1. What is the ACA's employer shared responsibility requirement?
Internal Revenue Code Section 4980H requires applicable large employers to offer adequate and affordable health coverage to their full-time employees, those working 30 or more hours per week, or risk an excise tax penalty.
2. What employers are subject to the ACA's shared responsibility requirement?
The shared responsibility rules apply to all public and private 'large employers' employing an average of at least 50 full-time employees (FTEs), including full-time equivalent employees (FTEEs) on business days during the preceding calendar year. Affected large employers include those organized as for-profit entities, nonprofit entities including churches, as well as federal, state and local government entities.
Applicability of the control group rules.
All employees of a controlled group of entities under IRC Sections 414(b) or (c), or an affiliated service group under IRC Sections 414(m) or (o), are taken into account in determining whether the members of the controlled group or affiliated service group together are an applicable large employer (ALE). Each entity participating in an ALE is known as an ALE member. It should be noted that any penalty imposed against an ALE member of a control group or affiliated service group are applied separately to the individual ALE member. It should also be noted that the term 'employer' includes a predecessor employer and a successor employer.
Determining applicable status.
An employer determines if it is subject to the shared responsibility requirement for a current year by counting the number of its FTEs (those working 30 or more hours per week) together with its FTEEs (those working less than 30 hours per week; for example, two individuals each working on average 15 hours per week equate to one FTEE) employed during the prior calendar year.
Step 1: For each month of the prior year, the employer counts the:
- Number of FTEs +
- Number of FTEEs (determined by adding up the hours worked by FTEEs for the month, not exceeding 120 hours per employee, and then dividing by 120).
Step 2: Add the resulting totals from Step 1 for each month in the prior year and divide by 12 to obtain the prior year average.
- If the result of this calculation is less than 50, the employer would not be deemed to be an applicable large employer for the current calendar year.
- If the result of this calculation is 50 or more, the employer would be deemed an applicable large employer for the current calendar year, unless a seasonal worker exception applies.
3. What are the potential excise tax penalties?
There are two separate potential non-deductible excise taxes that could be assessed:
The 'No Coverage' excise tax penalty (IRC §4980H(a))
This applies if an employee working ≥30 hours per week is offered no coverage, or coverage that is less than minimum essential coverage (MEC), and if the employee qualifies for premium assistance, i.e., the individual falls below 400% of the federal poverty level (FPL) and is not eligible for MEC. MEC includes most types of employer coverage, as well as government-sponsored coverage, such as Medicaid or Medicare, among others.
Calculating the No Coverage Excise Tax Penalty
If employer fails to offer MEC to minimum 95% (70% for 2015) of its FTEs (employees + dependents1 beginning 2015) for any calendar month and employs at least one credit employee2, the excise tax penalty is calculated monthly as:
(Number of FTEs – 30 [- 80 for 2015]) X $166.67 (indexed) (~$2,000/yr)3
The 'Inadequate or Unaffordable' excise tax penalty (IRC§4980H(b))
This would apply if an employer offers health coverage to at least 95% (70% for 2015) of its FTEs and employs at least one credit employee4, and coverage fails to meet minimum value standard or is unaffordable. This penalty would also apply if the employer offers coverage to at least 95% (70% for 2015) of its FTEs, and a credit employee is not offered coverage.
- Coverage meets minimum value standard if it covers minimum 60% of total allowed cost of benefits expected to be incurred under the plan. The three options used to determine minimum value are an IRS/ HHS minimum value calculator, designed-based safe harbor checklists, or an actuarial certification.
- Coverage under employer-sponsored plan (based on self-only coverage cost) is deemed affordable if the employee's required contribution is less than 9.5% of employee's household income (modified AGI) for taxable year. The three safe harbors that can be used to determine affordability (based on self-only coverage cost) are Form W-2 wages (Box 1), a rate of pay method, or an FPL standard.
