HRB 153 - Updates: 1) Employer Shared Responsibility Reporting Obligations; 2) Employer Shared Responsibility Penalties for 2021; and 3) 2021 Indexed Adjustments for Minimum Essential Coverage (article)

HRB 153 - Updates:  1) Employer Shared Responsibility Reporting Obligations; 2) Employer Shared Responsibility Penalties in 2021; and 3) 2021 Indexed Adjustments for Minimum Essential Coverage
Issued October 6, 2020 I Download as a PDF

 

Updates: Employer Shared Responsibility Reporting Obligations

Here we are in the fourth quarter of 2020, and employers subject to Affordable Care Act’s employer shared responsibility requirements are likely beginning to think about their 2020 filing obligation.  To date, the IRS has not released the 2020 Form 1094 and 1095 series.  The agency posted draft versions of these forms in July (discussed below), but has not released final versions of the forms or instructions. 

In the interim, the IRS issued transitional relief (Notice 2020-76) on October 2, 2020, addressing matters relating to the 2020 reporting year for purposes of meeting the Code Sections 6055 and 6056 obligations. This relief is similar to that which has been provided in prior years.

First, the IRS provides an extension for furnishing 2020 Form 1095-B and Form 1095-C to individuals from January 31, 2021 to March 2, 2021.  There is no further 30-day automatic extension available.

Reporting entities required to furnish their Form 1094-B to individuals can continue to use the simplified posting method to fulfil this obligations.  This method allows the reporting entity to post a notice on its website stating how individuals can obtain their Form 1095-B upon request.  The reporting entity must include an email address and a physical address for submitting the request, together with a telephone number for individuals to contact the entity with any questions.  The reporting entity is also obligated to furnish the Form 1095-B within 30 days upon receiving a request from an individual. 

Important to note, however, is that those employers who are subject to the IRC Section 6056 employer shared responsibility reporting obligation (employers employing 50 or more employees) and who sponsor self-funded plans must continue to complete Part III of the Form 1095-C.  In other words, these employers cannot take advantage of the posting methodology described above to satisfy their IRC Section 6055 reporting obligation.  The employer can use the simplified posting method for those individuals who are not required to be reflected in IRC Section 6056 reporting obligation.

Secondly, there will be no extension available for entities required to file their Forms 1094 and 1095 with IRS.  These forms will be due on March 1, 2021, for paper filings, or March 31, 2021 for efilers.  An automatic 30-day extension of time to file the 1094/1095 forms remains available by submitting the Form 8809 with the IRS on or before the filing due date.

And finally, the IRS suggests that this will likely be the last year the agency will offer an automatic delayed date for furnishing the Form 1095 to individuals, as well as offer good faith effort relief from late-filing penalties.

As for the draft 1094 and 1095 forms, following are the forms made available as of the date of this writing: 

Specific to the 2020 draft Form 1095-C, the biggest change is the addition of 8 new reporting codes for Line 14 which is used to describe the type of employer coverage offered to individuals, together with related changes made to Lines 15 and 17.  These new codes apply to individual coverage health reimbursement arrangements (IC-HRA).  An IC-HRA is an HRA that can be offered in conjunction with individual coverage, whether obtained through or outside marketplace, as well as Medicare Parts A, B, C and D policies.  The new codes to be used in Line 14 specific to IC-HRAs are Codes 1L through 1S 

A similar change is noted in the draft 2020 Form 1094-B.  This form adds a new code to designate coverage under an IC-HRA in Line 8, which is used to designate the type of coverage in which individuals are enrolled.

Employer Shared Responsibility Penalties for 2021

The IRS has officially released the 2021 employer shared responsibility excise tax amounts. These annual amounts, which are calculated monthly, are reflected in Q&A 55 of the IRS’ Questions and Answers on Employer Shared Responsibility under the ACA.  

As a reminder the ACA imposes an excise tax on applicable large employers employing 50 or more full-time employees who either do not offer health coverage, or do not offer adequate and affordable coverage, to their full time employees.

  • The ‘no coverage’ excise tax pursuant to IRC Section 4980H(a) will increase to $2,700 in 2021. 
  • The ‘inadequate or unaffordable’ excise tax pursuant to IRC Section 4980H(b) will increase to $4,060 in 2021. 

