EMPLOYERS GUIDE TO THE NEW ACA REPORTING REQUIREMENTS

Transcription

1 1 EMPLOYERS GUIDE TO THE NEW ACA REPORTING REQUIREMENTS

2 2 BACKGROUND The Patient Protection and Affordable Care Act, also commonly referred to as the Affordable Care Act (ACA), was signed into law on March 23, The stated purpose of the Act is to make health insurance more affordable to those with little or no coverage. The Act includes numerous provisions that take effect between 2010 and Key provisions of the Act include: the prohibition against insurers denying coverage to individuals due to pre-existing conditions guaranteed issue ; the requirement for individuals to have coverage individual mandate ; the requirement for employers to offer coverage employer shared responsibility ; the expansion of public programs, premium and cost-sharing subsidies for individuals, and premium subsidies for employers is a significant year in the ACA timeline for employers. Starting in 2015, the ACA requires large employers that sponsor fully insured or self-insured group health plans to report to the IRS whether they offer their full-time employees (and their qualified dependents) the opportunity to enroll in health care coverage. The reporting is meant to assist the federal government in enforcing compliance with the individual mandate and employer shared responsibility provisions under the ACA. In turn, the reporting also facilitates the administration of the Premium Tax Credit (PTC), and the determination of cost-sharing subsidy eligibility and related payments. In addition, employers are required to provide employees with individual statements that summarize the IRS report, which is meant to assist individuals in complying with the individual mandate is a significant year in the ACA timeline for employers. EMPLOYER SHARED RESPONSIBILITY PROVISION IRC SECTION 4980H Applicable Large Employers (ALEs) with 50 or more full-time employees, including full-time equivalent employees, must offer minimum essential health care coverage that provides minimum value and is affordable to at least 95% (70% for 2015) of their full-time employees and their children up to age 26. ALEs with full-time employees, including full-time equivalent employees, have relief from the provision in 2015, but will need to offer the same qualifying health care coverage to at least 95% of their full-time employees (and their dependents) in The provision does not apply to employers with 49 or fewer full-time employees, including full-time equivalent employees. To meet the minimum value requirement, the coverage must pay, on average, at least 60% of the costs of covered services. Coverage for an employee is affordable if the employee-paid portion of the premium (for the lowest-cost self-only coverage) is not more than 9.56% (for 2015) of the employee s household income. Since most employers will not know the household income of their employees, they may determine affordability using any of the following three safe harbors: 1. Form W-2 Safe Harbor 2. Rate-of-pay Safe Harbor 3. Federal Poverty Line ( FPL ) Safe Harbor Form W-2 Safe Harbor Under this safe harbor, a large employer can satisfy the affordability requirement if the employee s portion of the health insurance premium (for the employer s lowest-cost self-only coverage) does not exceed 9.56% of that

3 3 employee s Form W-2, box 1, wages from the employer. This is the most common method that will be used by employers. Rate of Pay Under this safe harbor, affordability is based on the rate of pay as of the beginning of the coverage period (usually the first day of the plan year). For an hourly employee, the monthly wage equals the hourly rate of pay times 130 hours (for a salaried employee, it is the monthly salary). If the employee s monthly contribution (for the employer s lowest cost self-only coverage) does not exceed 9.56% of the monthly wages, the employer coverage would be deemed affordable. Federal Poverty Line Safe Harbor ( FPL ) Under this safe harbor, employer-sponsored coverage is considered affordable if the employee s monthly cost (for the lowest-cost self-only coverage) does not exceed 9.56% of the FPL ($93.76 for 2015) for a single individual. DETERMINING NUMBER OF EMPLOYEES FOR ALE STATUS To determine the number of employees, an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year and divides that total number by 12. Full-Time Employees A full-time employee for any calendar month is an employee who has on average at least 30 hours of service per week during the calendar month, or at least 130 hours of service during the calendar month. Full-Time Equivalent Employees An employer determines its number of full-time-equivalent employees for a month in the two steps that follow: 1. Combine the number of hours of service of all non-full-time employees for the month but do not include more than 120 hours of service per employee, and 2. Divide the total by 120. Seasonal Workers When counting employees for purposes of determining ALE status, an employer is not considered to have more than 50 full-time employees (including full-time equivalent employees) if both of the following apply: 1. The employer s workforce exceeds 50 full-time employees (including full-time equivalent employees) for 120 days or fewer during the calendar year, and 2. The employees in excess of 50 employed during such 120-day period are seasonal workers. A seasonal worker is generally defined for this purpose as an employee who performs labor or services on a seasonal basis. Application to New Employers An employer that was not in existence on any business day in the prior calendar year is an ALE for the current calendar year if it reasonably expects to employ, and actually does employ, an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the current calendar year.

