Are You Ready for Information Reporting Requirements of the Affordable Care Act?
While the Affordable Care Act has been law since 2010, stiff penalties for non-compliance with employer shared responsibility regulations will start being levied soon – and large employers with 50+ employees are at risk.
Starting in early 2016 all Applicable Large Employers (“ALE”) are required to file information returns (Form 1095-C) with the IRS and also provide a copy to their full-time employees. This form provides information about the health coverage the employer offered (or didn’t offer) to them for the 2015 calendar year. An ALE is defined as any business with 50 or more full-time employees (including full-time equivalent employees). That includes Independent Contractors or part-time employees who would be considered full-time employees for ACA reporting purposes.
Preparing these returns is no simple task, and will require each employer to carefully track a variety of information for each employee, on a monthly basis.
How to Get Started
In order for an employer to prepare the information return you will need to do the following:
- Determine if your company is an Applicable Large Employer.To do this, you’ll need to determine the type of health insurance coverage you offer full-time employees. For example, did you offer coverage that met the ACA’s requirements? This means you need to provide affordable, Minimum Essential Coverage (MEC) for Minimum Value (MV).
- Identify your full-time employees and track health coverage information for each of them for every month starting in January 2015.
Why Do You Need to Report this Information to the IRS?
The IRS needs information from 1095-C forms because the data you provide will play a central role in enforcing the Affordable Care Act. Companies that are required to offer insurance but don’t do so may have to pay a penalty. By collecting these forms, the IRS can track who is and who isn’t making coverage available to their workers.
In addition, the health care law also requires most people to have health insurance, and the government provides financial help to those who do not have an opportunity to get coverage through their employer. Information from the form tells the IRS who has access to employer-sponsored health insurance and who doesn’t. It is an individual’s “proof of insurance.”
What Will Happen if You Don’t Comply?
Starting in 2015 the IRS will start levying penalties – some of them quite harsh – on large employers who are not complying with the ACA.
For 2015, the Department of the Treasury and the IRS issued Transition Relief for the employer shared responsibility provisions, but penalties rise sharply after this grace period is over as of January 2016. This is another reason to make sure your company is in compliance now and has implemented a system to track all employees and the health coverage offered.
See the chart below for a fuller picture.
THE PENALTIES FOR NON COMPLIANCE
CODE 4980H PENALTY STRUCTURE
|COVERAGE OFFERED BY EMPLOYER||ANNUAL PENALTY|
|Minimum Value, Affordable (MV/A) Coverage offered to all full-time employees (and dependents). This is known as the “Safe Offer.”*||NONE|
|Employer Sponsored PlanNOT offered to at least 95% of FT Employees (and dependents). *For 2015 only this was changed to 70%.||$2000 for each FT Employee minus 30 employees. For 2015 only minus 80 for employers with 100+ FT employees.|
|Employer Sponsored PlanIS offered to at least 95% of FT Employees (and dependents). For 2015 only this was changed to at least 70%.||$3000 for each FT Employee receiving tax credits. This penalty is not to exceed the above penalty.|
* If the “safe offer” is not made and at least one of the full-time employees enrolls in the Exchange and receives a tax credit, the employer will be penalized. The amount of the penalty is dependent on the coverage offered.
The Bottom Line
An applicable large employer will pay a penalty if:
- The employer sponsored health plan is not offered to enough full-time employees, FT equivalents (and their dependents) i.e. 70% in 2015 and 95% in 2016 and beyond. This is why it is so important for employers to track and correctly identify their employees based on the ACA definition of full-time employees.
- The employer sponsored health plan is offered to enough full-time employees, FT equivalents (and their dependents) but an employee declines to enroll in the coverage because it is not “affordable” and instead enrolls in Health Care Exchange coverage and receives a tax credit from the government.
Note – The ACA defines affordable care as coverage that does not exceed 9.5% of the employee’s income.
Note – An employee can only receive a tax credit from the government if the coverage offered by the employer is not affordable.
Complying with the law can be confusing and time-consuming for any business. Please contact us for guidance on how to prepare for and comply with the law.