State-based Individual Mandates Should be on your Radar

employer compliance individual mandate

It's important for employers to stay up-to-date on their state's ACA reporting requirements.

The Tax Cut and Jobs Act eliminated the individual mandate penalty under the Affordable Care Act (ACA) starting in 2019. But nothing has changed about the employer mandate or ACA compliance reporting. In fact, some states have their own versions of the ACA's individual mandate in effect now that also require employer reporting.

Currently, four states and the District of Columbia have an individual mandate requiring individuals to enroll in health insurance or pay a penalty for failing to have health coverage. California, New Jersey, Rhode Island and the District are requiring some type of employer reporting to help them enforce the law adding an extra layer of health care compliance for employers in these states. Vermont's individual mandate will be effective in January 2021, and Massachusetts has had one in place for years prior the enactment of the ACA. At this time, neither of these states will require the same employee level reporting as other states.

Employer Compliance with State-Based Individual Mandates

Specific details on the employer reporting required are still being developed by the states and the District of Columbia, but some states have given hints in terms of what is expected of employers.

New Jersey's law calls for employers and insurers to report coverage information to the state but notes that in order to "minimize the reporting burden," the reporting can be in the same format used for federal informational reporting. The state's website directs employers to file IRS Form 1095-B or 1095-C for all individuals whom they provided coverage that were either full or partial year New Jersey residents during 2019. A partial year resident is defined as "a primary enrollee who lived in New Jersey for at least 15 days in any month." There is no paper filing option. Employers can only send these forms through the Division of Revenue's system (DORES). Each individual must also receive a statement by March 2, 2020, but if an employer has furnished a statement based on federal requirements, that is sufficient. The website clarifies these requirements are not limited to businesses located in New Jersey so employers based in other states should be verifying if they have employees in New Jersey for whom reporting may be required.

The District of Columbia released frequently asked questions with information for employers required to file Forms 1094-C/1095-C for residents of the District. A resident is defined as an employee for whom wages were withheld and paid to the District for any period during the calendar year or an individual who had a home or mailing address in the District at any time during the calendar year whom the employer provided coverage. The deadline to file health coverage information for 2019 is June 30, 2020 and the file must use the "OTR's prescribed layouts and file formats" rather than the file format employers use to meet federal requirements. Filings to the District will be transmitted electronically through MyTax.DC.gov. Beginning in 2021, the filing deadline will be thirty days after the IRS deadline, including any extensions.

In Vermont, the bill that passed initially called for the formation of a working group that would be tasked with sorting out the details of how the state's individual mandate would be implemented and enforced. A subsequent bill (HB 254) was passed clarifying that reporting will only be required to the Department of Taxation if the federal ACA filing requirement under Internal Revenue Code (IRC) Section 6055 is suspended or eliminated for any tax year.

What Are Other States Considering?

California and Rhode Island residents have individual mandates that became effective January 1, 2020 and employers will have reporting due in early 2021. The California Franchise Tax Board (FTB) has started to post information for businesses on their website, such as the filing due date for Forms 1095-B and 1095-C (March 31). They have also clarified that unlike other states, employer reporting will only be accepted if their insurance carrier does not already report health coverage information to FTB. Further details on the method employers will use to send forms to California and whether or not the information requested will match exactly to what employers send today under federal requirements is expected later this year. Employer reporting penalties for failing to submit this information to the FTB will be $50 per covered individual for which the failure occurs. Employers required to report on Rhode Island residents will go to the Division of Taxations's website where further updates on the mandate are expected in the "months ahead" although generally it is expected that the reporting will require the same information that is used to satisfy the federal requirement.

The Bottom Line for Employers

The details are gradually becoming available in terms of exactly what employers will have to do in order to comply with state-based reporting requirements. But the ACA's employer mandate and all associated informational reporting are still in effect nationwide, so employers should already have the data necessary for any separate state-based informational reporting. Employers should continue to track developments in this area.

States that implement their own mandates may require less comprehensive informational reporting than the IRS, since states will not need to use employer reporting in order to determine premium subsidy eligibility. That will continue to be handled at the federal level. But organizations will need to prepare for the possibility of having to generate separate forms and submit them to the required states.

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