United States: The Affordable Care Act—Countdown To Compliance For Employers, Week 42

Treasury Department And IRS Issue Final Reporting Rules Under Code Section 6055

On March 5th, 2014, the Treasury Department and the IRS issued two final reporting rules of critical importance to employers:

  • Information Reporting of Minimum Essential Coverage (under Code § 6055, available here); and
  • Information Reporting by Applicable Large Employers on Health Insurance Coverage (under Code § 6056, available here).


Code § 6055 imposes on entities that offer minimum essential coverage (i.e., health insurance issuers, certain sponsors of self-insured plans, government agencies and other parties that provide health coverage) the obligation to report certain information about the coverage to the employee and to the IRS. Code § 6056 requires applicable large employers to provide detailed information relating to health insurance coverage that they offer. We explained these rules in a previous post, which described the content of earlier proposed rules under both statutory provisions. In that post, we also made the following prediction:

"While many of the comments submitted in response to the proposed regulations were both thoughtful and practical, many are also difficult to square with the terms of the statute. As a result, the most likely outcome is that the final rules under Code §§ 6055 and 6056 will look a lot like the proposed rules—which look a lot like the statute."

Regrettably and inevitably (at least in our view), our prediction turned out to be accurate: regrettably, since, as one commentator said it, "the [final reporting rules] will be a big, expensive, annoyingly complicated burden for employers;" inevitable because the final rules look a lot like the statute. While the preamble to the final rule evinces what appears to be a sincere effort on the part of the regulators to simplify where possible, and while there may perhaps be room for improvement at the margins, the reporting burdens placed on issuers of minimum essential coverage and on applicable large employers are principally statutory, not regulatory.

The Affordable Care Act imposes mandates on individuals and employers.

The individual mandate

U.S. citizens and green card holders must generally (i.e., in the absence of an exemption) have health coverage starting in 2014. The fine for failure to have health coverage ranges from the greater of $95 or 1% of income in 2014, to $695 or 2.5% of income in 2016.

The employer mandate

Applicable large employers (i.e., employers with 50 or more full-time and full-time equivalent employees) face the prospect of an excise tax if one or more of their full-time employees qualify for premium assistance from a public insurance exchange and either

  • The employer fails to make an offer of group health plan coverage to at least 95% (70% in 2015) of its full-time employees (and their dependents), in which case there is imposed an annual penalty of $2,000 multiplied by the number of the employer's full-time employees;
  • The employer makes the requisite offer of coverage, but the coverage is either unaffordable or fails to provide minimum value, in which case there is imposed an annual penalty of $3,000 multiplied by the number of the employer's full-time employees who qualify for premium assistance.

Where an employer does offer group health plan coverage—or, to be more precise, where the employer makes an offer of minimum essential coverage under an eligible employer-sponsored plan—and where that coverage is both affordable and provides minimum value, then an employee who might otherwise qualify is barred from receiving premium assistance. As a consequence, there can be no excise tax exposure. Though originally stated to go into effect in 2014, these rules were delayed to January 1, 2015.

The role of Code §§ 6055 and 6056

Code §§ 6055 and 6056 provide the IRS with the information necessary to enforce the individual and employer mandates. Because the individual mandate penalties are determined monthly, the 6055 reporting requirements ask for information on a monthly basis about which employees have elected coverage for themselves and their dependents. Similarly, the 6056 reporting requirements solicit information about the coverage an employer offers month-by-month and whether the coverage is affordable and provides minimum value.

The Final Regulations

Both the 6055 and 6056 reporting requirements take effect commencing in 2015, which means that the first required information returns will be filed in early 2016. In a manner similar to W-2 reporting, both provisions require that information be provided to employees and the government. Reports to employees must be provided by January 31st of the year following the calendar year of coverage. Reports to the government are due annually by March 31st (if filed electronically) of the year following the calendar year of coverage without regard to whether the plan operates on a fiscal or calendar year. Forms may be provided to employees electronically, but only if the recipient has affirmatively consented to receive the statement in electronic format. Applicable large employers will file a combined return, Form 1095-C, that will include information required under both Code §§ 6055 and 6056.

The penalties for failing to file reports under Code §§ 6055 and/or 6056 follow existing "failure-to-file" rules, except that the final regulations offer limited relief for a good faith effort to comply with the reporting rules.

