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Congress Raises Stakes on Noncompliance with ACA Reporting Requirements

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The Affordable Care Act (“ACA”) shared responsibility provisions have the potential to affect both employers and individuals in their pocketbooks.  “Applicable large employers” must decide whether to “play or pay.”  Overly simplified, this means deciding whether to offer qualifying affordable health coverage to all full-time employees or pay a financial penalty.  Individuals must either demonstrate that they have appropriate health coverage or pay a financial penalty each year.  To facilitate enforcement of these shared responsibility provisions, the ACA created two new reporting requirements.  Depending on the size of the employer and the type of health coverage the employer offers to its employees, an employer may be subject to one or both of these requirements. 

Compliance with these requirements has recently become even more important because Congress has more than doubled the noncompliance penalties.  For certain returns due in 2016, penalties will not be assessed due to inaccurate or incomplete information upon a showing, satisfactory to the IRS, of good faith efforts to comply with the reporting requirements.  No such relief is offered for failure to file or failure to file in a timely manner.  In light of these recently increased penalties and limited transition relief, ACA compliance efforts are of the utmost importance. 

Employers should understand that, not only can they face the possibility of significant “play or pay” penalties for ACA noncompliance, they can also trigger significant penalties for failing to comply with the ACA reporting requirements.

Overview

Under the ACA’s shared responsibility provisions, health insurance providers are required to report, to the IRS on an “information return” and to each affected individual on a “payee statement,” on an annual basis beginning in 2016 (for calendar year 2015) certain information concerning the coverage provided to covered individuals.  I.R.C. § 6055.  As used here, “health insurance providers” means insurance carriers that provide health care coverage, as well as employers who sponsor self-funded group health plans.  Every “applicable large employer” must also report annually, to the IRS and to each affected individual on an information return and payee statements, information concerning the health care coverage the employer offered to its full-time employees.  I.R.C. § 6056.  

Failure to timely and correctly comply with these reporting requirements exposes the reporting entity to the penalties imposed in §§ 6721 and 6722 of the Internal Revenue Code.  These are the same penalties that apply to reporting failures for Forms W-2 and the 1099 series.  As recently amended by Congress, the penalties are:

Failure

Penalty

Failure to file/furnish generally, per return

$250

Annual cap on penalties

$3,000,000

Failure to file/furnish if corrected within 30 days, per return

$50

Annual cap on penalties if corrected within 30 days

$500,000

Failure to file/furnish if corrected by August 1, per return

$100

Annual Cap on penalties if corrected by August 1

$1,500,000

Lower cap for persons with gross receipts of not more than $5,000,000

$1,000,000

Lower cap for persons with gross receipts of not more than $5,000,000 if corrected within 30 days

$175,000

Lower cap for persons with gross receipts of not more than $5,000,000 if corrected by August 1

$500,000

Penalty in case of intentional disregard (no cap applies)

$500

New IRS Forms

The IRS has created four new forms to accommodate the ACA reporting requirements.  Two of those are transmittal forms, similar to the forms that accompany Forms W-2 and 1099 when those forms are sent to the IRS.  Those transmittal forms are designated 1094-B and 1094-C.  The other two new forms – 1095-B and 1095-C – contain the substantive information used by the IRS to determine whether an individual has qualifying health insurance coverage (that is, has minimum essential coverage), whether an applicable large employee has met the employer shared responsibility requirements of the ACA (that is, offers affordable minimum value coverage to employees and dependents), and whether an individual is eligible to receive a premium tax credit when purchasing coverage on an ACA exchange.  Like the W-2 and the 1099, Forms 1095-B and 1095-C are sent to affected employees, in addition to being filed with the IRS.

Form 1095-B applies to sponsors of self-funded group health plans that are not applicable to large employers.  Those employers are required to file, and furnish to the affected individual, a Form 1095-B for each “responsible person.”  The “responsible person” is the covered employee (or former employee in the case of COBRA coverage), and the 1095-B will also list each dependent of the covered employee who is also covered under the plan.  With respect to each such individual, the information that must be provided includes name, address, and tax identification number (“TIN”); date of birth in the event the individual’s TIN is unknown; and months for which each individual was enrolled (for at least one day) and entitled to receive benefits.  Each Form 1095-B also reports the name, address, and EIN of the plan sponsor.

Sponsors of fully insured group health plans need not file Forms 1095-B.  Rather, the reporting responsibility for those plans is imposed on the insurance carrier.

Forms 1095-C must be filed by every Applicable Large Employer Member (“ALE Member”).  An ALE Member is an employer that alone, or combined with members in its controlled group, averages 50 or more full-time equivalent employees on business days in the previous calendar year.  A Form 1095-C must be filed with the IRS and furnished to each individual who was a full time employee of the ALE Member for at least one month in the calendar year.

The information to be reported via Forms 1095-C includes identifying information for each full time employee to whom minimum essential coverage was offered; the months during the calendar year for which such coverage was made available to each such employee; cost information, by calendar month, for such coverage; the number of full-time employees the employer employed for each month during the calendar year; and, if applicable, identifying information concerning other entities in the employer’s controlled group.  Much of the information required, then, must be tracked on an employee-by-employee and a month-by-month basis.  Each entity in a controlled group has an obligation to comply with these reporting requirements separately. 

ALE Members that sponsor self-funded group health plans also will report, in Part III of Form 1095-C, coverage information for each individual actually enrolled in the plan at any time during the calendar year.  The information reported in Part III of Form 1095-C is the same information required to be reported on Form 1095-B by non-ALE Members that sponsor self-funded group health plans.  ALE Members that sponsor fully insured group health plans need not complete Part III of Form 1095-C; the information required there will be provided to affected individuals on Forms 1095-B by the insurance carrier.

Deadlines

Forms 1095-B and 1095-C must be furnished to employees by January 31 of the calendar year following the year to which the information relates.  Forms 1094-B and 1094-C must be filed with the IRS by February 28 of the following calendar year (or by March 31 if filed electronically).  Any entity filing 250 or more returns is required to file electronically.

Transition Relief

To date, the IRS has provided very limited transition relief related to these new reporting requirements.  The IRS has stated that it will not impose penalties under §§ 6721 and 6722 on ALE Members that can show that they have made good faith efforts to comply with the information reporting requirements, including the filing and furnishing of Forms 1094-C and 1095-C filed in 2016 (relating to the 2015 calendar year).  Specifically, the relief is provided for incomplete or inaccurate information report on returns and statements filed and furnished in 2016 to report information relating to 2015.  No transition relief has been granted for an entity that fails to file returns and furnish statements for the 2015 calendar year. 

Take-Away

Employers, particularly ALE Members, should have in place reliable mechanisms and protocols to track the information required to be reported under the new ACA reporting requirements on an on-going basis.  Check with your benefits consultant about the availability of appropriate software.  Attempting to reconstruct the required information after the fact could be difficult.

Summary

The 1094 series of forms are transmittal forms, which are sent to the IRS (generally one form per employer) along with the individual 1095 series forms.  The 1095 series forms contain the required information concerning health care coverage provided or offered to individuals.

Type of Employer

Form

Sent to

Deadline

Non-ALE Member Sponsors of Self-Funded Group Health Plans

Form 1095-B

Each affected individual and IRS

January 31

Form 1094-B

IRS

February 28

(March 31 if filed electronically)

Non-ALE Member Sponsors of Fully Insured Group Health Plans

Insurance Carrier to File

Forms 1095-B and 1094-B

ALE Members

Form 1095-C

Each full-time employee and IRS

January 31

 

Form 1094-C

IRS

February 28

(March 31 if filed electronically)

 

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