Calculating the Inadequate or Unaffordable Excise Tax Penalty
If an employer offers health coverage to at least 95% (70% for 2015) of its FTEs and employs at least one credit employee, and coverage fails to meet minimum value standard or is unaffordable, then the monthly excise tax penalty is the lesser of:
- Number of credit employees multiplied by $250 (~$3,000/yr)5; or
- (Number of FTEs – 30 [- 80 for 2015]) X $166.67 (indexed)(~$2,000/yr)5
4. What is the IRC Section 4980H employer shared responsibility reporting requirement?
Internal Revenue Code Section 6056 obligates an employer subject to the employer shared responsibility requirement to file an annual report to the IRS for purposes of determining individuals entitled to premium assistance, as well as determine whether an employer subject to shared responsibility might be at risk for an IRC §4980H(a) no-coverage tax, or an IRC §4980H(b) inadequate or unaffordable tax. Each ALE member must accomplish its own reporting.
5. What forms are used to satisfy the employer shared responsibility reporting obligations?
Each ALE member must file the Form 1094-C (transmittal form) and Form 1095-C annually with the IRS, as well as provide the related Form 1095-C benefit statements to employees listed in the Form 1094-C.
6. What type of information is reported on the Forms 1094 and 1095?
Following is the type of information required for these forms. Note: this information is based on the 2014 edition of the forms and instructions. The IRS has released draft editions of the 2015 forms; it is anticipated that final versions of the 2015 forms and instructions due for the 2016 reporting year will be released in late 2015.
Form 1094-C
Part I of the form requests identifying information about the ALE such as name, EIN, address and contact information of the person submitting the form.
Part II requests further details relating to whether the reporting employer is part of an aggregated group, the number of 1095-C forms filed by the reporting entity, and indication of the applicable type(s) of coverage used by the employer in its offer of health coverage to its full-time employees.
Part III is set up in a chart format. Here a reporting entity would complete a month by month tally of whether an employer offered MEC to 95% of its full-time employees and their dependents, the number of full-time and non-full- time employees employed for each month, the number of months the reporting employer was part of an aggregated group, if applicable, and whether the employer certifies eligibility for transition relief available for employers employing between 50-99 employees, or 100 or more employees. It is important to note that all covered lives must be reported, whether full-time or not.
Part IV is completed if the ALE member indicated in Part I that it is an aggregated ALE group member. Regardless of the number of members in the aggregated ALE group, the entity completing the form would list up to 30 members in descending order, beginning with the first member with the highest average monthly number of full-time employees.
Part III, column (d) would also need to be completed to indicate which months it was part of an aggregated ALE group.
Form 1095-C
The Form 1095-C is used to report information to the IRS about each employee and for determining eligibility for premium tax credits. It is also provided to each employee included in the report.
Part I requests the name, Social Security number and mailing address for each employee as well as identifying information about the ALE such as name, EIN, address and contact information of the person submitting the form.
Part II requires an indicator code to be entered on a per month basis of the type of coverage offered to the employee. For example, Code 1A would designate a qualifying offer of MEC providing minimum value offered to full-time employees and their dependents with the employee contribution for self-only coverage not to exceed 9.5% of household income. Then, the employer would enter the employee's share of the lowest cost monthly premium for self-only minimum value coverage. Depending on the indicator code entered, a reporting entity would then indicate by using another series of codes whether any of the IRC Section 4980H safe harbor codes need be used.
For example, a Code 2A would designate an employee who is not full-time. A Code 2F would designate that a W-2 safe harbor is used as it relates to affordability.
Part III, Covered Lives, need only be completed if an employer sponsors a self-insured plan in which the employee enrolled, regardless of whether the employee works full-time. This part requires the names, Social Security numbers or dates of birth, and a series of check boxes to indicate the months the individuals had coverage.
7. What is the reporting obligation of insurers, self-funded plans and other health coverage providers?
Internal Revenue Code Section 6055 requires insurers, self-funded plans and other providers of MEC to file an annual report to the IRS for purposes of reporting individuals covered by MEC. This requirement applies without regard to plan size.