The final Code §6055 regulations

Reporting is generally required by any person (e.g. health insurance issuers or plan sponsors of self-insured group health plan coverage)—referred to as a "reporting entity"—that provides minimum essential coverage. The obligation to report is imposed separately on each controlled group member employer, although a member of the group may "assist" others to file returns or furnish statements. Reporting is not required for individuals who do not enroll in the employer's plan, nor is reporting required with respect to "supplemental coverage arrangements," which include health reimbursement accounts, health savings accounts, on-site medical clinics (that qualify as excepted benefits), self-insured employer-provided retiree coverage that supplements Medicare benefits, and wellness programs that are coordinated with minimum essential coverage.

The information that must be reported includes the following:

  • Name, address, and Employer Identification Number (EIN) of the person required to file the return;
  • Name, address and Taxpayer Identification Number (TIN) of the covered employee;
  • Name, address, and TIN of each covered dependent;
  • The calendar months of coverage for each covered individual; and
  • Other information as specified.

Relief is provided in connection with obtaining and reporting of TINs. An employer is not required to report TINs for each dependent if the employer fails to obtain his or her TIN after three separate requests. In the absence of TINs, the employer must instead report each such dependent's date of birth.

The employer must furnish this same information annually to each covered employee along with other information that the IRS specifies.

The final Code § 6056 regulations

Code § 6056 reporting is required by each member of an applicable large employer's controlled group. One member of the controlled group or a third party may, however, assist the other members. The final regulations establish a "general" reporting method and two alternative methods. Employers can use the general method for some employees and the alternative methods for others (where appropriate). Under the general method, the employer must file a separate return on Form 1095-C (or a substitute statement) for each full-time employee. These separate returns are transmitted to the IRS in the aggregate.

The information that must be reported under the general method includes the following:

  • Employer's name, address, EIN and calendar year of reporting;
  • Name and telephone number of employer's contact person;
  • A certification by calendar month as to whether the employer offered its full-time employees and their dependents the opportunity to enroll in minimum essential coverage;
  • The number of the employer's full-time employees for each calendar month during the calendar year;
  • For each full-time employee, the calendar months for which minimum essential coverage was available;
  • For each full-time employee, by calendar month, the employee's share of the lowest cost monthly premium for self-only coverage offered to that employee that was of minimum value; and
  • Name, address, and TIN of each full-time employee during the calendar year and the months during which the employee was covered by the plan.

In addition, the following information will be reported using "indicator codes:"

  • Whether the employer's coverage meets the minimum value standard;
  • Whether the employee could enroll his or her spouse;
  • Total number of employees by calendar month;
  • Whether the employee's effective date of coverage was affected by a waiting period, by calendar month;
  • Whether the employer is a member of a controlled group, and, if so, the name and EIN of each other member of the group on any day in that reporting year;
  • Whether minimum essential coverage was offered to just the employee, just the employee and dependents, just the employee and spouse, or the employee, spouse and dependents;
  • When coverage was not offered to an employee, whether this was because the employee was in a waiting period, not a full-time employee, or not employed for a particular month; or whether no exception applies;
  • Whether coverage was offered for a month to an employee who was not a full-time employee;
  • Whether the employee was covered under the plan; and
  • Whether the employer met one of the affordability safe harbors with respect to the employee.

The final regulations also recognize and allow for two alternative (or "simplified") reporting options.

1.   Qualifying offers

An applicable large employer may provide limited information in the case of employees (and their dependents) who had a "qualifying offer" of coverage for each month of the year. An offer is a "qualifying offer" if (i) the offer of coverage is made to the employee and his or her spouse and dependents, (ii) the cost for employee-only coverage does not exceed 9.5% of the federal poverty level (the other affordability safe harbors provided by final regulations issued under Code § 4980H are not available for this purpose), and (iii) the coverage provides minimum value. Where the qualifying offer is made for all 12 months of the calendar year, the employer is permitted to report the coverage using an indicator code. Where coverage is not offered for all 12 months of a calendar year, the employer may use the general rule for the months during which the employee was not offered coverage and designated indicator codes for the other months.

The final regulations also provide a special transition rule that applies only for 2015 under which applicable large employers that have made a qualifying offer of coverage to at least 95% of their full-time employees (and their spouses and dependents) may use a special certification rule.

2.   No need to separately identify full-time employees

In instances in which an applicable large employer makes an offer of coverage to most or all of its employees (and their spouses and dependents), there is no need to identify (or specify the number of) full-time employees. To qualify for this alternative (i) the applicable large employer must certify that it offered coverage to at least 98% of all its employees, (ii) the coverage must provide minimum value, and (iii) the coverage must be affordable (using any of the affordability safe harbors in final regulations issued under Code § 4980H).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Alden J. Bianchi
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