Since Congress passed the Patient Protection and

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1 A Primer on New Applicable Large Employer Reporting Requirements under the ACA by Kathy A. Lawler and Madeline Sexton Lewis Since Congress passed the Patient Protection and Affordable Care Act (ACA) in 2010, employers have been dreading implementation of the ACA s employer mandate. The employer mandate encourages applicable large employers to offer a minimum level of health insurance coverage to their full-time employees by imposing penalties on employers who do not comply. In 2015, applicable large employers will be responsible for collecting and reporting the information necessary for the Internal Revenue Service (IRS) to enforce the employer mandate and to enable employees to determine their eligibility for premium tax credits for health insurance coverage purchased on a state- or federal-run health insurance exchange (the marketplace). With the date for the commencement of the new reporting requirements rapidly approaching, the IRS recently issued early-release draft copies of new reporting Forms 1094-C and 1095-C, 1 which help illustrate how the concepts set forth in the final regulations on information reporting by applicable large employers, issued in March 2014, will be fulfilled. 2 The reporting requirements apply for the 2015 calendar year, which means employers must report for the first time in Employers, however, must take action in 2014 to ensure they are capturing the information they will need to report in Since information is reported on a month-bymonth basis for each employee, affected employers must analyze the information necessary to satisfy the reporting requirements prior to the end of 2014 in order to be sure they have information collection processes in place by Jan The ACA generally defines any employer with 50 or more full-time employees (or full-time equivalents) during the prior calendar year as an applicable large employer for the current year. 5 To determine its status as an applicable large employer, an employer must count all of its employees working 30 or more hours a week for more than 120 days of the year, because these are its full-time employees. 6 If this number doesn t put the employer over the 50 full-time employee threshold, the employer must examine whether it employs any full-time employee equivalents, and if the addition of these equivalents makes it an applicable large employer. Broadly speaking, a full-time employee equivalent exists when two or more part-time employees together work the equivalent of 30 hours a week for more than 120 days of the year. 7 Thus, if Employee A works 10 hours a week and Employee B works 20, Employee A and Employee B together make up one full-time employee equivalent. The determination of applicable large employer status is made on a controlled-group basis, so two or more members of a controlled group will each be treated as an applicable large employer even if separately neither member employs 50 or more full-time employees and equivalents. 8 In practical terms, this means that an 80 percent or more owned subsidiary of a parent corporation will count its own employees, the employees of its parent corporation, and the employees of any other 80 percent or more owned subsidiaries of the parent corporation in determining whether an applicable large employer exists. A detailed discussion of the rules surrounding the determination of applicable large employer status and the determination of how many full-time employees are employed is beyond the scope of this article, but resources are available at www. IRS.gov.uac/Affordable-Care-Act-Tax-Provisions-for-Employers to assist in applying those principles. In order to understand the new reporting obligations, it is useful to revisit the concepts of the employer mandate and the individual mandate. The employer mandate, also referred to as the employer shared responsibility provisions, subjects an applicable large employer to penalties equal to 1/12 times $2,000 times the number of full-time employees the employer employs for the month (minus up to 30) for each month the employer does not offer minimum essential coverage to at least 95 percent of its full-time employees and their dependents, and at least one of its full-time employees obtains a premium tax credit for marketplace coverage. 9 An applicable large employer who offers coverage to at least 95 percent of its full-time employees can also be subject to monthly penalties equal to 1/12 times $3,000 times NJSBA.COM NEW JERSEY LAWYER December

