IRS Issues Regulations Regarding Affordable Care Act Reporting Requirements
The Affordable Care Act established two new IRS reporting requirements regarding group health coverage offered to employees. Each new reporting rule requires a detailed report to be filed each year with the IRS, and a corresponding statement provided to each covered employee. One of the reporting obligations applies to all group health plans, including small employer plans. The other only applies for a calendar year to an employer that employed on average at least 50 full-time equivalent employees in the preceding calendar year (i.e., an "applicable large employer").
The "all group health plans" reporting obligation is codified in Section 6055 of the Internal Revenue Code (the "Code"). Its purpose is to assist the IRS and covered employees to determine whether the employee and covered dependents have enrolled in a plan that provides minimum essential coverage so as to avoid the ACA individual mandate penalty.
The reporting required of applicable large employers, codified in Code Section 6056, will provide the IRS with the information that it needs to establish whether the employer has satisfied the employer responsibility mandate so as to avoid the "play-or-pay" penalties.
On March 5, 2014, the IRS issued final regulations pertaining to the ACA reporting requirements. The regulations are discussed below.
Q-1 When do the ACA reporting rules become effective?
The new reporting is made on a calendar year basis. The reporting rules first apply for the 2015 calendar year.
Q-2 What do the reporting rules involve?
In regard to both the "all group health plan" and "large employer only" reporting obligations, a report containing information prescribed in the regulations (discussed below) must be filed each year with the IRS. In addition, a corresponding statement containing individualized information must be provided to each employee covered under the plan.
The statements to employees must be provided by January 31 following the end of the applicable calendar year. Therefore, the first sets of statements (for 2015) are required to be provided to employees by February 1, 2016 (January 31, 2016, being a Sunday).
The reports to the IRS must be submitted by the last day of February following the calendar year at issue, or by March 31 if the reports are filed electronically. The reports must be filed electronically if more than 250 statements regarding individuals are submitted in connection with the filing.
Q-3 Who is responsible for filing reports and providing the employee statements?
It depends on the particular report.
For purposes of the Code Section 6055 "all group health plan" report, if the health coverage at issue is provided under an insured plan, then the insurer must file the report with the IRS and provide the statements to employees.
If the plan is self-insured, then the employer is responsible for the reports and statements.
For purposes of the Code Section 6056 "applicable large employer only" report, each employer is required to file the IRS reports and provide the employee statements, regardless of whether the coverage is provided under an insured plan.
Q-4 What are the penalties for noncompliance?
An employer that fails to file the required report to the IRS and to timely provide the statements to employees will be subject to a penalty of $100 per statement, up to $1,500,000.
Code Section 6055 ("All Group Health Plan") Reporting
Q-5 What information must be reported to the IRS under the Code Section 6055 rule?
The annual Code Section 6055 report to be filed with the IRS must include the following information:
- The name, address, and employer identification number ("EIN") of the employer;
- The name, address, and tax identification number ("TIN") (or date of birth if a TIN is not available) of each employee (including any retiree or employee on COBRA) with respect to whom coverage is provided;
- The name and TIN (or date of birth if a TIN is not available) of each individual who is covered under the plan;
- For each covered individual (employee and dependents), the months for which, for at least one day, the individual was enrolled in coverage and entitled to receive benefits; and
- Any other information required by the instructions to the transmittal form or future guidance.
Q-6 Which employees must receive the annual statement?
The Code Section 6055 statement must be provided to each employee who is enrolled in the plan at some point during the year. This includes covered employees who died during the year.
A statement is not required to be provided to employees who were offered coverage, but who did not enroll in the plan.
Q-7 What information must be included in the statement to employees?
The same information outlined in Q-5 above must be provided to each enrolled employee.
Code Section 6056 ("Applicable Large Employer Only") Reporting
Q-8 What are the Code Section 6056 reporting requirements?
Applicable large employers are required to file an information return with the IRS that reports the scope of the employer-sponsored health plan coverage offered to full-time employees for the applicable year.
The IRS and employees will use the information provided on the Code Section 6056 report and the employee statement to determine whether an employee is eligible for a premium tax credit.
Q-9 Which employees are included in the report and required to be provided statements?
The Code Section 6056 report will cover, and a statement will need to be provided to, each employee who is deemed to be a full-time employee under the play-or-pay rules for any part of the year. Consequently, the reporting and furnishing of statements will be required even for full-time employees who declined to enroll in the plan.
Q-10 The IRS has deferred until 2016 the application of the ACA "play-or pay" rules to applicable large employers having between 50 and 99 full-time equivalent employees. Does this transition relief also postpone the reporting obligation of a mid-size employer that is eligible for the play-or-pay deferral?
No, it does not. Even though a mid-size employer is exempt from the play-or-pay penalty rules for 2015, a plan that is sponsored by the employer remains subject to the IRS reporting and employee statement obligations for that year.
Q-11 What information must be included in the report?
Subject to certain alternative reporting methods discussed below, the annual Code Section 6056 report for an applicable large employer must include the information described below (plus any additional information required by future guidance, forms, and instructions).
