Reporting Requirements of the ACA for Employers
Understanding the Affordable Care Act Codes, Forms and More
The employer mandate piece of the Affordable Care Act is in full effect. This means employers will have to offer a certain level of health coverage to its full-time employees (and dependent children) beginning in 2015 and follow specific IRS reporting requirements beginning in 2016 (for the 2015 calendar year). Employers must comply with the mandate or face a tax penalty.
What Employers Are Affected?
The employer mandate primarily affects large employers with 50 or more full-time equivalent employees (known as an “applicable large employer”).
Applicable large employers that do not comply with the employer mandate will face either a $2,000 or $3,000 penalty should one or more of its full-time employees (those who work an average of at least 30 hours per week) purchase coverage in a state or federal exchange and qualify for a subsidy.
A potential $2,000 annual penalty ($166.67 per month) could be assessed against every full-time employee should that employer fail to offer minimum essential coverage to at least 95% of its full-time employees and their dependents (70% in 2015), and just one full-time employee qualifies for a subsidy.
Additionally, even if the employer satisfies the minimum essential coverage requirement, a $3,000 annual penalty ($250.00 per month) could still be assessed against every full-time employee who qualifies for a subsidy, if the coverage offered doesn’t meet both an affordability and minimum value requirement.
This means the coverage must not cost the employee more than 9.5% of his or her income for employee-only coverage (as a safe harbor) and must have an actuarial value of 60% or more.
An applicable large employer must also report to the Internal Revenue Service (IRS) that its coverage meets these requirements.
To report this information, employers have new reporting requirements under Internal Revenue Code Sections 6055 and 6056.
These sections require employers and health insurance companies to report coverage information to the IRS and provide employees the information they need to report on their own individual tax returns.
Forms Associated With the Reporting Requirements
The following forms are associated with the Individual Mandate (Code Section 6055):
- Form 1094-B: This is the transmittal form that employers will use to file with the Forms 1095-B.
- Form 1095-B: Insurance companies will issue this form by January 31, 2016, if the employer’s health plan is fully insured and used as proof of coverage for individuals in filing their 2015 tax returns. The Forms 1095-B prepared for each covered employee (and dependents) must also be filed with the IRS by February 29, 2016 (March 31, 2016, if filing electronically).
- For applicable large employers who sponsor self-insured plans, the employer can either complete the Form 1095-B or simplify the process and complete Section III of the Form 1095-C (discussed below).
The following forms are associated with the Employer Mandate (Code Section 6056):
- Form 1094-C: This is a transmittal form that contains cumulative information about the employer’s employees and its coverage offerings.
- Form 1095-C: Employers must prepare Form 1095-C on behalf of all full-time employees by January 31, 2016, and filed with the IRS (together with the Form 1094-C) no later than February 29, 2016 (March 31, 2016, if filing electronically).
Employers with 50 or more full-time equivalent employees will have to complete Parts I and II of this form on behalf of each full-time employee, regardless of whether they are offered coverage or not. If the employer self-insures its health benefits, they will also need to complete Part III. In addition, employers must prepare a simplified Form 1095-C for those non-full-time employees enrolled on the plan to comply with the requirements under Code Section 6055.
- These forms are due to the IRS by February 29, 2016, if submitted by paper, or March 31, 2016, if submitted electronically. Note that electronic transmittal is required of employers with 250+ returns. This will continue every year moving forward.
IRS Indicator Codes
An employer needs a clear understanding of IRS indicator codes as a critical component of preparing for reporting. An employer should have a strong understanding of how to determine the affordability of the employee’s share of the cost (calculation, formula, etc.), whether there was an offer of coverage to each and every full-time employee, and whether or not the health care was affordable for the employees enrolled.
Getting started: First, employers must ensure payroll systems and/or benefit administration systems are up-to-date and prepared to capture and store the information that is required for reporting. Employers should start to build a strategy today with their payroll departments or vendors and consider engaging consultants to help their companies prepare to comply.
A company’s human resources, benefits, and finance teams also have key roles in preparing a reporting strategy. Health insurance issuers, brokers, CPAs, or tax and financial advisors and sometimes third party administrators, are partners an employer needs to help gather and report coverage information accurately.
Employers should start meeting with these partners and engaging them in a reporting strategy as soon as possible.
Penalties and relief: Applicable employers will face general reporting penalty provisions under Code Section 6721 (failure to file correct information returns) and Section 6722 (failure to furnish correct payee statement). Broadly speaking, the penalties range from $100 up to $1.5 million for failing to file or filing incorrectly.
If the employer can show that it made a good faith effort to comply with the reporting requirements in a timely and accurate fashion, some short-term relief from reporting penalties may be available.
This relief provides additional time to develop processes, gather required data, and report the company’s coverage information appropriately. Therefore, preparing in advance can save the chances of an employer receiving a penalty.
Employers should start completing a strategy for reporting in compliance with the federal law now. An employer should make sure to work with their HR department, payroll department or payroll vendor, benefits administration system, benefits broker/consultant, and tax advisers to obtain all of the necessary information.
A strategy that includes these partners is key to reporting accurately, avoiding penalties and maintaining the overall well-being of the company. Employers who are prepared and know what needs to happen ahead of time will ultimately comply with reporting requirements.
Susan Heathfield and her guest writers make every effort to offer accurate, common-sense, ethical Human Resources management, employer, and workplace advice both on this website, and linked to from this website, but they are not lawyers, and the content on the site, while authoritative, is not guaranteed for accuracy and legality, and is not to be construed as legal advice.
The site has a world-wide audience and employment laws and regulations vary from state to state and country to country, so the site cannot be definitive on all of them for your workplace. When in doubt, always seek legal counsel or assistance from state, federal, or international governmental resources to make certain your legal interpretation and decisions are correct. The information on this site is for guidance, ideas, and assistance only.
More About the Affordable Care Act
- Businesses Have Options in Dealing with the Affordable Care Act
- How Employers Are Managing Health Care Reform and Its Uncertainty
- What is the ACA and Health Care Reform?
- Individual Shared Responsibility Payment (Taxes)