2 the number of full-time employees per month who obtain a premium tax credit if the full-time employee is not offered minimum essential coverage, or if the minimum essential coverage it offers is either unaffordable or not of minimum value. 10 Generally, to qualify as affordable, a plan cannot charge premiums in excess of 9.5 percent of the participant s annual household income for the lowest cost self-only coverage. 11 To qualify as minimum value coverage, a plan must pay at least 60 percent of the costs of medical benefits. 12 The plan cannot require participants to shoulder more than 40 percent of those costs. The employer mandate works hand in hand with the individual mandate. Unless an individual is subject to an exemption, the individual mandate requires American citizens and nationals, resident aliens, and other individuals who have a lawful immigration status in the United States maintain minimum essential health coverage for themselves and their dependents or pay a fine when they file their annual individual income tax return. 13 Taxpayers must first report this information in 2015, when filing their tax returns for the 2014 tax year. 14 For this purpose, minimum essential coverage simply means the individual has health coverage through an employer, the marketplace, Medicare, Medicaid, the Children s Health Insurance Program (CHIP), certain programs of the Veterans Administration, TRICARE, programs for volunteers in the Peace Corps., the Nonappropriated Fund Health Benefit Program, or Refugee Medical Assistance from the Administration of Children and Families. 15 The new reporting requirements are intended to enable the IRS to determine whether a taxpayer has employerprovided coverage, and whether the coverage bars the taxpayer from qualifying for a premium tax credit for any coverage obtained in the marketplace. The IRS polices compliance with the employer and individual mandates through reporting requirements similar to wage reporting requirements. Section 6055 of the Internal Revenue Code of 1986, as amended, requires reporting by each person who provides minimum essential coverage to an individual during the year. Reporting is required by insurers, self-funded plan sponsors and governmental units. 16 Insurers and selffunded plan sponsors (who are not applicable large employers) will report using Forms 1094-B and 1095-B. 17 Section 6056 of the code requires reporting of information by applicable large employers to enforce the employer mandate. Form 1095-C reports information about minimum essential coverage provided to each employee of an applicable large employer. 18 Form 1095-C is used both in determining an employee s eligibility for premium tax credits and whether an applicable large employer owes penalties under the employer mandate. Form 1094-C reports summary information for each employer to the IRS and transmits the 1095-C forms. 19 Forms 1094-C and 1095-C are filed with the IRS, and Form 1095-C is provided to the employee. 20 An applicable large employer (and each component member of their controlled group that employs employees) will file both Forms 1094-C and 1095-C. 21 An applicable large employer completes all sections of the 1095-C to report information required under Sections 6055 and 6056 of the code. 22 An applicable large employer that offers insured options will only complete the section of Form 1095-C that reports on information required under Section 6056 of the code. 23 The insurance company will separately issue a Form 1095-B that reports on the insured option offered by the applicable large employer. 24 Form 1095-C is completed by an employer to report minimum essential coverage. Part I of the form identifies the employee and the employer, part II specifies the offer of coverage that was made each month, the employee s share of the lowest-cost premium each month for self-only coverage and information required to administer the employer mandate. 25 Part III, completed by all selfinsured plan providers, lists: 1) the employee s name, Social Security number (or if unavailable, date of birth), and months of coverage during the calendar year; and 2) each employee s covered family member s name, address, and Social Security number (or if unavailable, date of birth) and the months of coverage during the calendar year. 26 A self-insured plan must complete this information for all employees, whether full-time employees or not, and for any of their covered family members. 27 In part II of Form 1095-C, applicable large employers must provide their fulltime employees with information regarding the affordability and minimum value of coverage offered the employees and the employees spouses and dependents during each month of the calendar year. 28 The information helps inform employees of their eligibility for the premium tax credit to purchase health insurance in the marketplace. An employee offered minimum value, minimum essential, and affordable coverage by his or her employer cannot claim a subsidy to buy insurance on the marketplace. 29 Each member of the controlled group of corporations that comprises the applicable large employer has its own reporting obligations and limits distribution of the required reports to its own employees. 30 If a full-time employee works for two employers within a controlled group, the employee will receive two reports. 31 In contrast, if the full-time employee works for multiple divisions of one applicable large employer member, the information must be combined into a single Form 1095-C. 32 This will require companies to track the coverage offered to its full-time employees as they transfer between members of the controlled group and divisions. For controlled groups that have different health plans applicable to 16 NEW JERSEY LAWYER December 2014 NJSBA.COM

