Health Care Committee Update
October 6, 2015
Staff Contact: Lev Ginsburg
Understanding the ACA’s Employer Reporting Requirements
As 2015 winds down, it is important for employers to be aware of all of the information reporting responsibilities imposed upon them by the Affordable Care Act (ACA) for this year and beyond. All “applicable large employers” (ALE), businesses with 50 or more full-time or full-time equivalent employees as well as any employer who provides minimum essential health coverage to an individual are subject to the reporting requirements. Additionally, employers with 50 or more full-time-equivalent employees (FTEs) must report whether or not they have below 100 employees and are entitled to the transition relief from ACA penalties until 2016.
The IRS will use the submitted information to determine whether employees are subject to penalties for not having health coverage or for the shared responsibility mandate or if an employer is eligible for premium tax credits on insurance purchased through the health insurance marketplaces. The IRS has issued four new forms for the purpose of complying with the law:
- Form 1094-B — Transmittal of Health Coverage Information Returns.*
- Form 1094-C — Transmittal of Employer Health Insurance Offer and Health Coverage Returns.*
- Form 1095-B — Health Coverage.**
- Form 1095-C — Employer Provided Health Insurance Offer and Coverage Insurance.**
* Form 1095-B and Form 1094-B must be filed by insurance companies to report individuals covered by insured employer-sponsored group health plans.
** Important to note, employers, not health insurance carriers or plan administrators, are responsible for filing Form 1094-C and Form 1095-C.
The ACA information is reported in the same fashion as the current W-2 reporting system. A 1095-B or 1095-C must be prepared for each applicable employee (full-time employees participating or not in an employer-sponsored group health plan, as well as each non-full-time employee who’s enrolled in a self-insured health plan for ALEs with self-insured plans). ALEs must prepare a Form 1095-C for Form 1094-C must be used to transmit Forms 1095-C to the IRS. Electronic filing is required if the employer files at least 250 returns.
2015 year returns must be filed by Feb. 29, 2016 or March 31 if filed electronically. There is an available 30-day extension available. Employers must use Form 8809 (Application for Extension of Time to File Information Returns) and submit it by the reporting deadline. Employers required to file electronically must first register responsible officials and contacts with the IRS and then obtain a Transmitter Control Code (TCC). All companies that plan to e-file must put at least one responsible official and two contacts on their applications. The official IRS wait time for a TCC is 45 days but the actual backlog is reported to be over 80 days.
Timely and accurate filings are of great importance because penalties for failing to submit correct reports to the IRS and to covered individuals are $250 per employee, per year, up to a $3 million cap. If it is determined that an employer intentionally disregarded these requirements, the penalty is $500 per employee, per year, with no cap. While there may be penalty relief if it can be demonstrated that an employer attempted in good faith to comply with the reporting requirements, there is no good faith defense for those that simply did not act in time.
Since the ACA has its own and unique definition of “full-time” employee, employers of all sizes should be cognizant of the law and use the proper method to calculate size of workforce for the purposes of reporting. Information on this definition can be found here. Additionally, there are noteworthy challenges to identifying the proper classification of employees under ACA, especially concerning independent contractors. In July, the Administrator of the Wage and Hours Division of the US Department of Labor issued an Administrators Interpretation significantly lowering the bar in favor of finding most individuals who (are or) “suffer or permitted to work” to be “employees” as opposed to “independent contractors.” This guidance can be found here and should be reviewed when determining your reporting obligations.
Since these reporting requirements are new and the penalties for non-compliance and late filings are especially steep, it is very important for employers to discuss these requirements with professionals, including legal and tax advisors, brokers, insurer or third-party administrator as well as payroll vendors to see how to best handle data collection and form preparation. With February 2016 right around the corner, the time to act is now.
For further questions, please contact Lev Ginsburg or Frank Kerbein.