Click to edit master title style AFFORDABLE CARE ACT IRC Sections 6055 & 6056 Data Reporting...

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AFFORDABLE CARE ACT

IRC Sections 6055 & 6056

Data Reporting Requirements

October 30, 2014

2 LICENSE NO. 0451271

Today’s Agenda

• The Big Picture– Why is this reporting needed?

• The Reporting Requirements– Who must do what and by when?

• Forms for Reporting & Data Required– What’s all the fuss about?

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THE BIG PICTURE


Individual Mandate

• Starting January 1, 2014, most individuals must have Minimum Essential Coverage (MEC) for themselves and their dependents or otherwise pay a tax.

• Examples of MEC:– Employer-sponsored coverage (including COBRA and retiree

coverage)– Coverage purchased in the individual market, including through

Covered California– Government plans (e.g., Medicare and Medicaid) – Student health coverage

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Employer Mandate

• Internal Revenue Code (IRC) §4980H– An Applicable Large Employer (ALE) may be subject to a penalty if

it does not offer its FT employees, and their dependents, MEC that is affordable and provides minimum value (MV).

– The “A” Penalty• Failure to offer MEC to at least 95% of FT employees and their

dependents (70% for 2015).– The “B” Penalty

• Offers MEC to required percentage of FT employees and their dependents BUT:

– Is not offered to all FT employees and their dependents, – Is unaffordable, or– Does not provide MV.

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Availability of Exchange Coverage

• Qualified Health Plans (QHP) – Guaranteed to provide certain levels of coverage,

including the ten categories of Essential Health Benefits, required under the ACA.

• Premium Tax Credits– For individuals and families meeting certain income

requirements and without access to affordable MEC that provides MV through their employer.

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How will the IRS Enforce & Administer?

• IRS Questions:– Who is enrolled in MEC? Is it through an employer, the

Exchange, individual market, etc.?– Did an ALE offer MEC that is affordable, MV to its FT

employees and their dependents? To all or some?– Who qualifies for a Premium Tax Credit?

• Employer Questions:– Did any of my FT employees get a Premium Tax Credit? – Will I owe a penalty?

• Employees & other Individuals’ Questions:– Do I have MEC or will I have to pay a tax?– Can I get a Premium Tax Credit for Exchange coverage?

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THE REPORTING REQUIREMENTS


Reporting by the Exchange

• Exchange must file Form 1095-A with IRS.– Will report information on who enrolled in a QHP.– Must also provide a statement to individuals to:

• Allow them to claim the Premium Tax Credit,• Reconcile the credit on their returns with advance

payments of the Premium Tax Credit, and • File an accurate tax return.

• Form 8962 – Premium Tax Credit– Will be filed by taxpayer claiming the Premium Tax

Credit along with their annual Federal tax return.

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Reporting Under IRC §6055

• Insurers, sponsors of self-insured plans, governmental entities and other parties providing MEC must report on each individual covered under the plan.– Will assist IRS with enforcing the Individual Mandate. – Reporting to IRS – Must report on each covered individual.– Statements to Responsible Individuals – Must be furnished to

each responsible individual identified in the IRS reporting.

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Reporting Under IRC §6056

• ALEs subject to IRC Section 4980H must report on their FT employees and the employer-sponsored coverage offered. – Will assist IRS with enforcing the Employer Mandate &

with administering the Premium Tax Credit.– Reporting to IRS – Must report on all FT employees and

the employer-sponsored coverage offered.– Statements to Full-Time Employees – Must be furnished to

each employee identified in the IRS reporting.

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Timing for Reporting – §§6055 & 6056

• Reporting to IRS Due:– By February 28 following the end of the calendar year. – If filing electronically – no later than March 31.

• If filing 250 or more forms, then must file electronically.– Reporting is based on calendar year.

• First reporting is based on 2015 calendar year.– First reporting to IRS:

• No later than March 1, 2016 (February 28, 2016 is a Sunday) • March 31, 2016, if filing electronically.

• Reporting to Individuals/Employees Due:– By January 31 following the end of the calendar year.

• Same timing as for Forms W-2.– First statements due no later than January 31, 2016.

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Penalties for Noncompliance

• $100 for each failure up to a max of $1.5 million. Applies separately to IRS reporting and furnishing of statements.– Reporting to IRS

• For failing to file return with IRS, • Failing to include all the required information, or • Providing incorrect information.

– Statements to Individuals/Employees• For failing to provide statement in timely manner,• Failing to include all the required information, or • Providing incorrect information.

– There is relief for failure due to reasonable cause.

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Relief for 2016 Reporting

• Penalties will not be imposed on entities who make good faith efforts to comply.– But only for incorrect or incomplete information reported

on the return or statement. – No relief available if good faith effort to comply is not

made or there is no timely filing of an information return or statement.

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FORMS FOR REPORTING AND

DATA REQUIRED


Forms for Reporting – IRC §6055

• IRS released DRAFT forms and instructions.– Finalized forms anticipated later in the year.

• Who reports on what forms?– Forms 1094-B & 1095-B

• Applies only to §6055 reporting.• Used by issuers for fully-insured plans.• Used by plan sponsors of self-insured plans (excluding

ALEs).– ALEs with self-insured plans will report on Forms

1094-C & 1095-C.