4 Transition Rule for Determining Workforce Size A transition rule for 2015 allows an employer to use any consecutive six-month period during 2014 to measure its workforce size, rather than using the full 12 months of Employer Aggregation Rules - Groups Under Common Ownership Companies that have common ownership are combined and treated as a single employer for purposes of determining ALE status. Common ownership for this purpose is determined under the rules of IRC Section 414(b), (c), (m), and (o), which define controlled groups and affiliated service groups. If you are a small employer with fewer than 50 employees, it is very important to first determine if your company is part of a controlled group or affiliated service group before you can properly assess whether your company is an ALE subject to the employer mandate. Controlled groups can take one of three forms: 1. a parent-subsidiary group, in which at least 80% of each entity (except the common parent) is owned by another entity, and the common parent entity owns at least 80% of at least one entity in the group; 2. a brother-sister group, in which the same five or fewer individuals, trusts or estates collectively own both a controlling interest (at least 80%) and have effective control (more than 50%, but counting only ownership that is identical for each entity) of two or more entities; and 3. a combined group, consisting of a parent-subsidiary group and a brother-sister group, where one parent entity is both the common parent of the parent-subsidiary group and a member of the brother-sister group. Even where a controlled group does not exist, an affiliated service group may exist under Code Section 414(m). Affiliated service group rules are complex and generally apply to two or more entities connected by the management or other services. These rules may cause entities that are not members of the same controlled group to nevertheless be combined. There is an important distinction for employers to keep in mind regarding these aggregation rules. Although employers with a common owner are combined and treated as a single employer for determining whether an employer is an ALE, potential liability under the employer shared responsibility provision is determined separately for each ALE member. Employer Shared Responsibility Provision Penalty Payments There is an important distinction for employers to keep in mind regarding these aggregation rules. The Employer Shared Responsibility Provision penalizes employers who either do not offer coverage (Section 4980H(a) penalty) or do not offer coverage which meets minimum value and affordability standards (Section 4980H(b) penalty). Employers that do not offer coverage to 95% of their full-time employees (70% for 2015) will be subject to a payment of $2,000 times the employer s total number of full-time employees, less the first 30 (80 for 2015), if an employee receives the Premium Tax Credit. Employers that offer coverage, but the coverage doesn t provide minimum value or isn t affordable will pay a payment of $3,000 per employee receiving the Premium Tax Credit.

5 5 It is important to note that in order for a penalty payment to apply, an employee must purchase coverage on a health insurance marketplace and receive a subsidy. ACA NEW REPORTING REQUIREMENTS FORMS 1094 AND 1095 Considerations for Determining Filing Requirements Employers have several factors to consider in determining what their filing requirements are under the ACA. The specific circumstances can affect if and what an employer must file. As indicated previously, an employer first needs to determine whether it is an ALE. An employer is an ALE if it has a combined total of 50 or more full-time employees and full-time equivalent employees in the calendar year prior to the year for which the employer has to report on as a stand-alone employer. An employer also needs to determine if it is a member of an ALE aggregated group (ALE Group) based on common ownership rules under Code Section 414 of the Internal Revenue Code. Employers that sponsor a self-insured group health plan also have additional filing requirements under the ACA. The flow chart below shows how the above factors affect an employer s filing requirements. Reporting Requirement Flow Chart 50 FTEs on average in 2014 for 2015 Self-Insured File Form 1095-C & Complete Part III File Form 1095-C, Part III N/A Member of ALE Group Self-Insured File Form 1095-C & Complete Part III *1095-B eligible for some non-employees Self-Insured At least 1 full-time E ee in any month of 2015 File Form 1095-C, Part III N/A File Form 1095-B for E ees with minimum essential coverage No Reporting Requirement

