Tuesday October 18th, 2016
Employers are preparing Forms 1095-C and 1094-C to report employee Affordable Care Act coverage in 2016 with some apprehension. The filing process for reporting 2015 coverage was a headache for many—but this year might be even more of a pain, given the IRS’s recent moves to do away with certain breaks that helped ease the ACA reporting process through its first year.
The ACA considers employers with 50 or more full-time employees as Applicable Large Employers (ALEs) covered under the law. ALEs must use Forms 1095-C and 1094-C to report health coverage information required under Sections 6055 and 6056 of the tax code. The forms help to determine whether a company owes a payment under the employer shared responsibility provisions of Section 4980H or if employees are eligible for the premium tax credit.
The forms were more difficult to complete than employers anticipated. Employers were not prepared to collect the complex information required for covered employees along with their covered spouses and dependents. They also had to coordinate between their payroll, HR and IT departments, and outside vendors (if necessary) to collect all of the information.
With this in mind, the IRS made some exceptions to the 2015 form filing rules to assist employers as they completed them for the first time, giving employers more time to correctly complete the forms and not face penalties for submitting incorrect forms or missing deadlines.
Now that both the IRS and covered employers know what is required to report and have jumped over the first-time hurdle, the IRS has eliminated some of the things from 2015 that made reporting easier for employers.
Here are some examples of changes for 2016:
Good-Faith Reporting. The IRS waived penalties for incorrect or incomplete information on 2015 forms if employers could show they made good-faith efforts to comply with reporting requirements. There is no good-faith standard for 2016 forms but employers may avoid penalties for compliance failures due to reasonable cause.
Transitional Relief. Another change for 2016 filing is the transitional relief offered to employers by the IRS. Last year, the IRS allowed ALEs to offer coverage to 70 percent of full-time employees and dependents. In 2016, coverage must be offered to 95 percent of full-time employees and dependents.
Reporting Requirements. When filing 2015 forms, the IRS gave employers two months of relief when providing health coverage forms to employees and the IRS (Notice 2016-4). However, 2016 forms must be filed by the deadline. If an employer does not meet the deadline, or if incorrect information is filed on returns, there is a penalty of $260 per form ($250 for 2015 forms). The maximum penalty is $3.1 million in one calendar year.
Forms 1095-C and 1094-C must be filed by March 31, 2017 (if done electronically) or by Feb. 28, 2017 (if done on paper).
Taxpayer IDs. IRS proposed rules issued July 29 said that as long as employers properly requested missing taxpayer identification numbers from covered employees within 75 days of an account being opened, they are considered to be “acting in a responsible manner” and will not be penalized even if they don't receive the TIN. The deadline for receiving the TIN was Oct. 12, 2016.
Employers are aware the process could change again for 2017, considering the current presidential election and the calls for repealing the ACA by the Republican Party. Also, the law's controversial “Cadillac tax”—a 40 percent excise tax on high-cost plans—is scheduled to take effect in 2020. For now, employers are focused on complying with this year’s rules for filing Forms 1095-C and 1094-C.