October 9, 2014
IRS Releases Draft Instructions for
Large-Employer Reporting under the Affordable Care Act
The Internal Revenue Service (IRS) recently released draft instructions for two informational returns that the Affordable Care Act1 requires large employers (defined as those with at least 50 full-time employees, including full-time equivalents) to file with the IRS and to give to employees.2 The forms are used to report full-time employment status and health care coverage under Internal Revenue Code (IRC) Sections 6056 and 6055, largely for purposes of assessing the Affordable Care Act’s employer shared responsibility penalty. The forms must be completed in early 2016, to report data for 2015. Reporting is optional in 2015 (to report data for 2014), and therefore the forms could be modified prior to the 2016 mandatory requirement.
The IRS is accepting comments on the draft forms and instructions. Comments should be submitted as soon as possible and no later than November 3, 2014.
This Capital Checkup, which is intended for human resource and benefit plan administrators, provides an overview of the draft forms and instructions released for 2014 for Form 1095-C (to be given to employees) and Form 1094-C (to be used to transmit the Forms 1095-C to the IRS).
Large employers must provide the Form 1095-C3 to each full-time employee no later than January 31 of the year succeeding the calendar year for which the form is completed (i.e., on the same schedule as the Form W-2). Full-time employees are entitled to the form whether they worked for one month or the entire calendar year.4
Large employers that self-insure a group health plan must also provide the Form 1095-C to any employee who enrolls in that plan, even if he or she is not a full-time employee. This allows employees to have proof that they had health coverage so that they are not required to pay a tax penalty.
Form 1095-C is divided into three parts, as noted in the table below.
|General Overview of Form 1095-C*|
|Contact information for the employee, including a Social Security number
Contact information for the employer, including the employer identification number (EIN)
|Month-by-month information about the employer’s offer of coverage to the full-time employee
Detailed indicator codes are used to identify specific types of offers
|Only completed for individuals covered by a self-insured plan — insurance carriers will complete Form 1095-B for insured employees**
Not completed for employees for whom the employer contributes to a multiemployer plan — the multiemployer plan will complete Form 1095-B for its participants
Information about the specific months that any individual (even if not full time) was enrolled in the employer’s self-insured plan
Each covered individual’s Social Security number (including Social Security numbers for enrolled family members***)
Form 1094-C5 is a transmittal form that large employers must file with the IRS along with copies of the Forms 1095-C. However, it is much more than a cover sheet for filing these forms. Among other things, it requires the following:
- A month-by-month indication of whether the employer offered coverage to 95 percent of its full-time employees,6
- A month-by-month count of the number of full-time employees, and
- A month-by-month count of the total number of employees.
Challenges for Employers in a Controlled Group
The employer shared responsibility penalty assessment and the large-employer reporting requirement apply separately to each employer that is a member of a controlled group as defined in the IRC.7 In order to comply with the reporting requirements, each member of a controlled group will need its own EIN. In addition, if more than one member of the controlled group employs the same individual as a full-time employee for one or more months of the calendar year, each employer member (or a third party reporting on its behalf) must file a separate Form 1095-C for that employee, under each member’s own EIN.
Employers That Contribute to a Multiemployer Plan
Regulations implementing the employer shared responsibility penalty provide that employers will not face a penalty for full-time employees for whom they are contributing to a multiemployer plan, as long as the plan provides coverage that is minimum value and affordable to eligible participants and their dependents under age 26. Contributing employers will complete Form 1095-C for full-time employees for whom they are contributing to a multiemployer plan by using an indicator code identifying that the multiemployer rule applies. The multiemployer plan will report the actual months that the employee was covered under the plan on Form 1095-B, the form that the multiemployer plan itself (as a provider of minimum essential coverage) must give to its plan participants and file with the IRS. Consequently, the multiemployer plan will likely be requested by contributing employers to provide verification that the plan provides minimum value and affordable coverage to eligible participants and their dependents under age 26. However, there does not appear to be a need for the plan and contributing employer to collaborate on completing the reporting forms.
Action Steps for Large Employers
Now that the forms and instructions have been released, large employers should work closely with their payroll providers and software vendors to determine if they will be able to assist with meeting these reporting requirements. These entities should be able to start collecting reportable data in January 2015. Employers with self-insured plans should assure that they have a process in place to report not only full-time employees, but also provide the Form 1095-C to any employee covered under the employer’s self-insured plan, whether they are full-time employees or not.
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As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their legal counsel for authoritative advice on the interpretation and application of the Affordable Care Act and related guidance, including the guidance summarized in this Capital Checkup. Sibson Consulting can be retained to work with plan sponsors and their attorneys on compliance issues.
- The Affordable Care Act is the shorthand name for the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-48, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-152. (Return to the Capital Checkup.)
- For background information about these reporting requirements, see Sibson Consulting’s May 28, 2014 Capital Checkup, “Final Rules on the Affordable Care Act’s Reporting Requirements.” The draft instructions, which were released on August 28, 2014, are on the IRS website. (Return to the Capital Checkup.)
- The draft form is on the IRS website. (Return to the Capital Checkup.)
- When certain streamlined reporting rules apply, the employer does not have to give the Form 1095-C to the full-time employee, but must still file a slightly less detailed version of it with the IRS and give the employee a short statement regarding the Affordable Care Act’s premium assistance tax credit. In these circumstances, the information provided on Form 1094-C (discussed in the next section) would also be affected. (Return to the Capital Checkup.)
- The draft form is on the IRS website. (Return to the Capital Checkup.)
- A lower threshold of 70 percent applies during 2015 (as well as to certain months of 2016 if the plan is a not a calendar-year plan). (Return to the Capital Checkup.)
- The reporting forms use the term “Applicable Large Employer Member” to connote a single employer that is a large employer subject to the employer penalty and reporting requirements, as well as an employer that is a member of a controlled group. (Return to the Capital Checkup.)
Capital Checkup is Sibson Consulting’s periodic electronic newsletter summarizing activity in Washington with respect to health care and related subjects. Capital Checkup is for informational purposes only and should not be construed as legal advice. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.