The time and cost of complying with any additional reporting requirement is never good news. However, the final regulations issued on March 10, 2014, regarding employer information reporting under the Affordable Care Act, provide a more streamlined process for reporting than initially anticipated. This Alert focuses on the Section 6055 and Section 6056 reporting requirements applicable to employers. Additional requirements apply to insurers, and those requirements are not addressed in this Alert.
Overview of Employer Reporting Requirement
The Affordable Care Act added information reporting requirements to the Internal Revenue Code under Sections 6055 and 6056. Section 6056 reporting requires applicable large employers (generally those with at least 50 full-time employees) to report to the IRS information about the health coverage they provided to their employees. This reporting is necessary for the IRS to determine if the employer penalties under Code Section 4980H apply (i.e., the penalties for failing to offer coverage or failing to offer affordable, minimum value coverage). Employers are also required to provide statements to employees regarding their health coverage, primarily so they can determine if they are eligible for a premium tax credit for the purchase of health insurance through the Marketplace.
Section 6055 reporting requires information be provided by any person that provides minimum essential coverage to an individual, including insurers and self-insured employers. This reporting is necessary to assist the IRS in enforcing the individual mandate which imposes a tax to individuals under Code Section 5000A for failure to maintain minimum essential coverage ("MEC").
The final regulations allow reporting under both these sections on the same form. This is of some help to employers, but the extent of the required information that is to be reported has not been significantly changed from the proposed regulations. The forms are not yet available, but the regulations include details on what will be reported.
Each member of a controlled group of companies must file its own information return. For simplicity, we refer to each separate member as the "employer" in this Alert. While this is consistent with how the employer penalties under Code Section 4980H are assessed, it creates complications for corporations with multiple subsidiaries. However, the final regulations permit a third party to submit the filing on an employer's behalf. For example, the health plan sponsor (which is typically the corporate parent in a multiple subsidiary situation) or third party administrator may submit the filing on behalf of each participating employer.
All employers may utilize the general method for the required reporting, even if an alternative method of reporting is available. A separate return is required for each full-time employee, just as is the case with Forms W-2. There is also a single combined form that is used for the Sections 6055 and 6056 reporting (two separate forms are not required). The reporting is done by using Form 1094-C (a transmittal) and Form 1095-C (an employee statement), or other forms the IRS may designate. Alternatively, a substitute form is also available. In general, the forms would be completed as follows:
- Self-Insured Medical Plan: Reports on Form 1095-C, completing both sections for the required information under both Sections 6055 and 6056.
- Insured Medical Plan: Reports on Form 1095-C, but the employer completes only the Section 6056 reporting. Health insurers, self-insured multi-employer plans, and providers of government-sponsored coverage report the required Section 6055 information on Form 1095-B.
Overview of Information to be Reported under Section 6056
Required information for Section 6056 reporting:
- Name, address and EIN of the employer (which is each separate employer in a multiple subsidiary situation)
- Address and telephone number for the employer's contact person (can be a third party)
- Certification as to whether full-time employees (and dependents) were offered the ability to enroll in minimum essential coverage ("MEC")
- For each full-time employee:
- the months for which MEC was available
- the employee's share of the lowest cost monthly premium for self-only coverage providing minimum value available to that employee (by month)
- name, address and social security number and the months, if any, during which such employee was covered under an eligible employer-sponsored health plan
In addition, there will be indicator codes to report the following information:
- Whether coverage provides minimum value and whether the employee was permitted to enroll his/her spouse
- Total number of employees, by month
- Whether an employee's effective date of coverage was affected by a permissible waiting period, by month
- Whether employer had no employees or otherwise credited hours of service, by month
- Whether employer is part of a controlled group and, if so, the name and EIN of each member that is part of the applicable large employer on any day of the year
- For those that contribute to a multi-employer plan (such as a union plan), whether the employer is not subject to the employer penalty due to the employer's contribution to that plan
- If a third party is reporting for the employer, the name, address and ID number of the third party
- With respect to each full-time employee, it is anticipated that the following will be reported:
- Whether MEC was offered to the employee only, employee and dependents only, employee and spouse only, or employee and family
- If coverage was not offered, whether no penalty will apply, whether the employee was not full-time or not employed by the employer during that month or whether no other code or exception applies
- Coverage was offered even though the employee was not full-time
- Whether the employer met the affordability safe harbor
The required statement to the employee may be made by providing a copy on Form 1095-C or a substitute statement.
