Preparing for Affordable Care Act (ACA) Reporting: What Employers Need to Know
The Affordable Care Act (ACA) requires Applicable Large Employers (ALEs) (generally, employers that, together with the other employers in their controlled group, employed 50 or more full-time and full-time equivalent employees in the prior calendar year) to report to the Internal Revenue Service (IRS) whether they offered their full-time employees and their full-time employees' dependent children the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan.
These requirements start this calendar year (2015) with tax filings due in early 2016. That means, in 2016, ALEs need to file Forms 1094-C and 1095-C with the IRS, and furnish Forms 1095-C to their full-time employees (and any non-full-time employees enrolled in their self-insured plan). These forms report information about the health coverage offered under an ALE’s employer-sponsored plan for the 2015 calendar year. Due to the recently announced automatic extension by the IRS, this year ALEs must furnish a copy of the Form 1095-C to individuals by March 31, 2016 and file Form 1094-C and 1095-C with the IRS by May 31, 2016 (June 30, 2016 if filed electronically).
ALEs will want to be sure to get these forms filed on time because the penalties for failure to timely and accurately file and furnish these forms were significantly increased in a recent trade bill, the Trade Preferences Extension Act of 2015 (Pub. L. No. 114-27).
New IRS Guidance Extends ACA Information Reporting Due Dates
As mentioned above, on December 28, 2015, the IRS issued Notice 2016-4 (the Notice), which extends the due dates for certain 2015 information reporting requirements under the ACA. Specifically, the Notice extends the deadline for furnishing to individuals the 2015 Form1095-C, Employer-Provided Health Insurance Offer and Coverage, and for filing with the IRS Forms 1095-C and corresponding 2015 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, as follows:
See the Eye on Washington, “New IRS Guidance Extends ACA Information Reporting Due Dates,” for details.
Penalties Increased for ACA Information Returns
Penalties may apply for incorrect employee names and/or Social Security numbers (SSNs). The Trade Preferences Extension Act increased the penalty amounts applicable to information returns, including for Forms 1094-C/1095-C. Penalties may apply for non-filing, late filing, or missing or incorrect information.
- The penalty for failure to file correct information returns is now $260 per return (previously $100), up to a maximum of $3,178,500 per year.
- The penalty for failure to furnish a correct payee statement is $260 per statement (previously $100), up to a maximum of $3,178,500 per year.
- BOTH penalties may apply in the event that an ALE fails to both file and furnish.
- The maximum penalty for both the failure to file and the failure to furnish required information returns (including Form 1095-C) has now doubled to $6 million per year.
Even before the recent penalty increases, employers were concerned about possible penalties arising from each Form 1095-C, because the IRS may assess penalties for employee names and/or SSNs that don’t match the IRS database and/or for missing SSNs or Individual Taxpayer Identification Numbers (ITINs).
Employers that wish to manage their penalty exposure should consider verifying the names/SSNs of employees in their benefits systems with the names/SSNs in their payroll systems, since employers have likely previously verified the names/SSNs in their payroll systems for Form W-2 reporting purposes, using the Social Security Administration’s (SSA) Social Security Number Verification system. (Note, however, that the SSA’s system can only be used by an employer for Form W-2 purposes.) Employers that have missing SSNs or ITINs for employees and/or dependents for whom they are required to report on the Form 1095-C should follow the appropriate TIN solicitation procedures.
Electronic Filing of ACA Information Returns
Many ALEs are familiar with the IRS Filing Information Returns Electronically (FIRE) system that is generally used to file Forms 1099 and similar information returns with the IRS. However, ALEs will not use the FIRE system for filing returns required under Sections 6055 and 6056 (including Forms 1094-C and 1095-C). Instead, the IRS has developed an entirely new electronic filing system – the Affordable Care Act Information Return System (AIR), for ACA Information Returns. Electronic filing is mandatory for ALEs that file 250 or more Forms 1095-C. Significant penalties may apply for improperly filing in paper form. See the Eye on Washington, “New Guidance on Electronic Filing of Affordable Care Act (ACA) Information Returns,” for details.
IRS Releases Final 2015 ACA Reporting Forms and Instructions
On September 16, 2015, the IRS issued final forms and instructions for 2015 Forms 1094-C and 1095-C. ALEs will use the Forms 1094-C and 1095-C to report health coverage offered under employer-sponsored plans in accordance with Internal Revenue Code (IRC) Section 6056 and to report information about the months of coverage under a self-insured plan in accordance with IRC Section 6055. Although Forms 1094-C and 1095-C are largely unchanged from prior versions, the instructions included some noteworthy revisions.
