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October 9, 2014

IRS Releases Draft Instructions for Large-Employer Reporting under the Affordable Care Act

On February 8, 2015, the Internal Revenue Service (IRS) posted final forms and instructions for reporting full-time employment status and health care coverage under Internal Revenue Code (IRC) Sections 6056 and 6055. The final forms (Form 1095-C and Form 1094-C) are the same as the draft forms. However, the instructions include new clarifications, such as allowing large employers to report enrollment in self-insured retiree health plans and COBRA continuation coverage using either Form 1095-C or Form 1095-B.

The Internal Revenue Service (IRS) recently released draft instructions for two informational returns that the Affordable Care Act1 requires large employers (defined as those with at least 50 full-time employees, including full-time equivalents) to file with the IRS and to give to employees.2 The forms are used to report full-time employment status and health care coverage under Internal Revenue Code (IRC) Sections 6056 and 6055, largely for purposes of assessing the Affordable Care Act’s employer shared responsibility penalty. The forms must be completed in early 2016, to report data for 2015. Reporting is optional in 2015 (to report data for 2014), and therefore the forms could be modified prior to the 2016 mandatory requirement.

The IRS is accepting comments on the draft forms and instructions. Comments should be submitted as soon as possible and no later than November 3, 2014.

This Capital Checkup, which is intended for human resource and benefit plan administrators, provides an overview of the draft forms and instructions released for 2014 for Form 1095-C (to be given to employees) and Form 1094-C (to be used to transmit the Forms 1095-C to the IRS).

Form 1095-C

Large employers must provide the Form 1095-C3 to each full-time employee no later than January 31 of the year succeeding the calendar year for which the form is completed (i.e., on the same schedule as the Form W-2). Full-time employees are entitled to the form whether they worked for one month or the entire calendar year.4

Large employers that self-insure a group health plan must also provide the Form 1095-C to any employee who enrolls in that plan, even if he or she is not a full-time employee. This allows employees to have proof that they had health coverage so that they are not required to pay a tax penalty.

Form 1095-C is divided into three parts, as noted in the table below.

     
General Overview of Form 1095-C*
Part Number
(Line Numbers)
Overview
Part I
(Lines 1–13)

Contact information for the employee, including a Social Security number

Contact information for the employer, including the employer identification number (EIN)

Part II
(Lines 14–16)

Month-by-month information about the employer’s offer of coverage to the full-time employee

Detailed indicator codes are used to identify specific types of offers

Part III
(Lines 17–22)

Only completed for individuals covered by a self-insured plan — insurance carriers will complete Form 1095-B for insured employees**

Not completed for employees for whom the employer contributes to a multiemployer plan — the multiemployer plan will complete Form 1095-B for its participants

Information about the specific months that any individual (even if not full time) was enrolled in the employer’s self-insured plan

Each covered individual’s Social Security number (including Social Security numbers for enrolled family members***)

* Click here to access the draft form 1095-C.

** Click here to access the draft form 1095-B.

*** Employers that are not able to collect dependents’ Social Security numbers can report date of birth instead, but only if the employer has made reasonable attempts to collect the Social Security number as set forth in IRS regulations. For more information, see Segal Consulting’s May 28, 2014 Capital Checkup, “Final Rules on the Affordable Care Act’s Reporting Requirements.”

Form 1094-C

Form 1094-C5 is a transmittal form that large employers must file with the IRS along with copies of the Forms 1095-C. However, it is much more than a cover sheet for filing these forms. Among other things, it requires the following:

  • A month-by-month indication of whether the employer offered coverage to 95 percent of its full-time employees,6
  • A month-by-month count of the number of full-time employees, and
  • A month-by-month count of the total number of employees.

Challenges for Public Sector Employers

The employer shared responsibility penalty assessment and the large-employer reporting requirement apply separately to each employer that is a member of a controlled group as defined in the IRC.7 Public sector entities may apply a reasonable interpretation of the applicable IRC provisions to determine whether the entity is one employer or is comprised of multiple employer members of a group. When there are multiple members of such a group, each member of the group will need its own EIN in order to comply with the reporting requirements. If more than one member of the group employs the same individual as a full-time employee for one or more months of the calendar year, each employer member (or a third party reporting on its behalf) must file a separate Form 1095-C for that employee, under each member’s own EIN. Governmental units may designate another related unit as the reporting entity under certain circumstances, but the designated entity (if it agrees to the designation) must file separate reports under separate EINs for each employer on whose behalf it is reporting.

Action Steps for Large Employers

Now that the forms and instructions have been released, large employers should work closely with their payroll providers and software vendors to determine if they will be able to assist with meeting these reporting requirements. These entities should be able to start collecting reportable data in January 2015. Employers with self-insured plans should assure that they have a process in place to report not only full-time employees, but also provide the Form 1095-C to any employee covered under the employer’s self-insured plan, whether they are full-time employees or not.

• • •

As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their legal counsel for authoritative advice on the interpretation and application of the Affordable Care Act and related guidance, including the guidance summarized in this Capital Checkup. Segal Consulting can be retained to work with plan sponsors and their attorneys on compliance issues.

 

1 The Affordable Care Act is the shorthand name for the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-48, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-152. (Return to the Capital Checkup.)

2 For background information about these reporting requirements, see Segal Consulting’s May 28, 2014 Capital Checkup, “Final Rules on the Affordable Care Act’s Reporting Requirements.” The draft instructions, which were released on August 28, 2014, are on the IRS website. (Return to the Capital Checkup.)

3 The draft form is on the IRS website. (Return to the Capital Checkup.)

4 When certain streamlined reporting rules apply, the employer does not have to give the Form 1095-C to the full-time employee, but must still file a slightly less detailed version of it with the IRS and give the employee a short statement regarding the Affordable Care Act’s premium assistance tax credit. In these circumstances, the information provided on Form 1094-C (discussed in the next section) would also be affected. (Return to the Capital Checkup.)

5 The draft form is on the IRS website. (Return to the Capital Checkup.)

6 A lower threshold of 70 percent applies during 2015 (as well as to certain months of 2016 if the plan is a not a calendar-year plan). (Return to the Capital Checkup.)

7 The reporting forms use the term “Applicable Large Employer Member” to connote a single employer that is a large employer subject to the employer penalty and reporting requirements, as well as an employer that is a member of a controlled group. (Return to the Capital Checkup.)

 

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