8. What forms are used to satisfy the reporting obligation by insurers, self-funded plans and other health coverage providers?
Insurers, self-funded plans and other providers of MEC file Form 1094-B and Form 1095-B to the IRS. These reports advise the IRS about whether the individual was covered by MEC. This requirement applies without regard to plan size
A self-funded plan sponsor subject to employer shared responsibility requirements can accomplish its MEC reporting obligation by completing Form 1094-C and Parts I, II and III of Form 1095-C. Self-funded plans that are not subject to shared responsibility requirements complete their obligation on the Form 1094-B and 1095-B.
If the health coverage is insured, the insurer provides the MEC reporting and accomplishes this on the Forms 1094- B and 1095-B, and provides the 1095-B to the insureds listed in the Form 1094-B.
If the health coverage is obtained through the marketplace, the reporting is accomplished by the marketplace on the Form 1095-A.
9. What is the deadline for filing the Forms 1094 and 1095 with the IRS?
The first filing required for the 2015 calendar year is due in 2016. The Forms 1094 and 1095 must be filed with the IRS no later than February 28th of each year (or March 31st of each year, if filed electronically), reflecting information for the previous calendar year.
10. What's the deadline for providing the Form 1095 benefit statements to employees?
Individuals listed in the relevant transmittal forms 1094 and 1095 must be furnished a copy of the relevant Form 1095 annually by January 31st of each year (or, by the next business day if this date falls on a Saturday or Sunday).
11. What methods can be used to provide benefit statements to employees?
Paper copies of the Forms 1095-C can be mailed or they can be provided electronically as long as the recipient employee affirmatively consents to receive the statement in an electronic format.
12. Is there a penalty for not completing these reports?
Yes. An ALE member that fails to comply with the information reporting requirements may be subject to the general reporting penalty provisions under IRC Section 6721 (failure to file correct information returns) and IRC Section 6722 (failure to furnish correct payee statement).
- The penalty for failure to file an information return generally is $100 for each return for which such failure occurs. The total penalty imposed for all failures during a calendar year is capped at $1.5 million. Beginning in 2016, the penalty for failure to file an information return increases from $100 to $250 for each return for which such failure occurs. The cap on the total penalty imposed for all failures during a calendar year increases from $1.5 million to $3 million.
- The penalty for failure to provide a correct payee statement is $100 for each statement, with the total penalty for a calendar year capped at $1.5 million. For payee statements required to be provided beginning January 1, 2016, the penalty for failure to provide a correct payee statement increases from $100 to $250 for each statement. The cap on the total penalty for a calendar year increases from $1.5 million to $3 million.
- Special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to furnish a payee statement.
The waiver of penalty and special rules under IRC Section 6724 and the applicable regulations, including abatement of information return penalties for reasonable cause, may apply to certain failures under IRC Section 6721 or 6722.
13. Where can I get more information?
IRS Forms and Instructions – Section 6056 Reporting
IRS Forms and Instructions – Section 6055 Reporting
IRS Publications
IRS Questions and Answers
CBIZ Resources
Health Reform Bulletins
- HRB 110: Draft 2015 versions of ACA Reporting Form 1094 and 1095 Series (6/22/15)
- HRB 106: Finalized ACA Reporting Forms (2/16/15)
- HRB 92: IRS Final Rules – IRC Sections 6055 and 6056 (3/14/14)
CBIZ ACA CheckPoint
- Web-based technology tool for CBIZ clients that performs:
- On-going workforce data collection throughout the year
- Recurring calculations involving FTEEs
- Benefit offer tracking
- Signature-ready IRS Forms 1094 & 1095, both B and C Series
- Stays current with evolving ACA compliance requirements
- Access to educational collateral and videos, as well as human expertise pertaining to ACA compliance and reporting
- Video demos for clients available via CBIZ.com.
Footnotes
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