For information on these revisions, refer to the Eye on Washington, “IRS Releases Final 2015 ACA Reporting Forms and Instructions.”
Reporting Offers of COBRA Coverage on Form 1095-C
The final instructions removed the requirement to report offers of COBRA coverage made to a former employee upon termination of employment, even when a former employee enrolls in that coverage. However, the requirement remains to report an offer of COBRA coverage that is made to an active employee due to a reduction in hours. For more information on how to code the Form 1095-C in this situation, see the 2015 Instructions for Forms 1094-C and 1095-C.
Unique ACA Reporting Challenges for Employers with Multiemployer Plans
ALEs contributing to a multiemployer health plan face some unique coordination challenges to comply with their reporting obligations under the ACA. A multiemployer plan is a plan that covers the employees of unrelated companies in accordance with a collective bargaining agreement.
To satisfy the reporting requirements under IRC Section 6056, ALEs must file one Form 1095-C for each employee who was a full-time employee for one or more months of the calendar year, providing information regarding the offer of health coverage.
In cases of multiemployer arrangements, the ALE does not directly make the offer, so details of any such offers would have to be obtained from the coverage provider (i.e., the multiemployer plan). However, the preamble to IRC Section 4980H final regulations contains interim guidance under which an ALE that contributes to a multiemployer plan for a full-time employee will be treated as having made an offer of coverage to that employee as long as certain requirements are met. This interim guidance is reflected in the 2015 Instructions for Forms 1094-C and 1095-C, which state that, for 2015 reporting, Codes 1H (no offer) and 2E (multiemployer interim rule relief) can be used in Part II, lines 14 and 16, respectively, of Form 1095-C without regard to whether the full-time employee was actually offered coverage under the multiemployer plan (and the ALE can leave line 15 blank). Although the ALE reports no offer of coverage, the full-time employee will not trigger a Section 4980H penalty, because the ALE also reports that is it using the multiemployer interim relief.
The instructions are for calendar year 2015 reporting only. Regarding reporting for 2016 and future calendar years, ALEs relying on the multiemployer interim guidance may be required to report offers of coverage made through a multiemployer plan in a different manner.
Combined Reporting for ALEs Offering Self-Insured Plans
ALEs with employees (both full-time and part-time) enrolled in their self-insured plans must report the information required under IRC Sections 6055 and 6056 on a single combined form – the Form 1095-C. ALEs with former employees (in a year when they were never an employee, such as retirees or COBRA participants) and non-employees (such as non-employee directors) enrolled in their self-insured plans can report the information required under IRC Section 6055 on either the Form 1094-B or the Form 1095-C. For former employees and non-employees, the ALE must have the individual’s SSN to utilize Form 1095-C (the ALE must also have the SSN of its active employees, and would typically already have the SSN for Form W-2 purposes).
The insurer will report the coverage information for any of the ALE’s employees, former employees, or non-employees enrolled in an insured plan.
Reporting for Non-ALEs Offering Self-Insured Plans
Employers that are not considered ALEs (generally employers that, along with other employers in their controlled group, employed fewer than 50 full-time and full-time equivalent employees in the prior year) that have employees in their self-insured health plans are required to report health coverage information under IRC Section 6055. (Note, unlike ALEs, if one employer in a non-ALE controlled group sponsors a self-insured plan that covers other controlled group members’ employees, that plan sponsor employer can report for all participants in the plan.) Forms 1094-B and 1095-B, rather than Forms 1094-C and 1095-C, are used by non-ALEs to report coverage for individuals enrolled in a self-insured plan for one or more months of the calendar year.
Filers of Forms 1094-B and 1095-B must furnish a copy of the Form 1095-B by March 31, 2016 to the person identified as the “responsible individual” on the form. Filers must file the Forms 1094-B and 1095-B with the IRS on or before May 31, 2016 (June 30, 2016 if filed electronically) of the year following the calendar year of coverage.
ADP Compliance Resources
ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve. For the latest on how federal and state tax law changes may impact your business, visit the ADP Eye on Washington Web page located at www.adp.com/regulatorynews.
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Updated January 13, 2016
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