ACA Reporting: Navigating the 1094/95 Maze
In just a few weeks, the Affordable Care Act (ACA) directs that health insurance issuers and affected employers file a statement to covered individuals (with copy to IRS) reporting the type, terms and conditions of health care coverage offered during the year. The reporting requirements are an enforcement mechanism that the IRS will use in determining whether an employer owes a payment under the employer mandate and whether an individual owes a payment under the individual mandate.
For anyone who has reviewed the material, the new IRS reporting forms and instructions likely represent a daunting challenge. Moreover, for any employer who may only now belearning of the requirements, quick action is needed.
Which Employers Report?
All employers subject to the employer mandate (employers with 50 or more full-time employees and/or full-time equivalents including workers inside a control group) are required to annually issue statements (with copy to the IRS) on the coverage offered to their full-time employees and their dependent children. Based on the way that the IRS counts full-time employees, many companies may be larger than they think.
Who Gets a Statement?
Any employee, who has been full-time for at least one month in the calendar year, receives a statement, even if waiving coverage,as long as they work for an employer subject to the ACA health coverage mandate. (Such a statement would indicatean absence of coverage).
What Kind of Forms?
The IRS is using forms labeled 1094 and 1095 series. Employee statements will be completed on IRS Form 1095 and issued to workers by January 31. (Statements must reach the IRS by February 28, or March 31 if filed electronically) following the applicable calendar year. The IRS also requires a “transmittal”Form 1094 (generally for each EIN subject to reporting) which communicates generalized information about the employer and details about the workforce.
More about the Forms
Complicating matters further is the fact that the IRS uses two sets of the 1094 and 1095 forms:
• The "B" Forms for reporting Minimum Essential Coverage under Section 6055, and
• The "C" Forms for Applicable Large Employers (ALEs) subject to the employer mandate.
The "B" Forms are used to report individuals enrolled in Minimum Essential Coverage (MEC). The 1094-B is the transmittal form which is submitted to the IRS with the 1095-B information return which serves as the required statement to covered individuals. Although health insurers will primarily use the B Forms, some employers, such as self-insured small employers, will complete the forms reporting MEC for enrolled individuals.
Like the "B" Forms, the "C" forms also include a transmittal to the IRS, Form 1094-C, and a 1095-C serving as a return and required statement to employees. These forms are used by employers with 50 or more full-time employees reporting information on health coverage offered.
“The burden associated with electronic delivery to participants is prompting many employers to still rely on paper, at least for now”
The B and C series forms are very similar. The primary difference between the two is that Form 1095-C will be used by employers with 50 or morefull-time employees (including full-time equivalents) that are subject to the employer responsibility provisions. Form 1095-C also contains information about the offer of health insurance coverage made to employees, the employee’s share of the lowest cost premium and other information related to satisfying the employer mandate provisions. Form 1095-C will also be used by self-insured large employers to report those who are covered with MEC, including part-time employees and any non-employees (such as COBRA participants.)
Finally, information reflected on Form 1095-C will be used by individuals that purchased health insurance coverage through any state Exchange or Marketplace to determine if they are eligible for a premium tax credit in the form of federal subsidy payment.
SSNs: “Reasonable efforts” to Obtain
The IRS requires that a Tax Identification Number (TIN), which is typically the Social Security Number (SSN) be used to identify individuals on the IRS reports. Employers may not always have this information (for example for newborns added to the employee’s group health plan coverage). The rules require that employers and insurers make reasonable efforts to obtain the SSN.
Governing rules direct that “reasonable efforts” consist of three documented SSN requests before any annual filing. Happily, enrollment forms can automatically satisfy the first request as long as materials communicate the need to disclose the SSN. The other two attempts for obtaining SSNs are generally required by December 31 of that same year and December 31 of the following year.
Paper statements must be furnished by mail to the last known address of the employee. Statements can also be provided electronically, if the recipient affirmatively consents to receive the statement. The burden associated with electronic delivery to participants is prompting many employers to still rely on paper, at least for now.
The deadline governingthe applicable IRS filing date hinges on the number of individual returns submitted to the IRS. If less than 250 Forms are being transmitted by paper, then filing is required by February 28 of the year following the year for which coverage was provided. If transmitting 250 or more Forms, electronic filing is required and must be done by March 31. In determining the count, the actual IRS transmittal form is included.
Do Penalties Apply?
Although very significant penalties will apply down the road ($250 per failure), the good news is that for 2015 the IRS promises a good faith standard excusing penalties as long as submissions are timely. This means that an employer who files a report containing mistakes or lapses (such as improper indicator codes) will not be subject to penalties so long as they can demonstrate a “good faith effort” to comply with the requirements.
Beginning in 2016, full ACA-reporting will be in place for affected organizations to report on 2015 coverage – this key deadline is just around the corner. Don’t miss the rare opportunity to take advantage of IRS penalty protection offer by engaging a professional advisor and ensuring your company will fulfill its reporting obligation.