6 6 Forms for Reporting There are two forms that are required to be filed if an organization has a filing requirement. Generally, there are transmittal forms (1094-A, 1094-B, and 1094-C) that are filed with the IRS only. These forms are essentially cover pages with summary information, in the same manner that forms W-3 and 1096 are summary forms for forms W-2 and Health insurance offer and coverage information reports (1095-A, 1095-B, and 1095-C) are filed with the IRS and are also furnished directly to full-time employees and covered individuals. Forms 1094-A and 1095-A are filed by Health Insurance Marketplaces. Form 1095-A provides information to the IRS and individuals who enroll in a qualified health plan through the Health Insurance Marketplace. This information is necessary for the preparation of Form 8962, which individuals file with their Form This form allows individuals to receive the Premium Tax Credit and reconcile the credit on their returns with advance PTC payments. Forms 1094-B and 1095-B are filed by insurance providers, as well as employers that provide coverage through a selfinsured health plan and that are not ALEs or ALE Group members. Form 1095-B provides the IRS and covered individuals information to determine whether individuals may be liable for the individual shared responsibility penalties. ALEs and members of ALE Groups file Forms 1094-C and 1095-C. ALEs that provide coverage through a self-insured health plan also file Forms 1094-C and 1095-C and complete Part III of Form 1095-C. Information on Form 1095-C is used by the IRS to determine whether an ALE owes employer shared responsibility payments, and also determines eligibility of employees of the ALE for the PTC. Required Information for Reporting An ALE will need to gather the following information in order to report on Forms 1094-C and 1095-C: Full-time employee s name, address, and social security number Employer s name, address, and federal employer identification number Whether the employee, and the employee s spouse and dependents were offered minimum essential coverage each month that provided minimum value and was affordable The cost of the least expensive premium for self-only coverage available to full-time employees that provides minimum essential coverage and minimum value Whether or not the employee was a full-time employee each month Whether the coverage offered to employees was affordable based on the three safe harbor provisions available Whether the employee was enrolled in the plan If health plan is self-insured, the name and SSN (or DOB) of each employee and family member covered Reporting Due Dates Forms 1095-A, 1095-B, and 1095-C are required to be furnished to employees and covered individuals as applicable by January 31st, or the next business day. The 2015 forms are due by Monday, February 1, An extension of time to furnish statements to recipients may be requested by sending a letter to the Internal Revenue Service. The letter must include the following items:

7 7 The filer s name The filer s tax identification number The filer s address The type of return A statement that the extension request is for providing statements to recipients The reason for delay A signature of the filer or authorized agent The request must be postmarked by the date the forms are due to the recipients. Generally, an extension grants a maximum of 30 extra days to furnish the recipient statements. Applicable forms must be filed with the IRS by February 28th, or the next business day if paper filed, and March 31st or the next business day if electronically filed. An extension of time to file Forms 1094-B and 1095-B, as well as Forms 1094-C and1095-c may be requested by filing Form 8809 by the original due date. ALEs and insurance providers may apply for a hardship waiver in order to avoid filing electronically. Electronic Filing Requirements ALEs filing 250 or more Forms 1095-C must file Forms 1094-C and 1095-C electronically with the IRS. Insurance providers filing 250 or more Forms 1095-B must also file electronically with the IRS. However, ALEs and insurance providers may apply for a hardship waiver in order to avoid filing electronically. Forms 1095-B and 1095-C may be furnished to covered individuals and employees electronically. However, the recipients must grant consent to receive forms electronically in advance. Reporting Penalties Penalties apply for failure to timely file correct returns to the IRS, and failure to timely furnish correct forms to employees and covered individuals. The penalties for failure to file and failure to provide forms to employees and covered individuals are $250 per form, up to a maximum of $3 million in total penalties for the calendar year for failure to file and failure to furnish separately. Therefore, an ALE with 12,000 full-time employees that fails to file all Forms 1095-C with the IRS and fails to provide all such forms to its full-time employees would be subject to $6 million in reporting penalties for calendar year 2015 ($3 million for failure to file with the IRS and $3 million for failure to furnish to full-time employees). ACTION STEPS FOR ALEs With the reporting deadlines quickly approaching, ALEs should take the appropriate steps to make sure they are prepared to meet their filing requirements. The following list of action steps should help to ensure that ALEs are ready this January: Read Publication 5196 (Brochure) to gain understanding of requirements Review ownership structure of related companies and perform an analysis of whether an ALE Group exists Discuss and determine data collection responsibilities with internal staff, as well as the third-party administrators and payroll providers as applicable

