Two of the critical components of the Affordable Care Act are the individual-responsibility and employer-responsibility provisions. Individuals without health insurance coverage will have to pay an additional tax, starting with 2014 tax returns. And beginning in 2015, employers with 50 or more full-time equivalent workers face penalties of either $2,000 per full-time worker per year if the employer does not offer coverage to enough of its workforce; or, if it offers enough workers coverage but some still qualify for federally subsidized coverage through an exchange, a $3,000 penalty for each worker who obtains federally subsidized coverage through the exchange.
In order for the IRS to assess these penalties, it needs detailed information on whether individuals are actually covered under a health plan and whether employers are offering affordable coverage to their workers. Thus, the Affordable Care Act imposes new reporting requirements on employers, which go into effect for 2015:
Information reporting on minimum essential coverage (Tax Code § 6055)
Any employer that offers employees a self-insured medical plan (other than a limited list of excepted benefits) will have to provide annual information statements to those who are covered under the plan and an annual information return to the IRS. Note: If your organization has an insured medical plan, your insurer will handle this reporting obligation.
Information reporting of employer-sponsored coverage (Tax Code § 6056)
Any employer who during the prior calendar year averaged at least 50 full-time equivalent employees (where full-time means averaging at least 30 hours of service per week) must report to the IRS and to its employees whether the employer offers its full-time employees and their dependents the opportunity to enroll in a group medical plan.
Like W-2 forms, the new statements will be due after the end of the calendar year. If your organization is subject to this requirement in 2015, you must provide each individual a personalized statement by Jan. 31, 2016 and to the IRS by Feb. 28, 2016 (or by March 31, 2016 if filed electronically — which is required if you must file at least 250 of these returns).
Of the two reports, the report on employer-sponsored coverage under Code § 6056 is by far the most onerous. To comply with the general reporting requirement, an employer must capture some very detailed information, such as: (1) for each month of the year, whether the employee was a full-time worker during that month; (2) for each month of the year, whether a particular employee, the employee’s spouse and the employee’s children were offered coverage for the month; (3) for months that coverage was not offered, whether that was because the employee was not employed, was not full-time, or was in a waiting period; and (4) whether the cost of coverage each month met one of the affordability safe harbors with respect to the employee.
To help ease the burden of the reporting, the IRS is making available two simplified reporting options, plus a third simplified alternative that applies for 2015 only:
Simplified reporting with certification of qualifying offers
Under this method, your organization may follow simplified reporting requirements for each employee who receives a “qualifying offer.” A “qualifying offer” means an offer of coverage for all 12 months of the calendar year that meets the following requirements:
The offer consists of minimum essential coverage that also meets the minimum value requirement and is affordable to the employee under the federal poverty line safe harbor method.
The offer includes an offer of minimum essential coverage to the employee’s spouse and dependents.
While we’re still waiting for clarifying instructions, employers who use this method may only have to report the employee’s name, Social Security number, address and an indicator code report that a qualifying offer was made. But your organization will have to use the general reporting method for any employee who did not receive a qualifying offer for all 12 months.
2015 simplified method for qualifying offers
During 2015 only, if your organization makes a “qualifying offer” (as described above) to at least 95 percent of its full-time employees and their spouse and dependents, then it can furnish a statement in lieu of the general reporting form. As with the qualifying offer requirement above and pending further clarification in the instructions, your organization may only have to report the employee’s name, Social Security number, address, and using an indicator code report whether a qualifying offer was made for all 12 months of the year.
If you use this 2015 method, the simplified report can be sent to employees who did not receive a qualifying offer for all 12 months of the year. But after 2015, employees who do not receive a qualifying offer all 12 months will have to receive the general report instead of the simplified report.
Simplified reporting for employers offering coverage to 98 percent of full-time workers
Under this method, employers need not identify on the reporting form whether a particular employee is a full-time employee nor report the total number of its full-time employees for the reporting year. To be eligible to use this method, your organization must be able to certify on its transmittal form that it offered minimum essential coverage that also meets the minimum value requirement and is affordable to at least 98 percent of the employees who are included in the section 6056 returns, which must include at least all full-time employees, but it could also include part-time employees who are offered coverage. Coverage is “affordable” if the cost of employee-only coverage satisfies any of the affordability safe harbors in the final employer responsibility regulations.
This may be a viable option for employers who have more generous eligibility rules than required under the employer responsibility regulations—for example, an employer who offers coverage to any employees who work at least 20 hours per week. The employer could include all such workers on the report and would not have to distinguish between those who are full time or part-time during any given month.
Whether your organization uses a simplified method or the general method of reporting, keep in mind that you must include all employees who were full-time at least one month of the year in the reporting. If you fail to include all full-time employees in the reporting, your organization will be subject to the same kind of penalties that apply for failure to provide a W-2, which is generally $30 - $100 per missing report.
You should be working with your payroll administrator or software vendor to ensure that your payroll system will capture the necessary information each month of 2015 to enable you to comply with the new reporting requirements. If you’d like further details about the data that you’ll need to collect in order to comply with the new reporting requirements, see our prior article that discusses the specific information (available at: http://www.wnj.com/Publications/Prepare-Now-for-New-Affordable-Care-Act-Reporting