Prepare for Early 2018 ACA Information Reporting on Health Coverage

Large employers must distribute Form 1095-C to employees in January

By Stephen Miller, CEBS Oct 4, 2017
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During the first week of October 2017, the Internal Revenue Service published final forms and instructions to help employers prepare for reporting on health coverage they offered to their employees in 2017 year. The forms must be distributed to employees and filed with the IRS early in 2018 by employers subject to the Affordable Care Act's (ACA's) reporting requirements.

Below are links to the final forms and instructions on the IRS website:

The IRS had released draft versions of these forms and instructions in September.

The instructions to the Forms 1094-C and 1095-C "were released with minimal changes compared to the final instructions from 2016," said Ryan Moulder, a Los-Angeles based partner at Health Care Attorneys P.C. Most of the changes made in the instructions involve the elimination of discussions related to the transition relief provisions that applied in previous years, he noted. Among these:

  • Form 1094-C: A box in Line 22 called "Section 4980H Transition Relief" has been removed. It is not applicable in 2017.
  • Forms 1095-B and 1095-C: A paragraph called "Additional information" in the instructions for recipients directs individuals to an IRS webpage providing information on the individual and employer shared-responsibility provisions and premium tax credits.

"An employer will no longer be able to use the good-faith efforts standard to protect itself from filing information returns or payee statements with inaccurat e or incorrect information," Moulder pointed out. While this could change, as of now "no good-faith efforts standard has been communicated by the IRS" for filing 2017 returns, he said.

[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]

Filing Deadlines

"An employer will have to furnish the 2017 Form 1095-C to certain employees by Jan. 31, 2018," Moulder explained. "Last year, the IRS provided every employer an automatic 30-day extension, pushing the deadline to furnish the necessary employees with a statement until March 2, 2017. No similar extension has been communicated by the IRS to date."

He added, "The Form 1095-C is by far the more complicated form, and providers who are not automating the process will undoubtedly struggle to meet this deadline." Employers should "be on top of their data as the 2017 calendar year comes to a close."


ACA Reporting Deadlines in 2018
ACA Requirement Deadline
1095-C forms delivered to employeesJan. 31, 2018
Paper filing with IRSFeb. 28, 2018
eFiling with IRSMarch 31, 2018

Employers that file 250 or more information returns with the IRS must file the returns electronically. Source: IRS.


Reporting Requirements

Applicable large employers (ALEs) are employers that had 50 or more full-time equivalent employees on average during the preceding calendar year. ALEs are subject to the ACA's annual information reporting requirements, regardless of whether they sponsor a fully insured health plan or a self-funded plan. ALEs should, by the above deadlines:

  • Distribute Form 1095-C to each full-time employee (similar to Form W-2 requirements and on the same distribution schedule).
  • File Forms 1095-C with the IRS for each full-time employee, along with Form 1094-C (the transmittal form).

An IRS Q&A provides more information on 1095 filing requirements.

Small employers with fewer than 50 full-time employees are exempt from some but not all of the ACA's reporting requirements. For example, self-insured small employers must complete and file Forms 1095-B and 1094-B (the transmittal form) with the IRS, as well as provide full-time employees with a copy of Form 1095-B.

Small employers also are required to file Forms 1095-C and 1094-C if they are members of a controlled or affiliated service group that collectively has at least 50 full-time employees.

"It is easy to get lost in the confusing numeric labels given to the ACA's reporting requirements," said Penny Wofford, a shareholder in the Greenville, S.C., office of law firm Ogletree Deakins. "The forms themselves are not easy to complete," she added. "There is a system of codes that an employer must use on various lines of the forms to tell the story of the employee's employment and health coverage with the employer."

Given this complexity, many employers outsource Form 1095-C reporting to third-party firms.

Employer Shared Responsibility

Annual information reporting demonstrates whether an employer is complying with the ACA's employer shared-responsibility provisions—also known as the employer coverage mandate or "play or pay." Employers not in compliance with the coverage provisions are subject to the ACA's employer penalty provisions, which apply if an applicable large employer fails to offer minimum essential coverage that is affordable and provides minimum value to full-time employees working at least 30 hours per week.

To prepare for employer shared responsibility, ALEs should:

  • Identify full-time employees based on the ACA definition of full time (those who average 30 hours of work per week in one month), considering special classifications such as staffing employees, independent contractors, temporary or short-term employees, and even interns.
  • Assess whether the monthly measurement method or look-back measurement method to determine full-time status is best based on the nature of the company's workforce.
  • Update plan documents and summary plan descriptions if necessary for the measurement method selected.

[SHRM members-only guide: How to Use the Look-Back Measurement Method to Determine Full-Time Status Under the Affordable Care Act]

A Change for Small Employers

The IRS has also released a draft of Form 8962, which is used for reconciling advance premium tax credits for individuals who purchase policies on the ACA Marketplace exchange with the actual tax credits that individuals are entitled to when they file their income taxes.

The only change from 2016 is that "Form 8962 now has instructions for accounting for qualified small employer health reimbursement arrangements (QSEHRAs), which were created by the 2016 21st Century Cures Act," said Timothy Jost, a professor at the Washington and Lee University School of Law in Lexington, Va.

The legislation allows small employers with fewer than 50 full-time employees that do not sponsor a group health plan to fund employee QSEHRAs to pay for qualified out-of-pocket medical expenses and for nongroup plan health insurance premiums, including for plans purchased on the ACA Marketplace exchange.

Depending on the generosity of employers funding these HRAs, "they can reduce or eliminate eligibility for premium tax credits," Jost noted.


Reporting as Usual

It bears repeating that unless and until the law or federal rules are altered, "for employer group health plans, it's business as usual," noted Edward Fensholt, senior vice president and director of compliance services at Lockton, a benefits brokerage and consultancy based in Kansas City, Mo., and Rory Kane Akers, an ERISA compliance attorney at the firm. "The ACA, its employer mandate, the year-end reporting, and all the rules regarding the benefits a health care plan must offer and who they must offer them to, remain in full force and effect," they said.

"Even though an executive order was issued earlier this year directing the federal government agencies to minimize the burdens [of the ACA], the IRS has confirmed in two letters from the Office of Chief Counsel that the law has not been changed," commented Greta Cowart, a benefits attorney in the Dallas office of Winstead, referencing IRS letters number 2017-0010 (April 14, 2017) and 2017-0017 (June 20, 2017), the latter stating plainly that:

"The Executive Order does not change the law; the legislative provisions of the ACA are still in force until changed by the Congress, and taxpayers remain required to follow the law, including the requirement to have minimum essential coverage for each month, qualify for a coverage exemption for the month, or make a shared responsibility payment."

The IRS clarified, Cowart added, that "an applicable large employer is still subject to the employer shared responsibility payment if it fails to offer coverage to a sufficient percentage of its full-time employees...or if it has a full-time employee who obtains coverage on the insurance marketplaces and receives assistance or a tax credit and the employer's coverage is not affordable or did not provide minimum value." 

Employers subject to the ACA's reporting requirements "should prepare to comply and report for 2017 on Forms 1095-C and 1094-C," she advised.

IRS to Enforce Individual Coverage Reporting Requirement for 2018 Filing Season

The IRS announced in October 2017 that, for the upcoming 2018 tax filing season, it will not accept electronically filed income tax returns if taxpayers don't address the Affordable Care Act's health coverage requirements by indicating whether they had coverage, had an exemption or will make a shared responsibility payment. In addition, returns filed on paper that do not address the health coverage requirements may be suspended pending the receipt of additional information and any refunds may be delayed.

"For the first time, individuals must complete line 61" (as shown in previous versions of Form 1040) when filing their tax returns, or risk having their returns rejected during processing, said benefits attorney Ryan Moulder.

In February 2017, given the expectation that Congress could pass legislation to repeal the ACA's individual coverage mandate, the IRS had announced it would not reject taxpayers' 2016 income tax returns that were missing health coverage information.


Addendum: The ACA's Penalty Provisions

 The Affordable Care Act added employer shared responsibility provisions under section 4980H of the tax code. ALEs must either offer "minimum essential coverage" that is "affordable" and that provides "minimum value" to their full-time employees or potentially make an employer shared responsibility payment to the IRS if at least one of their full-time employees receives a premium tax credit for purchasing individual coverage on a Health Insurance Marketplace exchange.

  • The Section 4980H(a) penalty. If an ALE fails to offer minimum essential coverage to 95 percent of its full-time employees for an entire calendar year and any full-time employee obtains a premium tax credit for coverage purchased on an ACA exchange, the 2017 penalty is $2,260 per full-time employee minus the first 30.
  • The Section 4980H(b) penalty. If an ALE does offer coverage to at least 95 percent of its full-time employees but any full-time employee receives a premium tax credit because the coverage was not "affordable" or did not provide "minimum value," the 2017 penalty is $3,390 per full-time employee minus the first 30.

An employer may be subject to one of these penalties, not both. For more about how penalties are calculated, see the IRS's Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act.

Affordability:
For plan years beginning in 2018, employer-sponsored coverage will be considered affordable if an employee's required contribution for self-only coverage for the least-expensive plan option that meets ACA requirements does not exceed 9.56 percent of the employee's household income for the year (down from 9.69 percent in 2017). Since employers don't know their employees' household incomes, the ACA created a safe harbor in which any of the following can be used in lieu of household income:

  • The employee's W-2 wages—as reported in Box 1—generally as of the first day of the plan year (see IRS Questions and Answers).
  • The employee's rate of pay—hourly wage rate x 130 hours—as of the first day of the plan year.
  • The individual Federal Poverty Level (FPL)—Since the FPL isn't officially published until January, employers can use the FPL in effect six months prior to the beginning of the plan year. For 2018, the maximum monthly premium contribution that meets the FPL safe harbor will be 9.56 percent of the prior year's federal poverty level ($12,060 in most states for 2017) divided by 12, or $96.08.

Out of Pocket Maximums:

The ACA imposes annual OOP maximums on the amounts that enrollees in nongrandfathered health plans—whether fully insured or self-funded, in the small- or large-group markets—can be required to pay for covered essential health benefits through cost-sharing.

On her blog E is for ERISA, Christine P. Roberts, an employee benefits attorney with Mullen & Henzell in Santa Barbara, Calif., posted a "cheat sheet for2017 and 2018" with affordability safe harbor thresholds, out of pocket maximums and applicable large employer penalty tax amounts.

 

2017

2018

Affordability Safe Harbors
Health care will be considered affordable if an employee's required contribution for available self-only coverage does not exceed:

 

 

Federal Poverty Level (FPL) affordability safe harbor—monthly maximum premium contribution

$95.93

$96.08

Rate of Pay/W-2 Affordability safe harbor—maximum premium contribution as a share of pay

9.69%

9.56%

Out of Pocket (OOP) Maximums:

 

 

Individual OOP maximum

$7,150

$7,350

Family OOP maximum

$14,300

$14,700

ACA Penalties:

 

 

Section 4980H(a) penalty

$2,260 ($183.33/month)

$2,320 ($193.33/month)

Section 4980H(b) penalty

$3,390 ($282.50/month)

$3,480 ($290/month)

Source: E is for ERISA blog, using data from IRS Revenue Procedures 2016-24 and 2017-36, and the Department of Health and Human Services' Final Rule on Benefit and Payment Parameters for 2017 and 2018.


Related SHRM Articles:

IRS Prepares to Send ACA Penalty Letters by Year's End, SHRM Online Benefits, November 2017

Not Every Aspect of Form 1095-C Can Be Outsourced, SHRM Online Employment Law, October 2017

Play or Pay: Rising Penalties' Role in Complying with the ACASHRM Online Employment Law, October 2017

Don't Overlook 2018 Change in 'Affordability' Safe Harbor Percentage, SHRM Online Benefits, June 2017

Open Enrollment and Year-Round Compliance: How to Avoid a DOL AuditSHRM Online Conference Today, June 2017

Dealing with Rejected Form 1095-C Returns, SHRM Online Benefits, May 2017

HHS Sets 2018 Health Plan Out-of-Pocket Maximums, SHRM Online Benefits, December 2016

Related SHRM Resources:

Health Care Reform Resources for Employers

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