United States: The Affordable Care Act's Reporting Requirements For Carriers And Employers (Part 9 Of 24): Unraveling The Mystery Of Indicator Code 2D

Last Updated: September 16 2015
Article by Alden J. Bianchi and Edward A. Lenz

The Affordable Care Act’s Reporting Requirements for Carriers and Employers (Part 9 of 24): Unraveling the Mystery of Indicator Code 2D—What Exactly is a “4980H(b) Limited Non-Assessment Period” (and Why is there no “4980H(a) Limited Non-Assessment Period”)?

The Affordable Care Act's reporting rules—which are set out in Internal Revenue Code §§ 6055 and 6056—solicit the information needed by the Internal Revenue Service to enforce the individual and employer shared responsibility rules and to support the proper administration of premium tax subsidies. Occasionally, the reporting rules also manage to shine a light into the substantive workings of the statute. This is the case with the Form 1095-C, Part II, Line 16, Indicator Code 2D ("Employee in a section 4980H(b) Limited Non-Assessment Period").

The final Code § 4980H regulations define the term "Limited Non-Assessment Period." Though the term "4980H(b) Limited Non-Assessment Period" is not defined, it is nevertheless clear that Indicator Code 2D is not appropriate to use any time a full-time employee is in a "Limited Non-Assessment Period." Rather, only certain "Limited Non-Assessment Periods" qualify. This post explains which "Limited Non-Assessment Periods" qualify for Indicator Code 2D and which do not. (For a high-level description of the reporting rules please see the first post in this series.)

Background

The final Code § 4980H regulations define the term "Limited Non-Assessment Period" to mean, generally, "the limited period during which an employer will not be subject to an assessable payment under section 4980H(a), and in certain cases section 4980H(b)," with respect to certain employees. There follow six specific instances in which an employer will not be subject to an assessable payment despite failing to make an offer of coverage. These include:

(i)         The transition rule for an employer's first year as an applicable large employer;

(ii)        The three full calendar month period beginning with the first full calendar month in which an employee is first otherwise eligible for an offer of coverage under the monthly measurement method;

(iii)       The application of the employer mandate during the initial three full calendar months of employment for an employee reasonably expected to be a full-time employee at the start date, under the look-back measurement method;

(iv)       The application of the employer mandate during the initial measurement period to a new variable hour employee, seasonal employee or part-time employee determined to be employed on average at least 30 hours of service per week, under the look-back measurement method;

(v)        The application of the employer mandate following an employee's change in employment status to a full-time employee during the initial measurement period, under the look-back measurement method; and

(vi)       The application of the employer mandate to the calendar month in which an employee's start date occurs on a day other than the first day of the calendar month.

Treas. Reg. § 54.4980H-1(a)(26)(i) through (vi).

To understand why the IRS needed to confine Indicator Code 2D to "4980H(b) Limited Non-Assessment Periods" requires a brief digression into other provisions of the regulations, particularly those establishing the rules for determining full-time employee status under the monthly measurement method and the look-back measurement method.

The monthly measurement method

The monthly measurement method includes a special rule that applies to an employee who, in a calendar month, "first becomes otherwise eligible to be offered coverage under a group health plan of an employer." Under this rule, an employer is not subject to an assessable payment under Code § 4980H(a):

[W]ith respect to an employee for each calendar month during the period of three full calendar months beginning with the first full calendar month in which the employee is otherwise eligible for an offer of coverage under a group health plan of the employer, provided that the employee is offered coverage no later than the first day of the first calendar month immediately following the three month period if the employee is still employed on that day. Treas. Reg. § 54.4980H-3(c)(2).

Moreover, if the coverage for which the employee is otherwise eligible during the three-month period, and which the employee is actually offered on the day following that three month period if still employed, provides minimum value, the employer also will not be subject to an assessable payment under Code § 4980H(b) with respect to that employee for the three-month period.

The workings of this rule are best illustrated by an example:

Employer X is an applicable large employer that elects to determine full-time employee status using the monthly measurement method. Employer X's only group health plan covers preventive services and nothing else. The plan does not provide minimum value. (These plans are sometimes referred to as "MEC" plans.) X pays the entire premium cost. Employees (and their dependents) are permitted to enroll after 60 days of employment. X will not be subject to the Code § 4980H(a) penalty with respect to any full-time employee for failing to offer coverage during the 60-day waiting period. X is, however, exposed to the Code § 4980H(b) penalty during the waiting period and for all subsequent coverage months, since the plan does not provide minimum value.

If Employer X instead offered to all of its full-time employees (and their dependents) coverage that provided minimum value, X would not be subject to assessable payments under Code § 4980H(b) with respect to any employee for whom coverage was affordable.