Below is a chart reflecting these penalties for 2019 to 2021:

‘No Coverage’ Excise Tax

IRC  Section 4980H(a)

‘Inadequate or Unaffordable’ Excise Tax

IRC  Section 4980H(b)

2019

$2,500

 

2019

$3,750

2020

$2,570

2020

$3,860

2021

$2,700

2021

$4,060

 

2021 Indexed Adjustments for Minimum Essential Coverage (MEC)

In Revenue Procedure 2020-36, the Internal Revenue Service released certain affordability standards for 2021 as they apply to the Affordable Care Act (ACA), as follows:

  • Affordability Standard – Employer Shared Responsibility Mandate
    Coverage under an employer-sponsored plan is deemed affordable to a particular employee if the employee's required contribution to the plan does not exceed 9.83% (indexed for 2021, up from 9.78% for 2020) of the employee's household income for the taxable year, based on the cost of single coverage in the employer’s least expensive plan.

As background, employers subject to the ACA’s employer shared responsibility mandate who fail to offer minimum essential coverage to their full-time employees or fail to offer adequate and affordable coverage may be subject to an excise tax if at least one of its employees qualifies for premium assistance through a marketplace.  If an employer does not know an individual’s household earnings, it can use one of three safe harbors for purposes of determining affordability; they are:

  1. A Form W-2 determination in which the employer’s lowest cost self-only coverage providing minimum value does not exceed 9.78% (for 2020; 9.83% in 2021), of the employee’s Form W-2 wages (Box 1) for the calendar year.
  2. A rate of pay method in which the minimum value cannot exceed 9.78% (for 2020; 9.83% in 2021), of an amount equal to 130 hours, multiplied by the employee’s hourly rate of pay as of the first day of the coverage period.  For salaried employees, the monthly salary is used instead of the 130 hour standard.  An employer can apply this method to hourly employees if they experience a reduction in pay during the year; however, this methodology cannot be used for commissioned sales people. 
  3. A Federal poverty line (FPL) standard in which cost of single coverage does not exceed 9.78% (for 2020; 9.83% in 2021) of the individual federal poverty line rate for the applicable calendar year, divided by twelve.  An employer is permitted to use the poverty guidelines in effect six months prior to the beginning of the plan year.  The Department of Health and Human Services released the 2020 FPL standards in January, 2020 (see 2020 Federal Poverty Level (FPL) Guidelines, Benefit Beat, 2/10/20).
  • Premium Tax Credit.  The following contribution percentages are used to determine whether an individual is eligible for a premium tax credit for the 2020 and 2021 tax years:

Household income percentage

 of Federal Poverty Line

Initial percentage

2020

Final percentage

2020

Initial percentage

2021

Final percentage

2021

 

 

 

 

 

Under 133%

2.06%

2.06%

2.07%

2.07%

Between 133% and 150%

3.09%

4.12%

3.10%

4.14%

Between 150% and 200%

4.12%

6.49%

4.14%

6.52%

Between 200% and 250%

6.49%

8.29%

6.52%

8.33%

Between 250% and 300%

8.29%

9.78%

8.33%

9.83%

Between 300% and 400%

9.78%

9.78%

9.83%

9.83%

 

About the Author

Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc.  She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. 

Ms. McLeese is based in the CBIZ Kansas City office.

The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

HRB 153 - Updates: 1) Employer Shared Responsibility Reporting Obligations; 2) Employer Shared Responsibility Penalties for 2021; and 3) 2021 Indexed Adjustments for Minimum Essential Coverage (article)Health Reform Bulletin 153, released on October 6, 2020, provides information, education and insight on the following topics: 2020 Employer Shared Responsibility Reporting Obligations for Applicable Large Employers (ALEs) Employer Shared Responsibility Penalties for 2021 Tax Year 2021 Indexed Adjustments for Minimum Essential Coverage...2020-10-06T19:43:54-05:00

Health Reform Bulletin 153, released on October 6, 2020, provides information, education and insight on the following topics:

  • 2020 Employer Shared Responsibility Reporting Obligations for Applicable Large Employers (ALEs)
  • Employer Shared Responsibility Penalties for 2021 Tax Year
  • 2021 Indexed Adjustments for Minimum Essential Coverage