ACA Reporting Update: New Forms, Higher Penalties & Other Guidance
With the impending deadline early next year, most applicable large employers are (or should be) in the process of gearing up for what is perhaps the biggest Affordable Care Act (“ACA”) compliance challenge this year — the information reporting requirements found in Sections 6055 and 6056 of the Internal Revenue Code (the “Code”). Many employers are finding that properly programming their systems to track the data necessary to complete the forms is a lengthy, time consuming and complicated process. As they work with their vendors and internal resources to prepare to meet their obligations, employers should be aware that over the last few months, the stakes have been raised by new legislation and there has been some additional guidance as to completion of the forms.
A brief description of recent developments related to ACA reporting is provided below.
IRS Releases New Draft Forms. Despite releasing “final” forms and instructions in February 2015, the IRS released new draft forms in June 2015. The changes were, for the most part, minimal. For example, the new draft Form 1095-B now has an additional page so that more covered individuals can be listed. The new draft Form 1094-C has been renumbered so that Item 19 is now in Part I of the form. Form 1095-C has been revised to include a box for the employer to indicate the first month of the plan year. Completing this new box, which is optional for 2015 reporting, will assist employers sponsoring plans with non-calendar plan years.Finally, the IRS indicated that for 2016 reporting, new indicator codes will be established to require employers to report conditional offers to spouses. A conditional offer is one that is subject to a reasonable, objective condition, such as offering coverage upon certification that the spouse does not have group health coverage available from another employer. Currently, the instructions to Form 1095-C provide that a conditional offer such as this should be treated as an offer for reporting purposes only. However, the new indicator codes are needed so that the IRS can determine whether the spouse should be eligible for a premium tax credit.
Trade Legislation Increases Reporting Penalties. In July 2015, Congress passed, and the President signed, the Trade Preferences Extension Act of 2015. Among other things, the new law increased the statutory penalties for failing to file information reporting forms with the IRS or failing to provide copies of these forms to employees. The ACA reporting forms are subject to these penalties. The chart below reflects the increased penalties.
Reason for Penalty
Forms filed or provided late, but within 30 days
$50 per report(previously $30 per report)
Forms filed or provided late, but by August 1
$100 per report(previously $60 per report)
Forms filed or provided late, but after August 1, or not filed at all
$250 per report(previously $100 per report)
If necessary, employers can request a 30-day extension to file the forms. Otherwise, penalty relief for late reports is subject to a reasonable cause standard. Also, for 2015, the IRS will not assess a penalty for an incorrect report as long as the report is timely filed and the employer attempted in good faith to complete the report correctly. In future years, incorrect filings will be subject to a reasonable cause standard.
IRS Q&As Provide Special Rules for COBRA Offers. In May 2015, the IRS released Questions & Answers (“Q&As”) providing additional guidance on Form 1095-C, the form on which employers will use indicator codes to report offers of, and enrollment in, coverage. Among other things, the Q&As provided special rules relating to the coding for offers of COBRA coverage. When an offer of COBRA coverage is made to a former employee as the result of a termination from employment, the employer should indicate on Form 1095-C that an offer of coverage was made only if the former employee actually elects to enroll in the coverage. The reason for this is that the IRS does not want to disqualify a terminated employee from a premium subsidy based on an offer of COBRA coverage that was not accepted.However, when an offer of COBRA coverage is made to an employee due to a reduction in hours, the employer should indicate on Form 1095-C that an offer of coverage was made whether or not the employee elects to enroll in the coverage. In this situation, the cost used to determine affordability should be the employee’s self-only COBRA premium or contribution. Employers should be aware that a loss of coverage due to a reduction in hours could trigger a penalty under Code Section 4980H(b). This would happen if the affected employee was determined to be full-time based on the look-back measurement method and the reduction in hours occurred during the applicable stability period. In most circumstances, employees are required to pay a COBRA premium or contribution equal to 102% of the cost of coverage, which would usually exceed the affordability threshold for purposes of Code Section 4980H. Although the offer of COBRA coverage would prevent a penalty under Code Section 4980H(a), the employee could reject the COBRA coverage and obtain a premium subsidy when Marketplace coverage is purchased. This would trigger the penalty under Code Section 4980H(b).
Over the next few months, it is anticipated that the IRS will issue additional guidance related to these reporting requirements. As this additional guidance is released, employers should consider whether any adjustments are needed to their programming. Of course, given the complexities involved with these requirements, employers should seek the assistance of counsel to make sure the forms are properly completed.