Method and Timing for Filing Section 6056 Returns and Employee Statements
Electronic filing of Forms 1094-C and 1095-C is required, except for employers filing fewer than 250 returns under Section 6056 during the calendar year. The required employee statements can be provided electronically if the rules that apply to the electronic furnishing of Forms W-2 are met, including that the employee's consent to electronic disclosure of this specific form is obtained first.
Annual filings are due no later than February 28 of the year following the year to which the information relates or, if filed electronically, by March 31. Employee statements must be provided annually on or before January 31 (these are the same filing due dates as apply for Forms W-2). These deadlines apply even to plans that are not calendar year plans. This means that the first filings and statements will be due in early 2016 with respect to 2015 coverage.
Alternative Methods for Reporting
The reason for Section 6056 reporting is to assist the IRS in administering the penalties under Section 4980H and the premium tax credit. After reviewing comments, the IRS agreed that there are groups of employees for whom more streamlined, alternative reporting would provide a sufficient amount of information. Each employer can decide whether to use the alternative method of reporting for the employees for whom this simplified reporting is available and the general method for others, or instead to use the general method for all employees.
A. Reporting by Certification of Qualifying Offers
Under this alternative, the employer certifies on the Section 6056 transmittal form that it offered a qualifying offer of coverage to the employee and can provide a simplified statement to the employee (as opposed to providing a Form 1095-C). An employer is eligible for this reporting with respect to an employee if for all months during the applicable year in which the employee is a full-time employee with respect to a Section 4980H employer penalty could apply, the employer makes a qualifying offer which means it:
- Offered MEC providing minimum value at a cost for employee-only coverage for not more than 9.5% of the single mainland federal poverty line to one or more of its full-time employees
- Offered MEC to the employee's spouse and dependents (or would have if the employee had a spouse and/or dependents)
An employer that takes advantage of the transition relief and does not offer dependent coverage in 2015 will not be eligible for this alternative reporting. In addition, this reporting method is not available with respect to an employee who receives a qualifying offer for less than 12 months, such as because the employee was hired or terminate during the year or was in a waiting period or look-back measurement period.
B. 2015 Transition Reporting by Certification of Qualifying Offers
Solely for 2015, this option is available to an employer that can certify that it made a qualifying offer of coverage to at least 95% of its full-time employees and to their spouses and dependents and that provides a simplified statement to the employee about the coverage by the following January 31. Providing coverage for all 12 months is not a requirement for this transition reporting method. The IRS will prescribe the required statement that is to be provided to employees. Under this method, the IRS filing requirement is satisfied by simply filing the Form 1095-C and providing the employee's name, social security number and address and an indicator code that either a qualifying offer was made for all 12 months, the specific months for which it was made, or that such an offer was not made. Future forms and instructions will provide further information on this alternative option.
C. Reporting without Separate Identification of Full Time Employees
This method is available to an employer making an offer of MEC to at least 98% of the employees on whom it reports information under Code Section 6056. For this purpose, affordability can be determined under any of the applicable safe harbors.
D. Transition Reporting for Mid-Size Employers (50-99 Full-Time Employees)
Employers eligible for the transition relief from the employer penalties must still report for 2015. However, under this reporting method, the employer certifies that it meets the eligibility requirements for the "under 100" transition relief.
It will be important to review the forms and instructions once they are available for a more complete understanding of each of the above reporting requirements and options.
Failure to comply with the Section 6056 reporting requirement can result in penalties under Section 6721 for failure to file correct returns and Section 6722 for failure to provide employee statements. However, the IRS will not impose penalties for reports and statements provided in 2016 to report offers of coverage in 2015 for incorrect or incomplete reporting, if the employer can show it made good faith efforts to comply. In addition, if an employer fails to timely meet the requirements, it may be eligible for penalty relief if the IRS determines the failure was due to reasonable cause as provided in the standards for relief under Section 6724.
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.