The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.
By Robert J. St. Ville and Cristopher D. Jones
Large employers spent much of last year deciding whether the Patient Protection and Affordable Care Act's (ACA's) employer mandates applied to them and preparing for the start of enforcement in 2015. The ACA requires most "applicable large employers" (ALEs) (i.e., generally, employers who have an average of more than 50 full-time and full-time equivalent employees) to offer to their full-time employees health care that satisfies the ACA's "minimum essential coverage" requirement. ALEs who fail to comply with the ACA's employer mandate can face significant tax penalties.
Now, employers must turn their attention to the ACA's reporting requirements. Section 6055 and §6056 of the Internal Revenue Code of 1986 (the Code) require health coverage reporting. Section 6055 requires insurers and any employer (whether or not an ALE) that maintains a self-insured health plan that provides "minimum essential coverage" to report that coverage to the IRS for purposes of verifying employees' eligibility for tax credits for purchasing health insurance on insurance exchanges (i.e., "premium tax credits") and for administering the ACA's individual shared responsibility provisions. Section 6056 applies only to ALEs, who must report information about their employer-sponsored health care for purposes of administering the ACA's employer shared responsibility (i.e., "pay or play") mandate.
Starting in 2015, employers must gather the information necessary to satisfy these reporting requirements. The information must be compiled on a month-by-month basis, and the first reports will be sent in 2016 (reporting 2015 monthly data). The IRS issued final reporting requirement rules in March 2014, and on August 28, 2014, it released early drafts of the forms and the instructions for the forms that ALEs must use to send information to the IRS and to employees. On February 9, 2015, the IRS issued final versions of the forms and the instructions. Form 1095-C allows an ALE to report information required for each employee under §6056, and an ALE will use Form 1094-C to transmit its Forms 1095-C to the IRS.
An ALE that sponsors a self-insured plan will report the information required by both §6055 and §6056 using a Form 1095-C. But ALEs who have fully-insured health plans (versus self-insured health plans) only need to complete Parts I and II of the Form that collect the information required by §6056. For fully-insured plans, the insurance company will use Form 1095-B to report separately the information required by §6055.
In the next sections, we review briefly what information is required on the Forms 1094-C and 1095-C.
A Form 1095-C for Each Full-Time Employee
ALEs must use Form 1095-C to report "minimum essential coverage" they offered to their full-time employees and, if applicable, to report information about all of their employees who enrolled in their self-insured health plan. Part I of Form 1095-C identifies the employee and the employer, and Part II requires ALEs to provide each of their full-time employees with information about the affordability and minimum value of the coverage the ALE offered to the them and their spouses and dependents during each month of the calendar year. ALEs that maintain self-insured plans must complete Part III of the Form for all of their employees (whether full-time or part-time). Part III requires the name, Social Security number (or date of birth, if the Social Security number is unavailable), and months of coverage during the calendar year for the employee and for each of the employee's dependent covered under the plan. (The employees' dependents' self-insured coverage information is reported on the Form 1095-C that is provided to the employee.)
Each member of a controlled group of companies that comprises the ALE (i.e., each ALE Member) that has employees has its own reporting obligations but only needs to distribute reports for its own employees. Thus, for example, if a full-time employee works for two ALE Members (i.e., two companies within an ALE's controlled group of companies), that employee will receive two Forms 1095-C, one from each employer. But a full-time employee who works for several divisions of a single ALE Member would receive only one Form 1095-C, on which information about health coverage offered by the different divisions would be combined. Thus, ALEs are required to track what coverage they offer to each of their full-time employees as they transfer between ALE Members and divisions. And ALEs will need systems to capture coverage information on a monthly basis, especially for controlled groups with different health plans that apply to employees in different divisions of the same ALE Member.
One Form 1094-C to Rule all the Forms 1095-C
ALE Members must not only submit to the IRS each Form 1095-C they send to their full-time employees, they must also summarize those reports for the IRS using the Form 1094-C transmittal form. On Form 1094-C, each employer reports to the IRS whether it is a member of an ALE controlled group, and if it is, the names and employer identification numbers (EINs) of the other ALE Members in the group and the total number of its employees and its full-time employees. In addition to each ALE Member filing a Form 1094-C transmittal form with the IRS (along with copies of the Forms 1095-C that it distributes), the ALE group itself must submit a single Form 1094-C transmittal as an "authoritative transmittal" to report, in the aggregate, employer-level data for the prior year. This will require that all of the ALE Members of the ALE group coordinate their reporting to ensure that the Forms 1095-C are aggregated correctly.
