Overview of New IRS Reporting Requirements

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As part of the employer mandate, new IRS reporting requirements take effect for the first time in 2015 for employers that had 50 or more full-time employees, including full-time equivalents, during 2014. This is a summary overview of the reporting requirements to assist your organization with preparations during 2015.

 IRS Forms & Deadlines:

The key forms for employers are IRS Form 1094-C (IRS submittal) and IRS Form 1095-C (submittal to full-time employees*). The specific forms and applicable deadlines are:

Employer size* Type of Group Health Plan Reporting Required? Specific Forms & Deadlines
1-49 None No n/a
1-49 Fully insured No n/a
1-49 Self-funded Yes Form 1095-B to full-time employees** by 1/31/16Form 1094-B to IRS by 2/29/16 (3/31/16 if electronic)
50+ None Yes Form 1095-C to full-time employees by 1/31/16Form 1094-C to IRS by 2/29/16 (3/31/16 if electronic)
50+ Fully insured Yes Form 1095-C to full-time employees by 1/31/16Form 1094-C to IRS by 2/29/16 (3/31/16 if electronic)
50+ Self-funded Yes Form 1095-C*** to full-time employees by 1/31/16Form 1094-C to IRS by 2/29/16 (3/31/16 if electronic)

 

* Employer size is based on the calculation of full-time employees (130 hours per month) plus full-time equivalents during any consecutive 6+ month period during the 2014 calendar year

** Full-time employees include those that had full-time or eligible status for at least one month during 2015. Part-time employees, or new variable employees still in Initial Measurement Period, are not required to receive 1095-C.

*** Self-funded plan sponsors must complete Part III on Form 1095-C, including enrollment information for spouses and dependents. Fully insured plans are exempt from Part III.

Key data that needs to be tracked for 2015 calendar year:

  • Number of full-time employees for each calendar month
  • Number of total employees for each calendar month
  • For each full-time employee, status by month (employed; offered coverage; enrolled or waived)
  • Applicable cost of coverage for each full-time employee (lowest cost EE share of qualifying coverage)
  • (Self-funded plans) For each enrolled spouse/dependent – name, address, SSN or DOB, months covered

 How Clarke & Company will help:

Contact us anytime if you need further details or assistance. We will be hosting training sessions and webinars during 2015, to be announced soon. Our online enrollment system (EmpowHR) as well as our data builds for those employers not on EmpowHR will be able to complete reporting requirements for your company. Later this year, we will distribute a Quick Reference Guide for completing the forms, including practical advice and a “cheat sheet” of applicable codes.

 

 

Overview of New IRS Reporting Requirements

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As part of the employer mandate, new IRS reporting requirements take effect for the first time in 2015 for employers that had 50 or more full-time employees, including full-time equivalents, during 2014. This is a summary overview of the reporting requirements to assist your organization with preparations during 2015.

 IRS Forms & Deadlines:

The key forms for employers are IRS Form 1094-C (IRS submittal) and IRS Form 1095-C (submittal to full-time employees*). The specific forms and applicable deadlines are:

Employer size* Type of Group Health Plan Reporting Required? Specific Forms & Deadlines
1-49 None No n/a
1-49 Fully insured No n/a
1-49 Self-funded Yes Form 1095-B to full-time employees** by 1/31/16

Form 1094-B to IRS by 2/29/16 (3/31/16 if electronic)

50+ None Yes Form 1095-C to full-time employees by 1/31/16

Form 1094-C to IRS by 2/29/16 (3/31/16 if electronic)

50+ Fully insured Yes Form 1095-C to full-time employees by 1/31/16

Form 1094-C to IRS by 2/29/16 (3/31/16 if electronic)

50+ Self-funded Yes Form 1095-C*** to full-time employees by 1/31/16

Form 1094-C to IRS by 2/29/16 (3/31/16 if electronic)

 

* Employer size is based on the calculation of full-time employees (130 hours per month) plus full-time equivalents during any consecutive 6+ month period during the 2014 calendar year

** Full-time employees include those that had full-time or eligible status for at least one month during 2015. Part-time employees, or new variable employees still in Initial Measurement Period, are not required to receive 1095-C.