8 8 Determine whether preparation of Forms 1094-C and 1095-C will be done internally or whether preparation will be outsourced to a payroll provider or other service provider (see solutions for reporting below) Research and select a software provider for reporting if preparing forms internally Review Form 1094-C and 1095-C instructions (1094-B and 1095-B if applicable) Set up process and begin tracking employees full-time status by month Track hours of part-time employees by month Begin collecting information about health coverage offered and health plan enrollment by month Determine the lowest-cost available for self-only coverage for full-time employees by month and assess the affordability of the health coverage offered SOLUTIONS FOR PREPARING FORMS 1094 AND 1095 TIME IS RUNNING OUT FOR 2015! Employer In-House Solutions Employers that are already preparing payroll reports internally should investigate solutions offered by their current payroll software provider for the new reporting forms. However, the new reporting requirements are complex, so these employers will want to weigh the pros and cons of the man-hours it will take to pull the data together and prepare the new forms. Outsourcing to Current Payroll Provider Employers that are already outsourcing payroll reporting may want to investigate partnering with their current outside vendor. The current vendor may already have much of the information necessary for reporting and may offer a lower cost for an add-on service option. Outsourcing to Third-Party Stand-Alone Company Third-party stand-alone vendors provide another option. Third-party vendors will typically provide employers with spreadsheets or templates to compile the information required to prepare Forms 1094 and Third-party providers then use that information to prepare the forms for employers. Although this option may be more expensive than the inhouse solution, the man-hours saved on the preparation of the forms may be well worth the cost. FINAL THOUGHTS The employer shared responsibility and new reporting rules are complex. Employers are strongly encouraged to seek guidance to determine if and how the new requirements under the ACA apply to their organization. Health insurance plan providers and employee benefits advisors are great resources on ACA requirements. Schneider Downs also has a dedicated team of specialists who can provide a wide array of technical services to assist employers with ACA compliance. Schneider Downs ACA related services include, but are not limited to: ALE status determination Common ownership/control group analysis Consulting on reporting processes and methods Consulting on form preparation Review and sampling of internally prepared forms Our firm understands the compliance burden the Affordable Care Act has created for employers. Please do not hesitate to contact our professionals for assistance with any of your organization s ACA needs.

9 9 About Schneider Downs Schneider Downs is a regional certified public accounting firm providing tax, audit and business advisory services to public and private companies and not-for-profit organizations. The firm offers more than 80 services from five business units: Assurance and Tax Advisors; Business Advisors; Technology Advisors; Wealth Management Advisors; and Corporate Finance Advisors. With offices in Pittsburgh and Columbus, Schneider Downs serves clients in Pennsylvania, Ohio, West Virginia, New York, Maryland and around the world. Contact info Kathy D. Petrucci, Tax Shareholder (614) kpetrucci@schneiderdowns.com Zachary C. Davis, Tax Manager (614) zdavis@schneiderdowns.com This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter. Schneider Downs & Co., Inc. One PPG Place, Suite S. High Street, Suite 2100 Pittsburgh, PA Columbus, OH (412) (614) Schneider Downs. All rights-reserved.