In an effort to ease employers' reporting burden, the IRS has provided several optional simplified reporting methods. One alternative optional reporting method applies to ALEs that make qualifying offers of coverage to full-time employees and their spouses and dependents for all twelve months of the reporting period. Another alternative allows an ALE to satisfy its reporting obligation without identifying the number of FTEs if it offered affordable, minimum-value coverage to at least 98% of its employees for whom Forms 1095-C must be filed. Other simplified reporting alternatives are available for employers for the 2015 transition period, including a special rule for ALEs with less than 100 FTEs that are exempt from the ACA penalties for 2015. The specifics of these alternatives are described in the instructions to the Forms.
Electronic Filing May Be Required
If an employer has 250 or more full-time employees, it must submit its ACA forms to the IRS electronically. If the employer has fewer than 250 full-time employees, it may submit its forms either electronically or in paper form. As with the Form W-2 reporting requirements, employers may opt to distribute Forms 1095-C to employees electronically, but they must comply with the IRS's electronic disclosure regulations, which generally require advance notice and consent for electronic disclosures and verification that employees can access information provided electronically.
Failure to File Penalties
Employers will be subject to penalties under §6721 and §6722 of up to $200 per return for failure to timely file their Forms 1094-C or furnish Forms 1095-C to their employees. The IRS has, however, announced that it will not impose penalties on ALEs that have made a good faith effort to comply with the reporting requirements for returns and statements that employers must file and furnish in 2016.
The ACA reporting requirement is an annual obligation, and employers have until February 28 of the next year (or March 31 if it files electronically) to submit forms to the IRS. But employees must receive their Forms 1095-C no later than January 31 after the close of the calendar year. For the 2015 returns, employers have until February 29, 2016, (for paper filing) or March 31, 2016, (for electronic filing) to report to the IRS. And employees must receive their Forms 1095-C or notices no later than February 1, 2016 (because January 31, 2016, is a Sunday). All plans, including plans that operate on a non-calendar-year basis, must file information for calendar year 2015 by these dates.
Although employers are not required to file or distribute their first ACA reports until early 2016, the information they need to complete their IRS reporting forms must be compiled for each month during 2015 so that they are prepared to make their ACA-mandated disclosures. In addition to basic identifying information, such as the names and Social Security numbers of employees, spouses, and dependents and the names and employer identification numbers of each company within the controlled group, employers must also track and collect:
Also, and perhaps most significantly, employers must be prepared to categorize (a) the employment status of each employee for each month (e.g., "not employed for the month" or "not full time for the month"); and (b) the status of each employee relative to the health plan (e.g., whether the employee is enrolled for the month, whether the employee is in an initial ACA measurement period for the month, and whether and how the employer determined affordability of coverage for each employee for each month). Each of these elements is identified by codes, referred to as "4980H Safe Harbor Codes," to be entered for each employee for each month on Form 1095-C, Part II.
For most employers, compiling the data for each month will require coordination with the health plan's insurer or third party administrator, as well as the employer's payroll vendor. Working together with these vendors, employers will need to develop procedures to determine each employee's full-time or part-time status for each month, collect information regarding offers of coverage and health plan enrollment for each month, and allocate responsibility between the employer and its vendors for data collection during 2015 to enable completion, filing, and distribution of the forms in 2016.
The opinions expressed and any legal positions asserted in the article are those of the authors and do not necessarily reflect the opinions or positions of Miles & Stockbridge P.C., its other lawyers, or Bloomberg BNA.
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 & Disability Plans.
© 2015 Miles & Stockbridge P.C.
Copyright©2015 by The Bureau of National Affairs, Inc.
This article is offered only for general informational and educational purposes and is not offered and does not constitute legal advice or legal opinions.Any opinions expressed and any legal positions asserted in this article are those of the authors and do not necessarily reflect the opinions or positions of Miles & Stockbridge, PC, or its other lawyers.
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