*** Self-funded plan sponsors must complete Part III on Form 1095-C, including enrollment information for spouses and dependents. Fully insured plans are exempt from Part III.

Key data that needs to be tracked for 2015 calendar year:

  • Number of full-time employees for each calendar month
  • Number of total employees for each calendar month
  • For each full-time employee, status by month (employed; offered coverage; enrolled or waived)
  • Applicable cost of coverage for each full-time employee (lowest cost EE share of qualifying coverage)
  • (Self-funded plans) For each enrolled spouse/dependent – name, address, SSN or DOB, months covered

 How Clarke & Company will help:

Contact us anytime if you need further details or assistance. We will be hosting training sessions and webinars during 2015, to be announced soon. Our online enrollment system (EmpowHR) as well as our data builds for those employers not on EmpowHR will be able to complete reporting requirements for your company. Later this year, we will distribute a Quick Reference Guide for completing the forms, including practical advice and a “cheat sheet” of applicable codes.

Understanding the Reporting Requirements of the Health Care Law

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Under the Affordable Care Act, any entity that provides minimum essential coverage to individuals must report that coverage to the IRS and give the covered individuals information about the coverage to help them when filing their federal tax return.

This requirement affects:

  • Health insurance issuers or carriers,
  • The executive department or agency of agovernmental unit providing coverage under agovernment-sponsored program,
  • Plan sponsors of self-insured group health plancoverage, and
  • Sponsors of coverage that the Department of Healthand Human Services has designated as minimumessential coverage.

How to Report: Form 1095-B

Two requirements:

  • File a Form 1095-B with the IRS, accompaniedby a Form 1094-B transmittal. Filers of more than250 Forms 1095-B must e-file. The IRS allowsand encourages entities with fewer than 250forms to e-file.
  • Furnish a copy of the 1095-B to the responsibleindividual (generally the primary insured, employee, parent or uniformed services sponsor). You mayelectronically furnish the Form 1095-B with theindividual’s express, informed consent.

What information is reported?

  • Name and taxpayer identification number of everycovered individual. A date of birth may be enteredif no TIN is available.
  • Name and other information about the responsible individual. No TIN is required if the responsibleindividual is not covered.
  • Months of coverage, including any month forwhich an individual is enrolled in MEC for at leastone day.
  • If the reporting is for insured employer-sponsoredcoverage, information about the employer, including the employer identification number, and uniqueSmall Business Health Options Program identifier,if applicable. (SHOP identifier is not reported for2014 coverage.)

Form 1095-B’s sections

  • Part I, Responsible Individual, is completed by all.
  • Part II, Employer Sponsored Coverage, is completed only by an insurance company for a group healthinsurance plan. This section reports informationabout the employer that sponsored the coverage.
  • Part III, Issuer or Other Provider, is for the provider of the coverage (insurance company, self-insuredemployer or government agency).
  • Part IV, Covered Individuals, reports the name, TIN and coverage months for each covered individual.

 About reporting

The general rule is that whoever provides the minimum essential coverage is responsible for reporting. However, there are exceptions, which reduce the reporting burden on entities that must report coverage of enrolled individuals through a different section of ACA.

These exceptions include:

  • Individual market qualified health plans enrolled in through the Marketplace – the Marketplace must report on this coverage rather than the provider.
  • Supplemental coverage to other MEC, if the same entity provides both primary and supplemental coverage.
  • Supplements to government-sponsored coverage, like Medicare.

Who is the MEC provider?

The MEC provider varies for different types of MEC.

All insured coverage: MEC provider is the issuer or carrier providing the coverage (i.e., the insurance company) except for:

  • Qualified health plans, as noted above
  • Government sponsored programs such as Medicaid and Medicare Advantage that provide coverage through an issuer

Government-sponsored coverage: The provider is the government agency providing the coverage.

