IRS Issues Proposed Regulations on Information Reporting Under the Affordable Care Act

The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.

 By Amy M. Gordon, Esq., Jacob Mattinson, Esq., and Susan M. Nash, Esq.

McDermott, Will & Emery, Chicago, IL

Recently issued guidance clarifies annual information reporting requirements for insurers and employers under the Affordable Care Act (ACA). The required reporting enables the Internal Revenue Service (IRS) to determine compliance with the employer and individual mandates and individual eligibility for premium tax credits under the ACA.

The IRS issued proposed regulations on September 5, 2013, addressing information reporting requirements applicable to employers and insurers under Internal Revenue Code (the Code) §§6055 and 6056.

Reporting of Minimum Essential Coverage  

Beginning in 2014, individuals must generally maintain minimum essential coverage or pay an individual shared responsibility payment with their annual federal income tax return. The IRS will use information reported under the information reporting requirements of the Affordable Care Act (ACA) to determine individual compliance with the individual shared responsibility requirements and to determine individual eligibility for premium tax credits.

Minimum essential coverage is defined in §5000A(f)(1), and includes coverage under an eligible employer-sponsored plan.  An eligible employer-sponsored plan includes a group health plan or group health insurance coverage offered by an employer to an employee that is a plan or coverage offered in the small or large group market within a state.

Section 6055, added by ACA §1502, imposes annual information reporting requirements on insurers, employers that self-insure group health plans and certain other providers of minimum essential health insurance coverage. Covered entities will report the required information to the IRS on Form 1095-B, or another form the IRS designates, and to covered individuals through a statement providing the policy number, contact information for the entity and information required to be reported to the IRS. Section 6055(a) requires entities providing minimum essential coverage to file annual returns reporting information about the entity and specific information for each individual for whom minimum essential coverage is provided.

The information these entities are required to report on individuals includes individually identifying information for insured individuals and the months during which each employee was covered by minimum essential coverage for at least one day. Entities may report birthdates rather than taxpayer identification numbers to identify covered individuals if the entity is unable to obtain a taxpayer identification number after reasonable effort.

Information Reporting by Applicable Large Employers on Health Insurance Coverage Offered Under Employer-Sponsored Plans  

Section 6056, added by ACA §1514, imposes annual information reporting requirements on applicable large employers regarding health insurance the employer provides to its full-time employees. Applicable large employers are generally defined as employers with 50 or more full-time employees. Section 6056 requires applicable large employers that are subject to the employer shared responsibility requirements of §4980H to file a return with the IRS describing health care coverage the employer provides to its full-time employees, including a list of full-time employees, the coverage offered to each full-time employee and for which months it applied. Entities will report the required information to the IRS on Form 1094-C, or another form the IRS designates, and to each of its full-time employees.  The proposed regulations provide potential simplified reporting methods that would serve as alternatives to the general reporting method.

Under the proposed regulations, applicable large employers are only required to report the employee's share of the lowest cost monthly premium for self-only coverage, because the IRS determines the affordability of employer coverage for premium tax credit eligibility based on the cost of self-only coverage, not on the cost of coverage for the employee and his or her dependents.  The IRS will use information obtained under this reporting requirement to determine employer compliance with the ACA's employer shared responsibility rules and to determine individual eligibility for premium tax credits.

As part of the proposed regulations, the IRS describes various possible administrative simplifications that are designed to reduce or streamline information reporting and cost burdens on employers. The simplifications include:

  •   Allowing employers to report offers of minimum essential coverage on Form W-2
  •   Eliminating the need to determine an employee's full-time status if applicable coverage is offered to all potentially full-time employees
  •   Requiring an employer to report an employee's cost to purchase employer-sponsored health coverage only when that cost is above a threshold amount
  •   Limiting reporting for employers offering no-cost coverage to employees and their spouses and dependents
  •   Eliminating certain duplicative reporting requirements
  •   Various other simplifications.

Any simplifications the IRS adopts would serve as optional alternatives to the general reporting requirements described above.

The IRS has delayed compliance with the proposed regulations for one year under Notice 2013-45, 2013-31 I.R.B. 116.  The reporting requirements are now effective for tax years beginning in 2015, with the first report due in 2016 for 2015 coverage. The IRS, however, encourages employers to voluntarily comply with the information reporting requirements for 2014. The proposed regulations were published in the Federal Register on September 9, 2013, with written comments to reduce or streamline reporting under the proposed rules due by November 8, 2013.

Next Steps  

Employers sponsoring group health plans should prepare for compliance with the ACA's information reporting requirements by reviewing internal administrative processes and systems to generate the necessary reports and determining whether any additional action is needed to bring health plans into full compliance with the ACA to avoid potential penalties.

For more information in the Tax Management Portfolios, see Cowart, 389 T.M., Medical Plans - COBRA, HIPAA, HRAs, HSAs and Disability, and in Tax Practice Series, see ¶5920, Health and Disability Plans.

© 2013 McDermott Will & Emery

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