A. Full Disclosure Information
The annual report must provide the following information in full:
- The name, address, and EIN of the employer;
- The calendar year for which the information is reported;
- The name and telephone number of the employer's contact person;
- A certification of whether the employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage, by calendar month;
- The months during the calendar year for which minimum essential coverage under the plan was available;
- Each full-time employee's share of the lowest cost monthly premium (self-only) for coverage providing minimum value offered to that full-time employee under the plan, by calendar month;
- The number of full-time employees for each month during the calendar year; and
- The name, address, and TIN of each full-time employee during the calendar year and the months, if any, during which the employee was covered under the plan.
B. Information Via Indicator Code
The following information will be required to be reported via an indicator code:
- Whether the coverage offered to full-time employees and their dependents under an employer-sponsored plan 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 employer had, or did not have, any employees who were credited with any hours of service during any particular month, by calendar month;
- Whether the employer is a member of a "controlled group of companies," and, if so, the name and EIN of each member of the controlled group on any day of the calendar year for which the information is reported;
- If an employer is a contributing employer to a collectively-bargained multiemployer plan, whether, with respect to a full-time employee, the employer is not subject to payment of an employer penalty by reason of the employer having made contributions to the multiemployer plan; and
- If a third party is reporting on behalf of an employer, the name, address, and EIN of the third party.
C. Anticipated Additional Information
The IRS has indicated that it anticipates that the additional information below will also be required to be reported for each full-time employee for each calendar month using a code.
- Whether coverage meeting minimum value was offered to:
- The employee only;
- The employee and the employee's dependents only;
- The employee and the employee's spouse only; or
- The employee, the employee's spouse, and dependents.
- Coverage was not offered to the employee:
- But the failure to offer coverage will not result in a play-or-pay penalty (for example, because the employee was in a waiting period);
- The employee was not a full-time employee;
- The employee was not employed by the employer during that month; or
- No exception applies.
- Coverage was offered to the employee for the month, although the employee was not a full-time employee for that month.
- The employee was covered under the plan.
- The employer met one of the "affordability safe harbors" with respect to the employee.
Q-12 What information must be included in the employee statement?
The statement to full-time employees must include:
- All of the information included in the IRS report (see Q-11 above) that pertains to the full-time employee; and
- The name, address, and contact information of the employer or third party that filed the report with the IRS.
Q-13 What reporting is required of members of a controlled group?
All employers that are part of a controlled group of companies are combined for purposes of determining the "large employer status" of the group. If the group is determined to be an applicable large employer on an aggregated basis, each individual employer in the controlled group is required under Code Section 6056 to separately report for its employees. In addition, each employer must furnish an employee statement to its own employees.
Q-14 May an employer-member use a third party to assist in completing the IRS reports?
Yes. However, engaging a third party does not transfer any responsibility from the employer for the failure to file the reports or provide the statements. It is expected that the IRS will issue supplemental guidance as to the manner in which a third party may assist in the reporting process.
Alternative Methods for Section 6056 Reporting
In certain circumstances, the final regulations permit the use of optional, alternative reporting methods. These alternate reporting methods are described below.
Q-15 Reporting based on certification of "qualifying offers."
An applicable large employer will be entitled to prepare a simplified Code Section 6056 report and provide a simplified employee statement with respect to each full-time employee for whom it made a "qualifying offer." A "qualifying offer" is one that:
- Offers employee-only coverage providing minimum value at an employee cost not exceeding 9.5% of the federal poverty line for a single individual; and
- Allows the enrollment of the employee's spouse and dependents.
For 2014, the federal poverty level for a single individual is $11,670. If that amount stays the same (which is not likely), then in order to have a qualifying offer, the cost to an employee for employee-only coverage cannot exceed $92.39 per month (9.5% of $11,670 ÷ 12).
If an employee had a qualifying offer for all 12 months of the calendar year, the employer would only need to include in its annual report the employee's name, Social Security number, address, and an indicator that a qualifying offer was made. The employer could then simply provide the employee with either a copy of the IRS report, or a general statement informing the employee that the employee, and the employee's spouse and dependents (if any), are generally ineligible for a premium tax credit for all 12 months.
If an employee received a qualifying offer for fewer than 12 months of the calendar year, the employer must use the general reporting and statements methods for the months in which the qualifying offer was made.
Certification of the qualifying offer will be required.
Q-16 2015-only alternative method based qualifying offers.
Solely for 2015, an employer certifying that it has made qualifying offers to at least 95% of its full-time employees will be eligible to use an even simpler alternative reporting method. It is anticipated that the employer will only need to report the employee's name, address, and Social Security number, and the months for which the qualifying offer was made. Further guidance is to be provided.
Q-17 Option to report without separate identification of full-time employees if certain conditions related to offers of coverage are satisfied.
The final regulations allow an employer to provide Section 6056 reporting without determining whether each employee offered coverage is a full-time employee, and without specifying the number of the employer's full-time employees. For this option to apply, the employer must certify on its transmittal form that it offered affordable coverage to at least 98% of the employees on whom it reports in its Code Section 6056 return (which may include part-time employees). This option relieves the employer from having to determine which covered employees are full-time for each month.
For further information or questions regarding the ACA reporting requirements, please contact the Schwabe attorney with whom you work or Wally Miller at 541-686-3299 or firstname.lastname@example.org.
IRS rules of practice require us to inform you that any federal tax advice contained in this correspondence is not intended or written to be used, and cannot be used, by the recipient or any taxpayer for the purpose of avoiding tax penalties under the Internal Revenue Code.