  • For Medicare (including insured Medicare under Part C, which is also known as Medicare Advantage), the Medicare office reports.
  • For Medicaid and CHIP, the state agencies administering the program must report.

Miscellaneous MEC: In general, the entity sponsoring the coverage does the reporting.

 Self-insured employer-sponsored coverage:

For self-insured employer sponsored coverage, the MEC provider is the plan sponsor, regardless of the size of the employer.

The plan sponsor is:

  • For self-insured plans covering only employees of a single employer, the employer.
  • For self-insured plans covering employees of more than one employer, each employer for its own employees.
  • For multiemployer (union) plans, the committee, association, board of trustees, or similar group maintaining the plan.
  • For multiple employer welfare arrangements, each participating employer for its own employees.

Government employers: Government employers may designate another governmental unit to report for the government employer. The designee must be related to or part of the government employer.

IRS Q&As on Form W-2 Reporting

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The Affordable Care Act (ACA) added Internal Revenue Code (Code) section 6051(a)(14), which requires employers to report the aggregate cost of employer-sponsored group health plan coverage on their employees’ Forms W-2. This reporting requirement was originally effective for the 2011 tax year. However, the IRS later made reporting optional for 2011.

In April 2011, the IRS issued Notice 2011-28, which furthered delayed the Form W-2 reporting requirement for small employers and provided interim guidance on the reporting requirement. On Jan. 3, 2012, the IRS issued Notice 2012-9, which revised and clarified the IRS’s interim guidance on the Form W-2 reporting requirement.

The IRS’s interim guidance is written in question-and-answer (Q&A) format and provides information on a variety of issues related to the Form W-2 reporting requirement. The interim guidance is generally applicable beginning with the 2012 Forms W-2. Employers that voluntarily reported the cost of coverage on the 2011 Forms W-2 were also allowed to rely on the interim guidance.

The Form W-2 reporting requirement applies to employers as follows:

  • The Form W-2 reporting requirement is optional for small employers (those that file fewer than 250 Forms W-2), unless and until the IRS issues further guidance.
  • Large employers (those that file 250 or more Forms W-2) must comply with the W-2 reporting requirement. This requirement became effective in 2012 for large employers.

 

These are a few of the Q&A interim guidelines as provided by the IRS in Notice 2012-9.

Q&A Guidance on W-2 Reporting

Q-1: What does Code § 6051(a)(14) require?

A-1: Section 6051(a)(14) generally requires the aggregate cost of applicable employer-sponsored coverage to be reported on Form W-2.

Q-2: Does the requirement under § 6051(a)(14) to report the aggregate cost of employer-sponsored coverage on Form W-2, or compliance with this requirement, have any impact on whether such coverage is taxable?

A-2: No. The requirement is informational only. The provisions of § 6051(a)(14) do not affect whether any particular coverage is excludable from gross income under § 106 or any other Code provision, and the reporting of any amount on Form W-2 in compliance with the requirements of § 6051(a)(14) will not affect the amount includable in income or the amount reported in any other box on Form W-2. The purpose of the reporting is to provide useful and comparable consumer information to employees on the cost of their health care coverage.

Q-3: What employers are subject to the reporting requirement under § 6051(a)(14)?

A-3: Except as provided in this Q&A-3, all employers that provide applicable employer-sponsored coverage (see Q&A-12) during a calendar year are subject to the reporting requirement under § 6051(a)(14). This includes employers that are federal, state and local government entities, churches and other religious organizations and employers that are not subject to the COBRA continuation coverage requirements under § 4980B, to the extent such employers provide applicable employer-sponsored coverage under a group health plan. (Notice 2010-69, 2010-44 I.R.B. 576, provides that reporting by these employers is not mandatory prior to the issuance of the 2012 Forms W-2 (the forms required for the calendar year 2012 that employers generally are required to furnish to employees by the end of January 2013 and then file with the Social Security Administration (SSA))).

