ACA Reporting Information

ACA Information Reporting

On February 8, 2015, the Internal Revenue Service (IRS) released final 2014 forms and instructions that will be used to comply with the new information reporting requirements of the Affordable Care Act (ACA).  These forms and instructions are intended to enable the IRS, employers, health coverage providers, and individuals to determine compliance with the employer and individual mandates and individual eligibility for premium credits.  Their release indicates that the IRS is poised to move ahead with ACA reporting.

Applicable large employers (ALEs) are required to provide a Form 1095-C to each full-time employee and each other employee covered under a self-insured health plan, and to file Form 1094-C with the IRS, transmitting to the IRS copies of the forms 1095-C.  ALEs are employers with 50 or more full-time employees (FTEs), including full-time equivalent employees (FTEEs), during the prior calendar year.  FTEs are generally common law employees who work at least 30 hours per week or 130 hours per month.  A FTEE is a combination of employees, each of whom is not a FTE, but who in combination, are equivalent to an FTE.

With respect to employers within an aggregated group of employers, all members of the group are aggregated into a single employer to determine ALE status.  If the aggregated group of employers has 50 FTEs (including FTEEs) between the employers, then each employer in the group is an ALE member.

Under a transition rule for 2015, employers will measure any consecutive six-month period during 2014 to assess whether it had 50 FTEs to determine ALE status.  Under another transition rule, employers with more than 50 but fewer than 100 FTEs will not be subject to the employer mandate until 2016 (provided certain conditions are met), but such employers still have the obligation to provide information returns with respect to offers of coverage. 

Reporting with respect to employer mandate

Under ACA’s employer mandate, an excise tax will apply to ALEs that either (1) do not offer coverage to 95% (70% under a transition rule for 2015) of their FTEs and their dependents if at least one FTE receives a premium tax credit or (2) offer coverage but at least one FTE receives a premium tax credit because the coverage offered was not affordable or did not provide minimum value (at least 60% of the total expected cost of benefits). The annual excise tax in the first situation is $2,000 times the total number of FTEs, including those who were offered minimum essential coverage (MEC), less 30 (80 under a transition rule for 2015), prorated monthly for any month in which coverage is not offered. The excise tax in the second situation is $3,000 per year for each FTE who qualifies for the premium tax credit, also prorated monthly. Coverage offered, not coverage in which employees actually enroll, determines whether an employer is subject to the excise tax.

Each ALE member will use Form 1094-C to report aggregate information and transmit its Forms 1095-C to the IRS. These forms will be used to determine whether an employer is subject to a penalty under the employer mandate, as well as to assist individual employees and the IRS in determining their eligibility for premium tax credits for purchasing individual coverage on a public health insurance exchange.

While ALE members of an aggregated ALE group are aggregated for purposes of determining ALE status, each ALE member (including disregarded entities) must separately report on its FTEs and must file Forms 1094-C and 1095-C in its own name and employer identification number (EIN), even if another member of the aggregated group provides the coverage.

 If an employee works for two or more separate ALE members (with separate EINs) within the same aggregated ALE group, each employer files a separate Form 1095-C for the employee unless the ALE member is not treated as the employer for any calendar month in the calendar year. For any calendar month in which a FTE works for more than one ALE member of an aggregated ALE group, only one ALE member is treated as the employer and only that ALE member reports for that employee for that calendar month (and the other ALE member is not required to report for that employee).  If under these rules, an ALE member is not required to report for an employee for any month in the calendar year, the employer is not required to report for that FTE for that calendar year.

For example, if an employee works for ALE Member 1 for six months and ALE Member 2 for six months, then, with respect to the employee, both ALE members report for six months. But if the employee works for ALE Member 1 for 5.25 months and ALE Member 2 for 6.75 months, then, with respect to the employee, ALE Member 1 reports for five months and ALE Member 2 reports for seven months. Alternatively, if the employee works three weeks every month for ALE Member 1 and one week every month for ALE Member 2, then ALE Member 1 reports for all 12 months and ALE Member 2 does not report with respect to that employee.

Reporting with respect to the individual mandate

Under ACA’s individual mandate, individuals generally must maintain MEC or face a penalty when they file their US federal individual income tax returns. Most private and public coverage, including employer-sponsored coverage, individual coverage, Medicaid and Medicare, qualifies as MEC. Self-insured ALE members must complete Form 1095-C for any employee (whether or not a FTE) who enrolls in health coverage for any month of the calendar year. Health insurance issuers, multi-employer plans, government agencies, non-ALE member employers with self-insured plans covering their employees, and other health insurance providers use Form 1095-B to report to individuals to whom they provide MEC so they can show they met the individual mandate. The final instructions allow self-insured employers to use either Form 1095-B or 1095-C to report information for individuals other than FTEs, including retirees, COBRA beneficiaries, or non-employee directors, enrolled in the plan for the entire year.

