As published in The Self-Insurer,
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In March of 2014 the Internal Revenue Service and Treasury issued final regulations providing guidance to those entities that are subject to the information reporting requirements of sections 6055 and 6056 of the Internal Revenue Code, as enacted by the Patient Protection and Affordable Care Act (PPACA).
This article will focus on section 6056 which requires applicable large employers to report to the IRS information about the health care coverage, if any, that is being offered to its full-time employees in order to administer the employer shared responsibility provisions of section 4980H. Section 6056 also requires applicable large employers to furnish related statements to employees that may be used to determine whether, for each calendar month of the year, they may claim a premium tax credit, under section 36B, on their individual tax return.
By way of background, applicable large employers may be subject to one of two potential excise taxes imposed under Internal Revenue Code Section 4980H if the employer fails to offer a full-time employee (and their dependent children) health insurance coverage that satisfies certain requirements prescribed in Section 4980H, during a month, and a full-time employee receives a premium subsidy for health insurance in the Marketplace during a month.
Who is required to report?
Section 6056 requires “applicable large employers” to comply with the section 6056 reporting requirement. As a general rule, an applicable large employer is an employer that employed, on average, at least 50 full-time employees on business days during the preceding calendar year, and for purposes of this calculation, full-time employees include both full-time employees and full-time equivalents.
Applicable large employer status is determined on a controlled group basis as set forth in sections 414(b), 414(c), 414(m) or 414(o). All employer members of the controlled group will be treated as a single employer. However, section 6056 reporting requirements apply only on an employer-by-employer basis. Thus, the determination of whether an employer is an applicable large employer is made at the aggregated group level of a controlled group and the section 6056 reporting requirement determination is made at the individual employer member level.
Although liability may not transfer, the applicable large employers are permitted to contract with third parties to facilitate the filing of the returns and furnishing the employees with the requirement statements.
When and how must the information be reported?
Section 6056 reporting originally was to apply to coverage provided on or after January 1, 2014. However, the IRS provided transition relief for reporting for one year as set forth in Notice 2013-45. Under the final regulations, reporting is now required beginning in early 2016, for coverage that was provided in 2015, and annually thereafter. In the interim, the IRS is encouraging voluntary compliance and reporting prior to the effective date.
A reporting entity must file a return (1095-C) for each employee, along with a transmittal form (1094-C) on or before February 28 (March 31 if filed electronically) of the year following the calendar year in which the coverage was provided. Electronic filing is required for high-volume filers (250 or more returns under section 6055). For the first reporting year, since the 2016 deadline falls on a Sunday, the first returns and transmittal forms will be due by March 1, 2016 (unless filed electronically).
All applicable large employers with self-funded group health plans may use a combined Form 1095-C to satisfy the 6055 and 6056 reporting requirements.
Statements must be furnished to full-time employees on or before January 31st of the following year. For the first reporting year, since the 2016 deadline falls on a Sunday, the first statements will be due by February 1, 2016.
Statements must be mailed first class to the last known permanent address on file for the full-time employee and must include the following:
- Name, address and contact information of the applicable large employer; and
- Information required to be shown on the section 6056 return with respect to the full-time employee.
Although not required, the final regulations indicate that the applicable large employer may choose to provide the full-time employee with a copy of the return that was provided to the IRS to satisfy the statement requirement. The applicable large employer may furnish these required statements to the full-time employee within the same mailing as the W-2.
The final regulations also permit furnishing the statements to the full-time employee electronically so long as the proper consent has been received from the individual to receive electronic notices. A general consent to receive statements electronically will not be sufficient. Detailed requirements must be met in order to satisfy the electronic disclosure rules.
What information must be reported?
We are still waiting patiently for the required forms and instructions that are to be utilized in complying with section 6056 reporting requirements. The returns will require the following information:
- Name, address, and taxpayer identification number (TIN) of the applicable large employer;
- Calendar year for which the information is being reported;
- Name and telephone number of the applicable large employer’s contract person;
- Certification (by calendar month) as to whether the applicable large employer offered its full-time employees (and dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan;
- Number of full-time employees, for each calendar month during the calendar year, by calendar month;
- For each full-time employee, the months during the calendar year for which minimum essential coverage was available;
- Each full-time employee’s share of the lowest cost monthly premium for self-only coverage providing minimum value offered to a full-time employee under an eligible employer sponsored plan, by calendar month; and
- 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 an eligible employer sponsored plan.