3 different divisions of the same member, reporting systems will have to be created to capture coverage information on a monthly basis. Applicable large employer members must submit each report distributed to their individual full-time employees and a tally of those reports to the IRS on Form 1094-C. 33 Form 1094-C requires an employer report to the IRS whether it is a member of an applicable large employer group and, if so, the names and employer identification numbers of other members of the group, and the total number of its employees and its full-time employees. 34 In addition to each component member of the applicable large employer submitting a Form 1094-C to accompany the Forms 1095-Cs it issues, the applicable large employer group must submit one Form 1094-C transmittal as the authoritative transmittal to report aggregate employer-level data for the year. 35 This will require coordination among all the reporting members of the applicable large employer group to ensure the 1095-C forms are aggregated. The IRS provided certain alternative reporting methods, which allow an applicable large employer to avoid reporting on a monthly basis. These alternatives generally apply both for purposes of Form 1094-C and part II of Form 1095-C. The first alternative is referred to as the qualifying offer method. Under the qualifying offer method, the employer certifies that during the 12 calendar months of the year it offered minimum essential and minimum value coverage, with premiums for self-only coverage not exceeding $1, (9.5 percent of the mainland single federal poverty line), to at least some of its employees and minimum essential coverage to those employees dependents. 36 This certification permits the employer to use simplified reporting for the full-time employees to whom it made this offer. In lieu of a Form C these employees need only receive a notice containing the employer s name, address and identification number; the contact person s name and telephone number; and a statement indicating that for all 12 months of the calendar year, the employee and his or her spouse and dependents, if any, received a qualifying offer and so are not entitled to a premium tax credit. 37 A second alternative provides relief only for 2015 reporting. Under the 2015 qualifying offer method transition relief, the employer must certify it made a qualifying offer for one or more months of calendar year 2015 to at least 95 percent of its full-time employees. 38 This permits the employer to provide employees with an alternative statement in lieu of Form 1095-C, even if the employees do not receive a qualifying offer for all 12 calendar months of the year. 39 The notice must contain the employer s name, address and identification number; the contact person s name and telephone number; and a statement that the employee and the employee s dependents may be eligible for a premium tax credit for A third alternative applies for 2015 to certain applicable large employers with fewer than 100 full-time employees and equivalents. Section 4980H transition relief for these employers applies in 2015, so they are not subject to penalties for failure to offer minimum essential coverage. 41 However, this relief does not relieve the employer of the reporting requirements. 42 It must comply with the applicable large employer reporting requirements, although it will have simplified reporting obligations by indicating it is subject to Section 4980H transition relief. 43 A fourth simplified reporting alternative is provided for applicable large employers that satisfy the 98 percent offer method. This method requires the employer to certify that it offered minimum essential, minimum value, and affordable coverage to at least 98 percent of its employees and their dependents during every calendar month of the year. 44 This permits the employer to not identify the particular employees that are full-time employees, although the employer is still required to file 1095-C forms on behalf of all of its full-time employees. 45 If an applicable large employer reports 250 or more full-time employees, the employer must complete the filing to the IRS electronically. 46 If the number is fewer than 250, the applicable large employer has the option to submit paper forms to the IRS. 47 Employers may also opt to distribute information owed to employees electronically, but the employer must first give employees notice of the electronic distribution, receive employee consent for the distribution, and confirm the employee possesses the requisite technology to complete the task. 48 Given the individualized content of the information disseminated to employees and the relevance to the employees in filing their annual income tax returns, the IRS prohibits employers from simply posting the information on an employee-accessible website without employee consent, or providing the information only upon the employee s prior request. 49 In light of the consent requirements, it is likely many employers will choose to distribute paper copies of Form 1095 C to their employees. The reporting requirement is an annual obligation for the employer. Following the close of the calendar year, the employer has until Feb. 28 of the next year (or March 31 if it files electronically) to submit the form to the IRS. 50 In contrast, the employer has only until Jan. 31 of the subsequent calendar year to distribute the required information to each employee. As the reporting requirements become mandatory in 2015, applicable large employers have until March 1, 2016 (Feb. 28 is a Sunday) or March 31, 2016, (for electronic filing) to report to the IRS, and Feb. 1, 2016 (Jan. 31, 2016, also falls NJSBA.COM NEW JERSEY LAWYER December

