by Gregory M. Burke, CPA, MS (Tax)
The stated intent of the Patient Protection and Affordable Care Act (ACA) of 2010 was to increase health care insurance coverage with respect to the millions of uninsured Americans and control runaway health care costs. As part of the effort to meet these goals, the ACA enacted interrelated subsidy, penalty, and information reporting provisions. This article will focus on the information reporting provisions impacting “applicable large employers” in 2015.
Internal Revenue Code section 6056 contains the employer health insurance coverage reporting rules that become mandatory for 2015. According to this section every “applicable large employer” (ALE) is required to submit a return to the Secretary of the Treasury containing specified health insurance coverage related information. Form 1095-C will be used for this purpose.[i]
An ALE is an employer with respect to a calendar year employs an average of at least 50 full-time employees (including “full-time equivalent employees”[ii]) on business days during the preceding calendar year. This definition is from the statute that levies the penalty for failing to provide affordable health insurance coverage to employees.[iii] “Full-time employee” means, with respect to any month, any employee who is employed on average at least 30 hours of service per week.
Aggregation rules apply with respect to certain related entities resulting in more than one legal entity being considered a single employer for the purposes of sections 4980H and 6056. These rules are contained in sections 414(b), (c), (m), and (o). Entities with common ownership or control should review these rules carefully.
In order to determine the number of full-time employees for the purposes of the penalty and information reporting requirements, employers will take the following steps:
- Calculate the number of full-time employees, including seasonal employees, for each calendar month in the preceding calendar year;
- Calculate the number of full-time equivalents employees (FTEs) for each calendar month in the preceding calendar year. Partial FTEs are taken into account, rounded to the nearest one hundredth;
- Add the number of full-time employees from the first step to the number of FTEs from the second step for each of the 12 months in the preceding calendar year; and
- Add up the 12 monthly totals in the above step and divide that total by 12. If the result is not a whole number, round down to the next lowest number.
If the result determined in the final step above is less than 50, the employer is not an ALE for the current calendar year. If the result is 50 or more, the employer should determine whether they meet the seasonal employee exception.[iv] If the seasonal employee exception applies, the employer is not an ALE.
If the employer’s workforce exceeds 50 full-time employees for 120 days or less, and the employees in excess of 50 during that 120-day or less period were “seasonal workers”, then the exception applies. A “seasonal worker” is a worker who performs labor or services on a seasonal basis under Department of Labor rules. An example of seasonal workers is retail workers employed only during the holiday season.
If an employer has 50 or more full-time employees and does not qualify for the seasonal employee exception, then they are an ALE subject to the reporting requirements of the ACA.[v]
The IRS issued transitional relief aimed at employers that were close to the 50 full-time employee threshold with respect to the calculations described above.[vi] As an alternative to the above described “monthly measurement method”, an employer can elect to use the “look-back measurement method”. The employer can choose a period of at least six months in the 2014 calendar year in which to measure the number of full-time employees. The employee count during this period can then be used to determine ALE status for the employer for 2015.
An ALE will have to file Form 1095-C for each of its employees. The following information must be reported on the form:
- The name, address and employer identification number of the employer.
- The name and telephone number of the ALE’s contact person.
- The calendar year for which the information is reported.
- A certification as to whether the employer offers to its full-time employees (and their dependents) the opportunity to enroll in “minimum essential coverage”[vii] under an eligible employer-sponsored plan.[viii]
- The months during the calendar year for which coverage under the plan was available.
- Each full-time employee’s share of the lowest cost monthly self-only premium for coverage providing “minimum value”[ix] offered to that full-time employee under an eligible employer-sponsored plan, by calendar month.
- The number of full-time employees for each month during the calendar year.
- The name, address, and taxpayer identification number of each full-time employee during the calendar year, and the months, if any, during which the employee was covered under any such health benefits plans.
- Any other information the IRS requires in forms, instructions, or published guidance.
The employer must provide each employee with a copy of their Form 1095-C by January 31, 2016. The employer must file copies of each employee’s information return with the IRS by February 29, 2016 unless filing them electronically. Electronic filers will have until March 31, 2016 to transmit their information returns. IRS Form 1094-C, which is a transmittal form, must be filed with the government copies of the 1095-Cs. Employers filing 250 or more 1095-Cs must file electronically.[x]
In lieu of the above reporting scheme, ALEs may use one of four alternative reporting methods:
- The Qualifying Offer Method.
- The Qualifying Offer Method Transition Relief.
- Section 4980H Transition Relief.
- The 98% Offer method.
For more information on the alternative reporting methods see Regulations section 301.6056-1(j).[xi]
Penalties apply for failure to file the section 6056 information returns. If the employer files correctly within 30 days of the due date, the penalty is $30 per form with a maximum penalty of $250,000 per year ($75,000 for small businesses with average annual gross receipts for the prior 3 years of not more than $5,000,000). If the employer files more than 30 days after the due date, but before August 1, the penalty is $60 per form with a maximum of $500,000 per year ($200,000 for small businesses). If the employer files after August 1, or fails to file entirely, the penalty is $100 per form with an annual maximum of $1.5 million ($500,000 for small businesses).[xii] The penalty is substantially increased in the case of intentional disregard of the filing requirement.[xiii]
The same penalties described above apply for failure to provide employees with their copies of Form 1095-C.
The penalties are reduced in the case of de minimis failures. A de minimis failure is one in which the form is filed, but not all of required information is included or some of the information is incorrect and the omission or inaccurate information is remedied before August 1. Relief from penalties is available provided a good faith effort to comply was made.
For more information on the preparation and filing of Form 1095-C see the instructions for the form and “Questions and Answers on Reporting of Offers of Health Insurance Coverage by Employers (Section 6056)” at http://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Reporting-of-Offers-of-Health-Insurance-Coverage-by-Employers-Section-6056.
Employers subject to the reporting requirement may use third parties to assist with meeting the filing requirements described above.
i A draft of the 2014 Form 1095-C is available at http://www.irs.gov/pub/irs-dft/f1095c–dft.pdf.
ii IRC section 4980H(c)(2)(E).
iii IRC section 4980H.
iv IRC section 4980H(c)(2)(B).
v It should be noted that the relief from penalties provided to ALEs employing between 50 and 100 employees during 2015 was not extended to the information reporting requirement. Therefore, all employers of 50 or more full-time employees need to file health care information returns for 2015.
vi Preamble to Treasury Decision 9655, 2/12/2014.
vii Minimum essential coverage is defined in IRC section 5000A(f)(1).
viii See IRC section 5000A(f)(2) and Reg. section 1.5000A-2(c)(1) for the definition of eligible employer sponsored plan.
ix See IRS section 36B and related regulations.
x See Publication 5165, ACA Information Returns (AIR) Guide for Software Developers and Transmitters, for more information.
xi Treasury Decision 9661, 3/10/2014.
xii IRC section 6721.
xiii IRC section 6722.