The final regulations also set forth additional information that is required to be reported under section 6056. However, the following information will be reported through indicator codes:
- Information as to whether the coverage offered to full-time employees (and dependents) under and employer-sponsored plan provides minimum value and whether the employee had the opportunity to enroll his/her spouse in the coverage;
- Total number of employees, by calendar month;
- Whether an employee’s effective date of coverage was affected by a permissible waiting period under 4980H, by calendar month;
- Whether the applicable large employer had non employees or otherwise credited any hours of service during any particular month, by calendar month;
- Whether the applicable large employer is a person that is a member of an aggregated group, determined under the controlled group rules, and, if applicable, the name and TIN of each employer member of the aggregated group on any day of the calendar year for which the information is reported;
- Name, address and identification number of an appropriately designated person if reporting on behalf of the applicable large employer that is a governmental unit or any agency or instrumentality thereof;
- If an applicable large employer is a contributing member of a multiemployer, whether, with respect to a full-time employee, the employer is not subject to an assessment payment under 4980H due to the employer’s contributions to the multiemployer; and
- If a third party is reporting for the applicable large employer, the name, address and TIN of the third party (in addition to the name, address, and TIN of the applicable large employer already required under the regulations).
“In an effort to simplify and streamline the section 6056 reporting process” (seriously…) the following information will also need to be reported with respect to each full-time employee for each calendar month utilizing indicator codes:
- Minimum essential coverage meeting minimum value was offered to 1) the employee only, 2) the employee and the employee’s dependent’s only, 3) the employee and the emmployee’s spouse only, or 4) the employee and the employee’s spouse and dependents;
- Coverage was not offered to the employee and 1) any failure to offer coverage will not result in a payment under 4980H(a) or (b), 2) the employee was not a full-time employee, 3) the employee was not employed by the applicable large employer during that month, or 4) no other code or 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; and
- The applicable large employer met one of the affordability safe harbor tests with respect to the employee.
Alternative Reporting Methods?
Eligibile applicable large employers may utilize an alternative reporting method if the employer is unlikely to be subject to a penalty under 4980H given that its employees will likely be ineligible for a premium tax credit.
1. Reporting Based on Certification of Qualifying Offers:
Applicable large employers may certify on 1094-C that for all months during the year in which the employee was a full-time employee a “qualifying offer” was made: an offer of minimum value coverage providing employee-only coverage at a cost of no more than 9.5% of the federal poverty level and an offer to the employee’s spouse and dependents. The IRS anticipates that applicable large employers utilizing this method will be allowed simplified information reporting depending on the circumstances of the qualifying offer.
For 2015, only applicable large employers certifying that it made qualifying offers to at least 95% of its full-time employees (and their spouses and dependents) will be able to utilize the simplified reporting method for the entire workforce and will also be permitted to furnish simplified statements to the full-time employees.
2. Reporting without Separate Identification of Full-Time Employees (98% Offer Rule):
Applicable large employers may certify on 1094-C that it offered affordable minimum value coverage to at least 98% of reportable employees. The applicable large employer is not required to identify or specify the number of full-time employees. If a full-time employee later reports a premium tax credit there would likely by follow-up with the applicable large employer so adequate recordkeeping is important.
Penalties for non-compliance?
Failure to comply with these reporting requirements could result in penalties ranging from $100 per return up to $1.5 million in a calendar year. In an effort to provide short-term relief from penalties, the IRS will not impose penalties where it can be shown that a good faith attempt to comply has been made but only for incorrect and/or incomplete information. No relief will be provided where a reporting entity does not make a good faith effort to comply or for failure to file timely returns or furnish the requisite statements, and penalties could exceed $1.5 million for a reporting entity that intentionally disregards the requirement.
January 2016 will be here before we know it and between now and then many systems may need to be designed or refined to capture the relevant data elements that will enable reporting entities to streamline the 6055 and 6056 reporting requirements. Reporting entities and/or their TPA partners will need to look at current processes and assess the operational impact complying with these requirements will have.
Will TPAs be educating their clients on the requirements? Will this be a service that TPAs offer to their clients? It is important that employers understand that for those that wish to utilize the IRS safe harbors for variable-hour employees, they need to start strategizing now to identify which employees will be treated as full-time employees in 2015 for the 2016 deadline.
The initial hurdle may very well still be obtaining the required TINS, however, for some it may be the initial task of determining whether an employer is an applicable large employer under the applicable controlled group rules.
This article is intended for general informational purposes only. It is not intended as professional counsel and should not be used as such. This article is a high-level overview of regulations applicable to certain health plans. Please seek appropriate legal and/or professional counsel to obtain specific advice with respect to the subject matter contained herein.