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IRS Form 1095-B

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Reasonable Efforts to Obtain SSN

• A person will be treated as acting in a responsible manner if the person properly solicits the SSN.– If reporting entity doesn’t already have SSN, ask for it at

time relationship established. – If it is not provided, ask again by December 31 of the year

in which the relationship begins (January 31 of the following year if the relationship begins in December).

– If the SSN is still not provided, ask again by December 31 of the following year.

– If it is still not provided, the reporting entity need not ask again.

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IRS Form 1094-B

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Forms for Reporting – IRC §6056

• Again, IRS released DRAFT forms and instructions.– Finalized forms anticipated later in the year.

• Who reports on what forms?– Forms 1094-C & 1095-C

• Used by all ALEs for §6056 reporting on top half of Form 1095-C (Parts 1 & II).

• ALEs with self-insured plans will report on bottom half of Form 1095-C for §6055 reporting (Part III).

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IRS Form 1094-C

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Reporting on Behalf of ALE

• Designating other party to report on behalf of ALE– Special Rules for Governmental Units:

• Governmental unit or agency may designate another entity to report on its behalf if it is part of, or related to, the same unit or agency.

• Designation must be in writing and signed by both parties.• Appropriately designated entity assumes liability of the ALE

for failure to report.

– Third Party:• ALE can contract with a third party to report on its behalf but

it will not transfer liability for failure to report.

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IRS Form 1094-C

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Example – Authoritative Transmittal

• ABC School District is a single employer with four schools located in Happyville – one each in North, South, East and West Happyville.– ABC wants to report on all of its FT employees at each

school location separately. They want to use one batch of Forms 1095-C with a Transmittal Form 1094-C for North, a separate batch of Forms 1095-C with its own Transmittal Form 1094-C for South and so on for East and West.

– The IRS allows this but ABC must also include a separate Authoritative Transmittal that “adds up” all four batches.

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IRS Form 1094-C

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Qualifying Offer Method

• Alternative Reporting Based on Certification of Qualifying Offers– ALE must certify that, for all months of the year in which

the employee was a FT employee, it made a Qualifying Offer of coverage to the employee.

– Qualifying Offer• MEC that provides MV at an employee cost for self-only

coverage that does not exceed 9.5% of Federal Poverty Line and includes an offer of MEC to the employee’s dependents and spouse.

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Qualifying Offer Method

• What is the benefit of using this method? – “Simplifies” the reporting on Form 1095-C.

• Use Qualifying Offer code 1A on Line 14 of Form 1095-C.• No dollar amount for employee contribution on Line 15 of

Form 1095-C.– May provide “simplified” statement to the employee.

• Info must include ALE contact info and a statement that a qualifying offer was made for all 12 months to the employee, spouse & dependents who are, therefore, ineligible for a premium tax credit.

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• Alternative Reporting Based on Certification of Qualifying Offers for 2015– Available Only for 2015– ALE must certify it made a Qualifying Offer for one or more

months of the 2015 calendar year to at least 95% of its FT employees.

– Qualifying Offer• MEC that provides MV at an employee cost for self-

only coverage that does not exceed 9.5% of Federal Poverty Line and includes an offer of MEC to the employee’s dependents and spouse.

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Qualifying Offer Method Transition Relief


Qualifying Offer Method Transition Relief

• What is the benefit of using this method? – “Simplifies” the reporting on Form 1095-C.

• Will use Qualifying Offer code 1A or 1L on Line 14.– Use code 1A if the employee received a Qualifying

Offer.– Use code 1L if the employee did not receive a

Qualifying Offer. • No dollar amount for employee contribution on Line 15.

– May provide “simplified” statement to the employee but there are two possible versions depending on whether the employee did or did not receive a Qualifying Offer.

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Section 4980H Transition Relief

• Relief for ALEs with 50-99 FT employees, including FT equivalent employees.– Eligible ALEs not subject to “A” or “B” penalties until first

day of 2016 plan year.• To be eligible, ALE must:

– Average at least 50 – 99 FT employees, including FTEs during 2014,

– Maintain size of workforce & aggregate hours of service, and

– Maintain previously offered health coverage.• Relief not available if plan year changed after February 9,

2014 to start at a later date.

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Section 4980H Transition Relief

• Relief for ALEs with 100 or more FT employees, including FT equivalent employees.

• 70% threshold – if MEC is offered to at least 70% of FT employees (and dependents), ALE not subject to “A” penalty through 2015 plan year.

• Applies to:– ALEs with 100+ FT employees, including FTEs.– ALEs with 50-99 FT employees who were not eligible for

the prior transition relief.

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98% Offer Method

• Alternative Reporting Based on Certification of 98% Offers– ALE must certify it offered for all 12-months of the calendar

year, affordable (under any affordability safe harbor), MV coverage to at least 98% of the employees (and their dependents) on whom it must report.

– What is the benefit of using this method?• Not required to identify which of its employees are actually FT.• Not required to provide total number of FT employees.• But still required to file Forms 1095-C on behalf of all its FT

employees.– How does ALE report on its FT employees without

determining who is a FT employee?