The look-back measurement method

A similar rule applies under the look-back measurement method during the initial full three calendar months of employment. The employer is not subject to an assessable payment under Code § 4980H(a):

[F]or any calendar month of the three-month period beginning with the first day of the first full calendar month of employment if, for the calendar month, the employee is otherwise eligible for an offer of coverage under a group health plan of the employer, provided that the employee is offered coverage by the employer no later than the first day of the fourth full calendar month of employment if the employee is still employed on that day. Treas. Reg. § 54.4980H-3(d)(2)(iii).

Again, if the offer of coverage for which the employee is otherwise eligible during the first three full calendar months of employment, and which the employee is actually offered by the first day of the fourth month if still employed, provides minimum value, the employer is also not subject to an assessable payment under Code § 4980H(b) with respect to that employee for the first three full calendar months of employment.

Transition rule for an employer's first year as an applicable large employer

A similar approach applies in the case of the transition rule for an employer's first year as an applicable large employer. The preamble to the final Code § 4980H regulations generally provides that:

  • If the employer offers coverage on or before April 1 of the first year in which the employer is an applicable large employer, the employer will not be subject to an assessable payment under Code § 4980H(a) by reason of its failure to offer coverage to the employee for January through March of that year; and
  • The employer will not be subject to an assessable payment (for January through March of the first year the employer is an applicable large employer) under Code § 4980H(b) if the coverage offered provides minimum value.

If the employer fails to offer coverage to the employee by April 1, the employer may be subject to a Code § 4980H(a) assessable payment for those initial calendar months in addition to any subsequent calendar months for which coverage is not offered. If the employer does offer coverage by April 1, but the coverage does not provide minimum value, the employer may be subject to a Code § 4980H(b) assessable payment for those initial calendar months and any subsequent calendar months for which coverage does not provide minimum value or is not affordable.

Using Indicator Code 2D

The title of this post asks, "Why is there no "4980H(a) Limited Non-Assessment Period"?" The answer is simple. There is no need for one. Information relating to an employer's exposure under Code § 4980H(a) is not reported on Form 1095-C, Part II, Lines 14, 15 or 16. Form 1095-C, Part II, Lines 14, 15 and 16 deal instead with an employer's liability under Code § 4980H(b). Line 14 asks for the code indicating whether a particular employee had an offer of coverage, the type of coverage and to whom it was offered, and if the coverage offered had minimum value and whether it was affordable; Line 15 asks for the dollar amount of the employee's contribution to self-only minimum value coverage; and Line 16 asks for the code indicating whether the employer has an excuse for failing to offer coverage, e.g., that the employee was in a Limited Non-Assessment Period as indicated by Indicator Code 2D.

Information relating to an employer's exposure under Code § 4980H(a) is reported on Form 1094-C, Part III. Form 1094-C, Part III, Column (b) asks for "Full-Time Employee Count for ALE Member" and Column (c) asks for the "Total Employee Count for ALE Member." The form 1094-C and 1095-C instructions provide that, "For purposes of reporting on Forms 1094-C and 1095-C, an employee in a Limited Non-Assessment Period is not considered a full-time employee." So an employee in a 4980H(a) Limited Non-Assessment Period would not be reported in Column (b), but he or she would appear in Column (c). This would be the case where, for example, an applicable large employer offered non-minimum value coverage after a waiting period or following an appropriate measurement period.

Of course, if the employer failed to offer minimum essential coverage to substantially all of its full-time employees, and if at least one of these employees qualified for a premium tax credit or a cost-sharing subsidy, the employer would owe an assessable payment under Code§ 4980H(a) based on the number of full-time employees reported in Column (b).

As previously noted, Indicator Code 2D on line 16 of Form 1095-C, Part II signals that no Code § 4980H(b) penalty will be imposed during the Limited Non-Assessment Period. Once the period expires, the general reporting rules apply. If coverage, once actually offered, is affordable, then the proper Indicator Code is 2F (Form W-2 safe harbor), 2G (federal poverty line safe harbor), or 2H (affordability rate of pay safe harbor), as the case may be. If the coverage is not affordable, and if the employee does not enroll in the coverage, then Line 16 would be left blank, thereby signaling that a penalty would be imposed if the employee qualifies for a premium tax credit in the months following the Limited Non-Assessment Period.

Conclusion

The lesson is simple but sometimes overlooked: Indicator Code 2D is not a catch all for reporting employees in a Limited Non-Assessment Period. It is, rather, reserved for specific instances in which an employee would otherwise have the benefit of an offer of minimum value coverage but for being in a Limited Non-Assessment Period.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alden J. Bianchi
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions