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With transition relief ending, reporting deadlines will be months earlier than in 2016
Updated on 8/2/2016
Employers received some welcome relief last December when
the IRS extended employee notification and IRS filing deadlines for Affordable Care Act (ACA) information reporting on tax year 2015.
"This year everyone got an extra two months to distribute forms to employees and three months to file with the IRS, but we haven't seen any indication that for next year there is going to be the same kind of relief," said Todd Praisner, CEO of Tango Health, a health benefits and ACA compliance firm in Austin, Texas.
That could pose a challenge going forward, especially for employers that must provide 1095-Cs to employees by the end of January, indicating month-by-month coverage provided through the end of the previous December. "If you're printing forms, Jan. 20 is about when they need to go to the printer in order to get mailed by Jan. 31," Praisner said.
That won't leave much time, and HR should be prepared to act quickly:
For employers, information reporting under tax code Sections 6055 and 6056 has been among the most onerous of the ACA's requirements:
Transition Relief Is Ending
The extended reporting deadlines are not the only relief that's ending. Due to the
phasing-in of the ACA's shared responsibility mandate—also known as "play or pay"—only organizations with 100 or more full-time or equivalent employees were subject to the shared responsibility mandate in 2015, and they only needed to insure 70 percent of their full-time workers.
Starting in 2016, however, all organizations with 50 or more full-time employees or equivalents must insure 95 percent of their full-time employees to avoid liability under the ACA's
shared responsibility provisions, and the resulting penalties.
"Some employers may not understand that it's not 95 percent [averaged out] for the year, it's 95 percent for each one of the months," Praisner warned. "If you had a month where you're below 95 percent, you're exposed," he added. "Employers who started 2016 below the 95 percent coverage threshold, expecting to ramp up, may be in for a surprise this year if they're not paying attention to that"—potentially facing penalties for the months when they were below the threshold, triggered when uncovered full-time employees sought subsidized coverage through the ACA's Health Insurance Marketplace, also known as the public exchanges.
"The IRS is going to ask you for your payroll and benefits data, to determine whether the indicator codes used on Form 1095-C are accurate," Praisner said. "With a 70 percent threshold, that was a lot easier to get by with."
Affordable Care Act compliance is more worrisome to HR leaders at smaller organizations. It was ranked as a top concern by 69 percent of employers with 50 to 99 employees versus 51 percent of those with 500 to 1,000 employees, according to
a recent survey of more than 400 senior-level HR and finance executives at small and midsize U.S. companies.
The survey, by Chicago-based benefits broker HUB International, found that 57 percent of all respondents were concerned about the burden of calculating affordability, and 45 percent were concerned about calculating the number of full-time employees and equivalents—potential red flags for IRS audits.
Correct Mismatched TINs
On Aug. 2, the IRS published
proposed regulations that seek to clarify a number of issues raised under Section 6055 and
Notice 2015-68, including filing errors. While the proposed regulations are useful, they continue to overlook some areas where further guidance would be helpful, according to
an online analysis by Michael Lloyd and Michael Chittenden, attorneys with Miller & Chevalier in Washington, D.C.
For instance, on the matter of errors with taxpayer identification numbers (TINs), the attorneys explain:
"The preamble to the proposed regulations formalizes the position of the IRS with respect to TIN mismatch messages generated by the ACA Information Returns (AIR) filing system.… Given the IRS's stated position that error correction is a necessary part of demonstrating 'good faith' required for penalty relief, it is unclear what, if anything, a filer should do in response to these error messages. In any event, filers may wish to demonstrate good faith by making an effort to obtain correct TINs from responsible individuals and head-off future errors by working to do so now, rather than later, when such efforts will likely be required."
Watch for Exchange Subsidy Notices
Large employers should also
be on the lookout for exchange subsidy notices alleging that a full-time employee received subsidized coverage on an exchange because the employer failed to provide qualifying coverage. Those notices, pertaining to 2015 coverage, are now being sent from the ACA's Health Insurance Marketplace, which recently
provided this sample.
To contest the notice, an
appeal request form must be submitted within 90 days of the date of the notice.
"On June 30, a big wave of exchange notices came out," Praisner said. To avoid penalties, it will be necessary to show that qualifying coverage was offered to the employee, "which is why employers should have a system in place for tracking and recording health benefits. Otherwise, you're going to be chasing your tail as these [subsidy notices] come trickling in," he said.
Make a Team Effort
"Employers, with a year of ACA reporting under their belt, realize the scope of this task," said Praisner. "We're starting to see job titles like 'manager of ACA compliance,' often within their tax and compliance team, especially at large companies."
But ACA reporting still requires a team effort, advised Zack Pace, senior vice president for benefits consulting at CBIZ Inc. in Columbia, Md.
"HR, the chief financial officer or controller, and the organization's accountant or tax advisor should all be at the same table. Now may be the time to sit down with the auditor and tax advisor and show them some forms you completed and make sure they're on the same page," in particular regarding the indicator codes used for reporting coverage, Pace said.
He also pointed to the importance of tracking and recording coverage provided to each full-time employee every month, "so it's an ongoing process to get ready for next year's annual reporting. If the payroll vendor can assist in this process, it becomes easier because they already have the data."
Review Compliance Tactics
This year, "the experience varied dramatically from employer to employer, from the extreme of completing hundreds of forms by hand to those who turned to an outsourced service for help," Pace noted. But "even those firms that were selling outsource services weren't really sure what they were offering" at the start of the initial reporting year.
Having now gone through the process, employers should review the method they used and decide what may work best for next year's filings, Pace recommended, asking:
On the Cusp
Organizations that at the end of last year were close to the 50 or more full-time employee threshold "should run the math each month to determine whether they'll be subject to shared responsibility for tax year 2016," Pace advised. "You don't want to find out that you're liable for the shared responsibility requirements come November of this year."
Draft Forms Posted for 2016 Reporting
In July, the IRS issued draft ACA reporting forms for tax year 2016, to be filed in early 2017, including draft forms
1095-C. The 2016 draft forms show
few substantive changes from 2015 according to a rundown by Tango Health, although some headings have been modified and some of the language clarified, among other alterations. These drafts are not final and are subject to change, and draft filing instructions are forthcoming.
Related SHRM Articles:
ACA Midyear Checkup: Count Your Contingent Workers,
SHRM Online Benefits, August 2016
IRS Eases Penalties for Late ACA Reports,
SHRM Online Employment Law, July 2016
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