Q-4: What is applicable employer-sponsored coverage?

A-12: Applicable employer-sponsored coverage means, with respect to any employee, coverage under any group health plan (see Q&A-13) made available to the employee by an employer that is excludable from the employee’s gross income under § 106, or would be so excludable if it were employer-provided coverage (within the meaning of such § 106), except that applicable employer-sponsored coverage does not include:

  • any coverage for long-term care,
  • any coverage (whether through insurance or otherwise) described in § 9832(c)(1) (other than subparagraph (G) thereof (coverage for on-site medical clinics)),
  • any coverage under a separate policy, certificate or contract of insurance which provides benefits substantially all of which are for treatment of the mouth (including any organ or structure within the mouth) or for treatment of the eye, and
  • any coverage described in § 9832(c)(3) the payment for which is not excludable from gross income and for which a deduction under § 162(l) is not allowable.

Q-5: How may an employer calculate the reportable cost under a plan?

A-24: An employer may calculate the reportable cost under a plan using the COBRA applicable premium method (Q&A-25). Alternatively, (1) an employer that is determining the cost of coverage for an employee covered by the employer’s insured plan may calculate the reportable cost using the premium charged method (Q&A-26); and (2) an employer that subsidizes the cost of coverage or that determines the cost of coverage for a year by applying the cost of coverage in a prior year may calculate the reportable cost using the modified COBRA premium method (Q&A-27). For employers that charge employees a composite rate (the same premium for different types of coverage under a plan, for example, a premium for self-only coverage versus family coverage), see Q&A-28.

The reportable cost for an employee receiving coverage under the plan is the sum of the reportable costs for each period (such as a month) during the year as determined under the method used by the employer. An employer is not required to use the same method for every plan, but must use the same method with respect to a plan for every employee receiving coverage under that plan.

Q-6: If the reportable cost for a period changes during the year, must the reportable cost under the plan for the year for an employee reflect the increase or decrease?

A-29: If the cost for a period changes during the year (for example, under the COBRA applicable premium method because the 12-month period for determining the COBRA applicable premium is not the calendar year), the reportable cost under the plan for an employee for the year must reflect the increase or decrease for the periods to which the increase or decrease applies. For examples of the application of this rule, see Q&A-30.

Q-7: How is the reportable cost under a plan calculated if an employee commences, changes or terminates coverage during the year?

A-30: If an employee changes coverage during the year, the reportable cost under the plan for the employee for the year must take into account the change in coverage by reflecting the different reportable costs for the coverage elected by the employee for the periods for which such coverage is elected. If the change in coverage occurs during a period (for example, in the middle of a month where costs are determined on a monthly basis), an employer may use any reasonable method to determine the reportable cost for such period, such as using the reportable cost at the beginning of the period or at the end of the period, or averaging or prorating the reportable costs, provided that the same method is used for all employees with coverage under that plan. Similarly, if an employee commences coverage or terminates coverage during a period, an employer may use any reasonable method to calculate the reportable cost for that period, provided that the same method is used for all employees with coverage under the plan.

Employers that are federally recognized Indian tribal governments are not subject to the reporting requirements of § 6051(a)(14). Until further guidance is issued, employers that are tribally chartered corporations wholly-owned by a federally recognized Indian tribal government also are not subject to the reporting requirements.

Also, in the case of the 2012 Forms W-2 (and Forms W-2 for later years unless and until further guidance is issued), an employer is not subject to the reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year. (This rule is based upon the rule in § 6011(e) that exempts employers from filing returns electronically if they file fewer than 250 returns.) Therefore, if an employer is required to file fewer than 250 2011 Forms W-2, the employer would not be subject to the reporting requirement for 2012 Forms W-2. For this purpose, whether an employer is required to file fewer than 250 Forms W-2 for a calendar year is determined based on the Forms W-2 that employer would be required to file if it filed Forms W-2 to report all wages paid by that employer and without regard to the use of an agent under § 3504. For example, an employer that would have filed only 100 Forms W-2 for the previous year had it not used an agent under § 3504 will not be subject to the reporting requirement for the year, nor will an agent under § 3504 with respect to that employer’s Forms W-2 for the year. In contrast, if the same employer would have filed 300 Forms W-2 for the previous year had it not used an agent under § 3504 of the Code, that employer would be subject to the reporting requirement for the year so that if an agent under § 3504 is used again the information will need to be provided to the agent and reported on the Form W-2.

