ACA Employer Reporting Requires Coordinated Effort

By Allen Smith Mar 17, 2015
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HR and payroll will need to work together more closely than they historically have to ensure compliance with Affordable Care Act (ACA) reporting requirements that take effect toward the beginning of 2016, according to Melanie Thomas, senior vice president at Burnham Benefits Insurance Services in Irvine, Calif.

Two IRS Code Section​s

New reporting requirements under Internal Revenue Code Sections 6055 and 6056 will be used to enforce the individual mandate and employer mandate.

The individual mandate (Section 6055) stipulates that most individuals are required to have minimum essential coverage or pay a penalty on their individual taxes. Form 1095-B will be provided by insurance companies by Jan. 31, 2016, to be used as proof of coverage. (For self-insured plans, the plan sponsor will complete a portion of the 1095-C form to meet the Section 6055 requirement, instead of the insurance company.)

The employer mandate (Section 6056) requires an applicable employer with 50 or more full-time or full-time equivalent employees to provide minimum essential coverage to at least 95 percent of its full-time employees and child dependents (though only 70 percent in 2015) and must meet affordability rules (not to exceed 9.5 percent of income for self-only coverage) or face a penalty.

Two Forms for 6056 Reporting

The two new reporting forms under Section 6056 are 1094-C and 1095-C.

The 1095-C is similar to a Form W-2 and must be sent by Jan. 31 to employees (like a W-2). All employers with 50 or more full-time or full-time equivalent employees will have to complete Parts I and II of Form 1095-C on behalf of each of its full-time employees, regardless of whether they are offered coverage, Thomas noted.

If an employer self-funds medical benefits, it also will need to complete Part III of the Form 1095-C for all employees and dependents in the medical plan, she explained. When plans are fully insured, the carriers are responsible for reporting this information and will do so on Form 1095-B.

Additionally, all employers with 50 or more full-time or full-time equivalent employees will need to complete Form 1094-C. The 1094-C is a transmittal form that contains information in aggregate about the employer. The 1094-C will be due to the IRS Feb. 29, 2016, if in paper form, or electronically by March 31, 2016. (Electronic transmittal is required of employers with 250 or more returns). Thomas described the 1094-C as similar in concept to a Form W-3 and said that most payroll departments would be familiar with this current transmittal.

Indicator Codes

“Employers will need to have a good understanding of the indicator codes developed by the IRS to accurately fill out the forms,” she added. Each code has a different meaning, such as:

  • What safe harbor the employer is using to calculate the affordability of its employees’ share of the cost.
  • Whether there was an offer of coverage.
  • Whether the employee enrolled and whether the health care was affordable.

“We are discovering that reporting systems being built by payroll and/or benefits administration systems may try to put an employer into a ‘general’ code when in actuality the employer may have different codes by department, classification, location or division,” Thomas cautioned.

It gets trickier if there is a lot of turnover within the company, Thomas said, pointing out that there would be a different code to use for the months in which employees weren’t employed or were in a waiting period, or if they declined coverage or accepted coverage. She emphasized that the coding for each employee must be correct.

Coordinated Effort

Payroll and benefits systems need to be bundled to capture the information or have the ability to accept the information from a third-party system for transmittal and form completion, she added.

“Employers need their HR department, payroll department, payroll vendor, benefits administration system, benefits broker/consultant and tax advisors to work together to discuss how each of their respective areas manage the information required to meet the reporting guidelines,” Thomas said. “Some employers are discovering that they don’t hold the necessary data in a format that can easily be uploaded into the necessary forms or that upgrades in their current systems need to be made,” she remarked. “Having these discussions now will enable groups to see where additional resources may be required to meet ACA reporting guidelines.”

Thomas anticipates that most businesses should have the systems they need to report in place by the summer or earlier. Some employers that don’t have their payroll and benefit administration systems bundled “may need a Plan B in place especially if their payroll vendor is unable or unwilling to accept third-party data,” she noted.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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