4 on a Sunday) to report to employees. 51 The IRS does not permit plans that operate on a non-calendar year basis to file at times in the year that differ from those described above. This is to ensure employees receive the form prior to filing their tax returns. 52 Since the reporting forms were issued in draft, employers should stay tuned to see if any further changes are made when the final forms are issued. More importantly, employers should take immediate steps in 2014 to determine whether the appropriate reporting mechanisms are in place to allow them to capture the information necessary to comply with the new reporting requirements. Kathy A. Lawler is a partner in the Parsippany office of Day Pitney LLP in the employee benefits and executive compensation practice group with over 30 years experience counseling employers about their obligations under federal law with respect to employee benefit plans. Madeline Sexton Lewis is an associate in the Parsippany employee benefits and executive compensation practice group. ENDNOTES 1. Form 1095-C, Internal Revenue Service, irs.gov/pub/irs-dft/f1095c dft.pdf; 2014 Instructions for Forms 1094-C and dft.pdf. 2. Information Reporting for Applicable 3. Id. 4. Id U.S. Code 4980H(c)(2)(A) U.S. Code 4980H(c)(4) U.S. Code 4980H(c)(2)(E); 26 C.F.R (H)-1(22) C.F.R (H)-1(16) and 26 C.F.R (H)-1(2) (example 1). 9. Shared Responsibility for Employers Regarding Health Coverage, 79 Fed. Reg. 8,544 (Feb. 12, 2014) (to be codified at 26 C.F.R. pts. 1, 54, & 301). 10. Id. 11. Id. (see Q&A 19). 12. Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act, Internal Revenue Service, May 13, 2014, irs.gov/uac/ Newsroom/Questions-and-Answers-on- E mployer-shared-responsibility- Provisions-Under-the-Affordable-Care- Act (see Q&A 20) C.F.R A 1(a) and 26 C.F.R A Questions and Answers on the Individual Shared Responsibility Provision, Internal Revenue Service, Aug. 29, 2014, irs.gov/uac/questions-and-answers-on- the-individual-shared-responsibility- Provision (see Q&A 25) C.F.R A 1(b) and 26 C.F.R A C.F.R (c) Instructions for Forms 1094-B and 1095-B, Internal Revenue Service, Aug. 28, 2014, irs.gov/pub/irs-dft/i109495b dft.pdf (see pg. 1); 2014 Instructions for Forms 1094-C and 1095-C, Internal Revenue Service, Aug. 28, 2014, irs.gov/pub/ irs-dft/i109495c 18. Form 1095-C, Internal Revenue Service, 19. Form 1094-C, Internal Revenue Service, irs.gov/pub/irs-dft/f1094c dft.pdf Instructions for Forms 1094-C and 21. Id. at Id. at Id. at Id. 25. Form 1095-C, Internal Revenue Service, 26. Form 1095-C, Internal Revenue Service, Instructions for Forms 1094-C and dft.pdf (see pg. 1) C.F.R (a); 26 C.F.R (d); 26 C.F.R (e); Form 1095-C, Internal Revenue Service, irs.gov/pub/irs-dft/f1095c dft.pdf; 2014 Instructions for Forms 1094-C and C, Internal Revenue Service, Aug. 28, 2014, irs.gov/pub/irs-dft/i c dft.pdf (see pg. 1). 29. Questions and Answers on the Premium Tax Credit, Internal Revenue Service, Aug. 13, 2014, irs.gov/uac/newsroom/ques- tions-and-answers-on-the-premium-tax- Credit (see Q&A 5). 30. Information Reporting for Applicable 31. Id.; 2014 Instructions for Forms 1094-C and 1095-C, Internal Revenue Service, Aug. 28, 2014, irs.gov/pub/irs-dft/i c dft.pdf (see pg. 2); Information Reporting for Applicable Large Employer on Health Insurance Coverage Offered Under Employer-Sponsored Plans, 79 Fed. Reg. 13,231 (March 10, 2014) (to be codified at Instructions for Forms 1094-C and C.F.R (e). 34. Information Reporting for Applicable Instructions for Forms 1094-C and C.F.R (j)(1)(i) C.F.R (j)(1)(iii); 2014 Instructions for Forms 1094-C and C, Internal Revenue Service, Aug. 28, 2014, irs.gov/pub/irs-dft/i109495c dft.pdf (see pg. 4-5). 38. Information Reporting for Applicable C.F.R. pts. 301 & 602); 2014 Instructions for Forms 1094-C and 1095-C, Internal Revenue Service, Aug. 28, 2014, irs.gov/ pub/irs-dft/i109495c dft.pdf (see pg. 5) Instructions for Forms 1094-C and dft.pdf (see pg. 5). 40. Id. (see pg. 5). 41. Information Reporting for Applicable 42. Id. 43. Id C.F.R (j)(2). 45. Id. 46. Information Reporting for Applicable 47. Id C.F.R (a); Information Reporting for Applicable Large Employer on Health Insurance Coverage Offered 18 NEW JERSEY LAWYER December 2014 NJSBA.COM

5 Under Employer-Sponsored Plans, 79 Fed. Reg. 13,231 (March 10, 2014) (to be codified at Information Reporting for Applicable 50. Information Reporting for Applicable C.F.R. pts. 301 & 602); Information Reporting of Minimum Essential Coverage, 79 Fed. Reg. 13,220 (March 10, 2014) (to be codified at 26 C.F.R. pts. 1, 301 & 602). 51. Id. 52. Information Reporting for Applicable C.F.R. pts. 301 & 602); 2014 Instructions for Forms 1094-C and 1095-C, Internal Revenue Service, Aug. 28, 2014, irs.gov/pub/irs-dft/i109495c dft.pdf (see pg. 2). NJSBA.COM NEW JERSEY LAWYER December