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98% Offer Method

• ABC School District has 100 employees – 65 are scheduled to work 40 hours per week, 5 are scheduled to work 5 hours per week and 30 are scheduled to work 27 hours per week but sometimes work more.– ABC knows the 65 employees are FT employees and must

report on them.– ABC also knows the 5 employees are not FT employees

and does not need to report on them.– What about the other 30 employees?

• They may or may not be FT employees so ABC would report on them.

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IRS Form 1094-C

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MEC Offer Indicator – Column A

• Did the ALE offer MEC to at least 95% of its ACA defined FT employees and their dependents (70% for 2015)? – For all 12 months? Only for certain months?

• This is only a certification that, in general, the ALE offers MEC to the requisite percentage of employees and not that MEC was offered to a particular employee.

• ALEs with non-calendar year plans will need to understand how the non-calendar year transition relief applies to them for purposes of determining if the 70% threshold is met and checking the applicable box.

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IRS Form 1094-C

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FT Employee Count – Column B

• ALE must provide the total number of ACA defined FT employees by calendar month. – If the ALE qualified for the 98% Offer Method relief we

discussed earlier, they don’t need to complete Column B. – Exclude any employees in “Limited Non-Assessment

Period.”– This is where the method(s) the ALE is using to determine

FT employee status will come into play.• Only two methods available to determine FT status:

– Look-Back Measurement Method – Monthly Measurement Method

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Determining FT Status

• Look-Back Measurement Method– ALE identifies its FT employees by looking back over a

Standard Measurement (SMP) or Initial Measurement Period (IMP) and counting the hours of service to determine if an employee averaged at least 30 hours of service per week.

– Based on the determination at the end of the SMP or IMP, the employee’s status is defined for a separate Stability Period (SP) that follows the SMP or IMP.

• Monthly Measurement Method– Employee’s hours of service are totaled at the end of each

calendar month to determine the employee’s FT status for that month.

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Data Needed for Determining FT Status• Under Look-Back or Monthly Measurement Method

– Understand how Hours of Service are defined under the regulations to ensure you’re using the correct data.• Need data for hours worked and hours not worked that the

employee was paid or entitled to payment (e.g., vacation, sick days, etc.).

– Understand how to calculate hours of service for hourly vs. non-hourly employees.

– Understand the rehire and breaks-in-service rules.• Need to track employee start dates, termination dates and rehire

or resumption of service dates in order to apply these rules.– Also need to track Special Unpaid LOA (i.e., FMLA, USERRA,

jury duty) if using Look-Back Measurement Method.

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IRS Form 1094-C

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IRS Form 1095-C

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• Some examples of Indicator Codes for Line 14:– 1B: MEC providing MV offered to employee only.– 1C: MEC providing MV offered to employee and at least

MEC offered to dependent(s) but not spouse.– 1E: MEC providing MV offered to employee and at least

MEC offered to dependents and spouse.– 1G: Offer of MEC to employee who was not a FT

employee for any month of the calendar year and who enrolled in self-insured coverage for one or more months.

– 1H: No offer of coverage made to employee.

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Offer of Coverage Indicator Codes


IRS Form 1095-C

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• Some examples of Indicator Codes for Line 16:– 2A: Employee not employed on any day during the

month.– 2B: Employee not a FT employee for the month and did

not enroll in MEC.– 2C: Employee enrolled in MEC offered.– 2D: Employee is in a Limited Non-Assessment Period.– 2F: Form W-2 affordability safe harbor used for the

employee.– 2G: FPL affordability safe harbor used for the employee.– 2H: Rate of Pay affordability safe harbor used for the

employee.

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Affordability Safe Harbor Indicator Codes


IRS Form 1095-C

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EXAMPLE


Madison’s Form 1095-C

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Let’s Change the Facts a Bit…

• Assume the same facts as before except:– Madison notifies Covered California that her status has

changed and that she is eligible for coverage through her employer, ABC Co.

– Since she is no longer eligible for a premium tax credit, Madison decides to enroll in once of ABC’s plans. She chooses the self-insured PPO plan because she can keep the doctor she was seeing under her Covered California plan.

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Madison’s Form 1095-C

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HOW WILL WE KNOW IF WE OWE A PENALTY?


IRS Penalty Notification to Employers

• IRS will contact ALEs to inform them of any potential liability and provide an opportunity to respond before any liability is assessed or Notice and Demand for Payment is issued.– Contact will occur after ALEs file their returns for IRC

§6056 and after individuals file their annual Federal tax returns (i.e., sometime after April 15, 2016).

• If after contact by IRS and response by ALE, the IRS determines a penalty is owed, it will then send out Notice and Demand for Payment.

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Questions?

Disclaimer – Keenan & Associates is an insurance brokerage and consulting firm. It is not a law firm or an accounting firm. We do not give legal advice or tax advice and neither this presentation, the answers provided during the Question and Answer period, nor the documents accompanying this presentation constitutes or should be construed as legal or tax advice. You are advised to follow up with your own legal counsel and/or tax advisor to discuss how this information affects you.

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