity and specific information for each individual for whom minimum essential coverage is provided. The proposed regulations provided that reporting is not required for coverage that is not minimum essential coverage or for arrangements that supplement a health plan or an arrangement that is minimum essential coverage. The final regulations clarify that Code Section 6055 reporting is not required for coverage at on-site medical clinics, Medicare Part B or coverage that supplements a primary plan of the same plan sponsor or that supplements government-sponsored coverage.
Covered entities are to report the required information to the IRS and to covered individuals through a statement, providing the policy number, contact information for the entity (including information for a third party designated as the contact by the filing entity) and information required to be reported to the IRS. Importantly, the final regulations allow applicable large employers to report the information required under Code Section 6055 on a single form that also contains the information required under Code Section 6056, discussed below. Such applicable large employers will provide the required information and transmittal using Form 1095-C and Form 1094-C (i.e., such employers may file only one Form 1095-C containing information required under both Code Section 6055 and Code Section 6066), and entities that are not applicable large employers or are not reporting as employers (such as health insurers) will provide the required information and transmittal using Form 1095-B and Form 1094-B. Applicable large employers that self-insure health benefits should complete both sections of Form 1095-C. Applicable large employers that provide insured coverage need only provide the section of Form 1095-C that reports information required under Code Section 6056. The final regulations note that the IRS intends to make Forms 1095-B and 1095-C available in draft form in the near future and clarify that an entity may provide Form 1095-B or 1095-C with Form W-2 in the same mailing.
The information these entities are required to report about individuals includes individually identifying information for insured individuals and the months during which each employee was covered by minimum essential coverage for at least one day. The final regulations retain the requirement in the proposed regulations that reporting entities provide taxpayer identification numbers (TINs) for these individuals and allow entities to report birthdates rather than TINs to identify covered individuals, if the entity is unable to obtain a TIN after reasonable effort. The final regulations also allow truncated TINs to be used on the statements to the employee.
Information Reporting by Applicable Large Employers on Health Insurance Coverage
Code Section 6056 imposes annual information reporting requirements on applicable large employers regarding health insurance the employer provides to its full-time employees. Code Section 6056 requires applicable large employers that are subject to the employer shared responsibility requirements of Code Section 4980H to file a return with the IRS describing health care coverage that the employer provides to its full-time employees, including a list of full-time employees, the coverage offered to each full-time employee and for which months it applied. In addition, an applicable large employer must provide each full-time employee with a related statement. This reporting is designed to assist the IRS in enforcing the employer shared responsibility requirements under the ACA.
The Code Section 6056 reporting requirement applies separately to each individual, applicable large employer member (i.e., for an applicable large employer comprised of multiple subsidiaries that are applicable large employers, each applicable large employer member has a separate responsibility to comply with the reporting requirement). For example, if an applicable large employer is comprised of a parent corporation and 10 wholly owned subsidiary corporations, there are 11 large employer members (the parent corporation and each of the 10 subsidiary corporations) that are subject to the reporting. Each large employer member must file a Code Section 6056 return, with respect to its full-time employees for a calendar year. The reporting cannot be done on an aggregate basis.
For multiemployer plans, Code Section 6056 requires the employer to satisfy the reporting and furnishing requirements and not the relevant plan in which the employee participates. However, the multiemployer plan administrator may submit this on the employer’s behalf, if the parties agree; but the large employer member would still prepare returns pertaining to the remaining full-time employees (those who are not eligible to participate in a multiemployer plan). Please note, however, that if this duty is delegated to the multiemployer plan administrator, the large employer would still be responsible under Code Section 6056, with respect to all of its full-time employees and, accordingly, would be subject to any potential liability for failure to properly file returns or furnish statements.
The final regulations contain the general method under which this information will be reported, as well as alternative methods that an applicable large employer may choose to utilize for reporting purposes. The proposed regulations contained several alternative methods that were not adopted in the final regulations.
