IRS Reporting Under the Affordable Care Act
Author: Brandon Baum
To measure compliance with provisions in the Affordable Care Act (ACA) and assess penalties for noncompliance, the IRS designed Forms 1095 and 1094. The 2015 reporting period was the inaugural period, and employers can attest to the difficulty of preparing these forms. Despite efforts by Republicans in Congress to repeal and replace ACA provisions, this IRS reporting requirement still exists. With that in mind, affected employers should once again be aware of the reporting requirements and deadlines to avoid significant penalties.
In 2017, reporting requirements remain unchanged, i.e., applicable large employers (ALE) are required to furnish Form 1095-C to applicable employees and file Form 1094-C with the IRS. Self-insured employers not defined as ALEs will furnish Forms 1095-B to covered employees and file Form 1094-B with the IRS.
Determining ALE Status
For 2017, an employer must determine its status as an ALE by calculating the number of full-time equivalent individuals it employed during 2016. For purposes of this analysis, employees of affiliated group members must be aggregated. For each month during 2016, the employer combines full-time employees (those working 30 hours a week or 130 hours a month) with full-time equivalent employees. At the end of the year, the sum of all 12 months are combined, and the result is divided by 12. If the average number of employees calculated is 50 or more, the employer is an ALE.
2017 Compliance Dates
In tax years 2015 and 2016, the IRS determined a substantial number of employers needed additional time to gather and analyze information to prepare Forms 1095-B and 1095-C and distribute to the appropriate parties. However, tax year 2017 compliance dates remain unchanged at this time. If no relief is provided, this will be the first year compliance dates are as originally outlined under the ACA. These expedited deadlines will make preparing for furnishing and filing even more important. With the complexity of the reporting, affected employers should analyze employee data monthly to limit the effect of these expedited deadlines.
Failure to file or late filing of these required forms could subject an employer to significant information-reporting penalties.
Social Security Number Solicitation
Missing or incorrect Social Security numbers (SSN), especially for covered dependents, have been a common issue during the first two years of ACA reporting. As a result, the IRS continues to point to guidance indicating that employers generally won’t be subject to penalties for failure to report a correct SSN if:
- The initial solicitation is made at an individual’s first enrollment or, if already enrolled, the next open season
- The second solicitation is made at a reasonable time thereafter
- And the third solicitation is made by December 31 of the year following the initial solicitation
Employers should document these solicitation requests throughout the year to help reduce the potential risk of penalties.
“Play or Pay” Transition Relief Eliminated
In 2017, “Play or Pay” relief has been fully eliminated. Now, an ALE must offer minimum essential insurance coverage to 95 percent of its full-time employees or face a penalty of $180 times the number of full-time employees subtracted by 30. This penalty is calculated monthly and triggered if just one full-time employee qualifies for and obtains subsidized Health Insurance Marketplace coverage.
An employer also may face a penalty if it doesn’t offer affordable insurance providing minimum essential value. This penalty is triggered when one full-time employee qualifies for and receives subsidized Health Insurance Marketplace coverage. The penalty is $270 per month per full-time employee who receives the subsidized coverage. In situations where both penalties apply, the penalty is limited to the lesser of the two.
The IRS recently issued several frequently asked questions (FAQ) regarding the employer shared responsibility provisions under the ACA. These FAQs include guidance on how the IRS will contact an employer if it determines a shared responsibility payment is owed and how an employer may challenge such determination if it doesn’t agree.
The 21st Century Cures Act (the Act) amended the Internal Revenue Code to permit an eligible employer to provide a qualified small employer health reimbursement arrangement (QSEHRA) to its eligible employees. Pursuant to the Act, a QSEHRA isn’t a group health plan and, as a result, isn’t subject to the group health plan requirements that apply under the ACA.
On October 31, 2017, the IRS released guidance on the requirements for QSEHRAs, tax consequences of the arrangement and requirements for providing written notice of the arrangement to eligible employees.
The notice defined what criteria must be met for an arrangement to be considered a QSEHRA. The notice also provides guidance on who can provide this type of arrangement. To be an eligible employer that may provide a QSEHRA, the employer must not be an ALE and must not provide a group health plan to any of its employees.
For additional information and FAQs regarding QSEHRAs, see Notice 2017-67.
BKD will once again provide employers looking to ease their stress in meeting these reporting requirements with a compliance solution. Our solution also gives clients the opportunity to closely work with an ACA advisor who can assist in determining appropriate coding for Form 1095-C, full-time employee count, electronic filing through the IRS AIR platform and other processing needs. BKD clients also will have direct access to our reporting guide and information-gathering templates designed to help ease the reporting process.