United States: ACA Reporting (Forms 1095-C And 1094-C) – Round Two

One of the greatest things about year-end is the hope and excitement of a brighter new year around the corner. In the midst of this holiday season — and no doubt as a present to us all — the Internal Revenue Service has released its final instructions on Forms 1095-C and 1094-C. While this is certainly not joyous news for "applicable large employers" (ALEs) across the United States who were hoping this reporting regime would go away, there is still hope that round two of reporting will be cleaner and clearer for everyone involved, and this article aims to highlight some key take-aways to that effect.

1. Who Cares and Why

The expressed goal of the Affordable Care Act (ACA) is to help extend health insurance coverage to everyone. As far as this article is concerned, there are three ways the ACA aims to achieve this goal:

  • The "Employer Mandate" which requires ALEs to offer compliant coverage to all of their fulltime employees (defined as those who regularly work at least 30 hours per week) or pay additional taxes for failure to do so;
  • The "Individual Mandate" which requires individuals to acquire health insurance coverage or pay additional taxes for failure to do so; and
  • Certain individuals are eligible for subsidized coverage through the Health Insurance Marketplace.

In order to track where the money is supposed to go — whether to the IRS as taxes or to individuals as subsidies – the IRS instituted the reporting scheme found in Forms 1095-C, 1094-C, 1095-B, and 1094-B. ALEs are responsible for reporting coverage provided their fulltime employees on Forms 1095-C and 1094-C.* When these ALEs fail to report accurate information, this can inappropriately trigger penalties under the Employer Mandate and the Individual Mandate and can affect individuals' eligibility for subsidized coverage.

2. The Updated Instructions

The most reassuring thing about the final instructions for Forms 1095-C and 1094-C is that they are largely identical to last year's instructions. This means that employers and service providers can build upon last year's experience. Important clarifications include:

  • Explanation on how to report in a control group situation;
  • How to report COBRA coverage;
  • Cross references to guidance on reporting on HRA coverage and safe harbor procedures for solicitation of social security numbers of covered individuals;
  • Updates to certain definitions that make it clear that reporting must be done for the entire year for each relevant individual;
  • Few additional explanations regarding code combinations;
  • Limited transitional relief extends only to fiscal year plans during their 2015 plan year; and
  • Additional codes (1J and 1K) to capture conditional offers of spousal coverage.

3. Filings Must be Timely and Correct

What is most notable about the instructions is what is not there. In particular, the deadlines to report have not been extended and there is no "good faith compliance" standard applicable to this year's reporting.

All Forms 1095-C are due to employees by January 31, 2017 and due to the IRS by February 28, 2017, if filing by paper, and March 31, 2017, if filing electronically. The transmittal Form 1094-C is also due to the IRS when the associated 1095-Cs are submitted to the IRS. There is no indication the IRS will extend the filing deadlines this time. Employers seeking extensions will have to petition the IRS by more traditional means prior to the applicable due date.

Also, when these reports are submitted they will need to be correct. The IRS has made no indication that "good faith efforts" will be sufficient to avoid penalties for incorrect filings this time. The penalty is $260 for each incorrect statement or return (yes, that means an incorrect 1095-C triggers a $510 penalty).

4. Practical Considerations to Ease Reporting Burdens

Now that the first round of reporting is under our belts, it is important that ALEs start documenting policies and procedures related to reporting.

There are several portions of the Employer Mandate that provide ALEs choices that affect data collection, reporting, and ultimately compliance — these choices should be documented. For example, is the ALE using the look-back measurement method or the monthly measurement period? If look-back, how does that operate? What affordability safe harbor is the ALE using and how is that applied? How does the ALE credit hours of service related to unpaid leave? How will the ALE apply the rehire rules? What criteria is the ALE using to categorize new hires and address their initial measurement period? Etc.

Documenting all of this (in addition to recording offers of coverage and hours of service) will help ensure accurate reporting in spite of turnover in the human resources department, facilitate responses to IRS audits, and in general ease the annual burden of ALE reporting. However, do be careful to actually follow what you document.

*Note: ALEs who provide self-insured health insurance coverage will need to report on all covered individuals, not just fulltime employees.

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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