Under the general method, applicable large employers report information related to the offered coverage, including:
Whether the coverage provides minimum value
Whether the employee had the opportunity to enroll his or her spouse in the coverage
The total number of employees, by calendar month
Whether an employee’s effective date of coverage was affected by a permissible waiting period, by calendar month
Whether the applicable large employer member had no employees or otherwise credited any hours of service during any particular month, by calendar month
Whether the applicable large employer member is a member of an aggregated group and, if applicable, the name and employer identification number (EIN) of the members of the aggregated group on any day of the calendar year for which information is reported
The name, address and identification number of any third-party reporting on behalf of the applicable large employer member.
The applicable large employer files a Form 1094-C (the transmittal) and Form 1095-C (the employee statement), any other form the IRS designates or a substitute form. The statement required to be provided to each full-time employee must include the applicable large employer member’s name, address and EIN, as well as the information required to be shown in the Code Section 6056 return. The applicable large employer can provide the employee with the Form 1095-C or the filed substitute statement to satisfy this obligation.
The final regulations provide the following alternative methods that an employer may (but is not required to) use to report health insurance coverage:
Certification of Qualifying Orders: An applicable large employer may certify that it offered coverage to one or more full-time employees and report a simplified return under Code Section 6056, with respect to those employees if, for all months during the year in which the employee was a full-time employee to whom the Code Section 4980H penalty could apply, the applicable large employer: (1) offered minimum essential coverage, providing minimum value where the employee cost for self-only coverage did not exceed 9.5 percent of the mainland single federal poverty line to one or more full-time employee and (2) offered minimum essential coverage to the employee’s spouses and dependents (the qualifying offer). The final regulations specify that, for the purpose of using this alternative method, employers utilizing the transition relief offered for dependent coverage under the Code Section 4980H, final regulations will not be treated as offering coverage to the employee’s dependents. If an employee received a qualifying offer for fewer than 12 months of the calendar year, the applicable large employer must report the Code Section 6056 information using the general reporting method.
Certification of Qualifying Offers—2015: Solely for 2015, the applicable large employer may certify that it has made a qualifying offer to at least 95 percent of its full-time employees (and their spouses and dependents) and satisfy its reporting requirement by providing the relevant full-time employees with the employee statement (no Form 1095-C is required for employers using this method).
98-Percent Offers: An applicable large employer does not have to identify or specify the number of full-time employees if the employer certifies that it offered minimum essential coverage providing minimum value that was affordable under Code Section 4980H to at least 98 percent of the employees (and their dependents), with respect to whom the employer has Code Section 6056 reporting responsibilities.
Electronic Filing of Information and Timing Requirements
The proposed regulations required entities filing Code Section 6055 information returns to file electronically if the entity is required to file at least 250 returns of any type (including, for example, Forms W-2 and 1099). The final regulations remove this aggregation requirement and clarify that electronic filing of a Form 1095-B or Form 1095-C is required only if the entity is required to file at least 250 of Form 1095-B or Form 1095-C.
The required information must be submitted to the IRS by February 28 (March 31, if filed electronically) of the year following the calendar year in which coverage is provided, and the required individual statement must be provided by January 31 of the year following the calendar year in which coverage is provided. Employee statements under the Reporting Requirements cannot be provided electronically unless the employee affirmatively consents to receive the statements electronically.
Under IRS Notice 2013-45, the effective date of the Reporting Requirements was moved to January 1, 2015. The final regulations confirm that penalties will not be assessed for failure to comply with the Reporting Requirements for 2014 (entities do not have to report until 2016 for coverage in 2015). They further provide that penalties will not be imposed on entities that show they made good faith efforts to comply with the Reporting Requirements, and give specific relief to returns and transmittal statements filed and furnished in 2016 to report coverage in 2015 that contain incorrect or incomplete information. The final regulations clarify that for non-calendar year plans, the employer must include the months of the 2015 plan year that fall within 2015 on its 2016 filing and include the months of the 2015 plan year that fall within 2016 on its 2017 filing.
Although the final regulations issued under Code Section 4980H provide transition relief for employers with at least 50 but fewer than 100 employees, the final regulations under the Code Section 6056 reporting requirement provide that employers eligible for such relief must still file information returns for 2015.
Employers should review internal processes and begin to take the necessary steps to be prepared to report the information required under Code Section 6055 and Code Section 6056, as applicable, for the 2015 plan year. This can be coordinated with planning for the employer shared responsibility requirements under Code Section 4980H.