Methods of reporting

Employers must use the general method of reporting, unless eligible for one of three alternative methods of reporting, to comply with the ACA reporting requirements. Regardless of which method is used, employers must furnish Form 1095-C or the otherwise required simplified statement, if applicable, to employees by February 1, 2016 for calendar year 2015. Reporting is based on the calendar year, regardless of the year on which an employer’s plan operates. For 2015, the Forms 1094-C and 1095-C must be filed by February 29, 2016, if filing on paper, or March 31, 2016, if filing electronically. Employers that file 250 or more returns must file the returns electronically. The final instructions confirm that the 250-or-more rule applies separately to each type of return.

General method of reporting

Employers will report on Form 1095-C whether an FTE was offered minimum value affordable health coverage for each month during the prior calendar year. Employers will use special codes to report the type of coverage actually offered monthly to each FTE, the employee share of the lowest cost monthly premium for self-only MEC, whether one of the safe harbor affordability measures applied with respect to the coverage offered, and whether the employer relied on one of the transition rules for 2015 with respect to the employee.  In addition, the employer must report coverage actually provided to the employee and to each other covered individual (i.e., the employee’s spouse and dependents), with their Social Security numbers, for each month of the year.

The draft instructions suggested employers file Form 1095-C for the portion of the year during which an individual was an employee and Form 1095-B for the portion of the year during which the individual received self-insured coverage as a non-employee (e.g., retirees and COBRA participants).  The final instructions simplify reporting in this situation.  Employers providing self-insured coverage will issue a single Form 1095-C to an employee who moved to COBRA or retiree coverage following termination of employment.  The final instructions also provide that all of the employee’s family members receiving coverage are to be included on the same form 1095-C. 

Alternative methods of reporting

Three simplified methods of reporting are provided for employers who meet the requirements for these methods.  Employers may be able to use different reporting options for different groups of employees.

Qualifying offer: An employer that certifies that it made a qualifying offer of coverage to any FTE for all 12 months of the calendar year does not have to report monthly details about the coverage offered for these FTEs on the Form 1095-C.  A qualifying offer is one that offers to a FTE (including the FTE’s spouse and dependents) MEC providing minimum value for all months during the year at a cost capped as a percentage of the federal poverty level.  The Form 1095-C will document the employee’s ineligibility for a premium tax credit for the calendar year.  With respect to other FTEs not receiving a qualifying offer for all 12 calendar months, the employer must file Forms 1094-C and 1095-C under the general reporting method.  Special streamlined reporting may be used for employees receiving a qualifying offer for all 12 months who did not enroll in coverage.

The final instructions clarify that for a FTE who enrolled in self-insured coverage for any of the months in which coverage was offered, the employer must still complete the portion of the Form 1095-C reporting the months of coverage for the individual and covered dependents.  The employer may not sue the alternative method of furnishing Form 1095-C under the qualifying offer method for that employee.

Qualifying offer for 2015: Under a transition rule for 2015, an employer certifying that it made a qualifying offer to at least 95% of its FTEs (including spouses and dependents) will be able to file simplified Forms 1094-C and 1095-C with a special code, and may furnish a statement to any employees not receiving a qualifying offer for all 12 months stating that they may be entitled to the  premium tax credit for one or more months, in lieu of furnishing the Form 1095-C to those employees.

98% offer: An employer that does not want to determine which employees are FTEs on a monthly basis may certify on Form 1094-C that it offered, for all months of the calendar year, affordable MEC providing minimum value to at least 98% or more of its employees (and their dependents) for whom it is filing a Form 1095-C, and not have to identify or specify the total number of FTEs per month.  While this alternative method allows simplified reporting, it does not exempt the employer from any penalties that may apply for failure to report with respect to any FTE or any assessable payment under the employer mandate.

Penalties for incorrect information returns

Penalties for failure-to-file a correct information return and failure-to-furnish a correct payee statement are graduated based on when the correct information returns are furnished to employees and filed with the IRS. Under a transition rule for 2015, the IRS will not impose penalties on employers that can show they made good faith efforts to comply with the ACA information reporting requirements. However, despite the transition relief, employers that do not file the required forms could be assessed a penalty of at least $500 per FTE. The IRS will likely notify employers of 2015 penalties in late 2016. These penalties would be in addition to any ACA penalties assessed for failure to satisfy the employer mandate.

In Conclusion

 These final 2014 forms and instructions provide insight into the information necessary to comply with the new ACA reporting requirements. These reports will be used by the IRS to enforce the employer mandate and impose the significant penalties incurred upon violation of the mandate, so it is critical for employers to understand the requirements.  Although reporting is not due until 2016, the information required to complete the forms relates to monthly snapshots of employee status, coverage offered or provided in 2015, and use of transition rules, so employers need to focus now on the information that will be required, how the information will be obtained and reported, and the various reporting options that may be available.

While the release of these forms and instructions settles some open questions, it also highlights how challenging reporting will be in terms of the information needed.  Although employers are accustomed to using information from payroll, benefits administration, and timekeeping systems to populate Forms W-2 and W-3, employers will be required to use this and additional information in new ways to comply with their ACA reporting requirements.  In addition, that information will be subject to a new level of scrutiny as it is used for ACA reporting purposes.  Employers must integrate the information, identify and remediate any data quality issues, and create controls to mitigate the risk of incomplete or inaccurate reporting.  Accordingly, employers need to take action now in order to be ready for required reporting on 2015 health coverage in 2016.