Q-8: How may an employer address a coverage period, such as the final payroll period of a calendar year that includes Dec. 31 but continues into the subsequent calendar year?

A-36: An employer may include the coverage period that includes Dec. 31 but continues into the subsequent calendar year in one of the following manners: (1) treat the coverage as provided during the calendar year that includes Dec. 31; (2) treat the coverage as provided during the calendar year immediately subsequent to the calendar year that includes Dec. 31; or (3) allocate the cost of coverage for the coverage period between each of the two calendar years under any reasonable allocation method, which generally should relate to the number of days in the period of coverage that fall within each of the two calendar years. Whichever method the employer uses must be applied consistently to all employees.

 

Composite Rating for Small Group Employers

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Composite rating is the practice of lumping all eligible employees together and assigning a single rating, regardless of individual factors (such as age, gender or tobacco use) that may make somebody a higher or lower insurance risk. The composite premium is calculated by dividing the total group premium by the number of enrollees to arrive at an average enrollee premium amount.

Long used in group plan health coverage, the Affordable Care Act (ACA) changed how issuers determine a composite rating for their health insurance plans. Under the ACA, some fully insured group health plans will be required to comply with many of the same nondiscrimination rules that previously applied only to self-funded plans. (Note: These rules aren’t currently effective for fully insured plans—they’ve been delayed indefinitely, pending the issuance of regulations.)

Effective for 2014, the ACA also reforms the rating practices of health insurance issuers in the individual and small group markets by limiting the factors that can affect premium rates. These rating restrictions do not apply to grandfathered plans, large group plans or self-funded plans.

In addition, the ACA currently defines a small group market plan, or small employer, as those that employ, on average, up to 100 workers. However, beginning in 2016, states can change this definition to one that employs no more than 50 workers, on average.

Under the ACA’s reforms, issuers may vary the premium rate charged to a non-grandfathered plan in the individual or small group market from the rate established for that particular plan only based on the following factors:

Age: The rate can differ up to 3:1 for like individuals of different ages who are 21 years and older.

Family Size: Rates may differ based on whether coverage is for an individual or a family.

Geography: States can establish up to seven geographic rating areas to determine the collective health care risk of the residents.

Tobacco Use: Users of tobacco can be charged rates up to 50 percent higher than non-tobacco users.

All other rating factors are prohibited. This means that several factors commonly used by issuers to set higher premiums prior to 2014 (such as health status, claims history, duration of coverage, gender, occupation, small employer size and industry) can no longer be used.

As a result, some issuers no longer determine composite ratings for their group plans.

In response to this, many small employers want to know whether they can determine their own composite rating. However, their authority to do this is unclear at this time, as official guidance from the federal government has yet to be issued.

Until guidance is issued, it cannot be known for certain whether setting up an internal composite rating system will comply with federal nondiscrimination rules. An employer that implements a composite rating policy that is later found to be discriminatory faces a penalty of $100 per day, per participant or beneficiary deemed to have been discriminated against.

Yet, the Department of Health and Human Services (HHS) has also signaled in a final rule issued in March 2014 that states could make their own rules on composite rating, subject to HHS approval.

This action, coupled with existing rules addressing discrimination and composite ratings, have allowed some employers to tentatively move forward with different approaches.

Currently, when setting employee contributions, employers have two options:

  1.  Set the employee contribution as a percentage of the group premium (for example, older employees and smokers could pay more).
  2.  Generate a composite rate where each employee’s contribution is the same, except for variation due to single coverage and/or family size.