ACA Pathways: IRS Delays ACA Employer Reporting and Disclosure Requirements and Addresses Certain Issues Related to Employer Provided Health Coverage
December 28, 2015
On December 28, 2015, the Internal Revenue Service (IRS) released Notice 2016-4, extending the due dates for the 2015 information reporting requirements (both furnishing to individuals and filing with the IRS) for insurers, self-insuring employers, and certain other providers of minimum essential coverage under section 6055 of the Internal Revenue Code (Code), and the information reporting requirements for applicable large employers (ALE) under Code section 6056.
2015 returns must be filed with the IRS by May 31, 2016 (or June 30, 2016 if filed electronically).
Written statements must be provided to employees no later than no later than March 31, 2016.
||Employees who were determined to be full-time (FT) for any month during 2015
||2/29/16 (3/31/16 if filing electronically)
||5/31/16 (6/30/16 if filing electronically)
||Generally, the insurer for fully insured plans and small employers with a self-insured plan
||All covered individuals (includes dependents(s)). If ALE and self-insured, reporting will be under Form 1095-C
||Same as above
||2/29/16 (3/31/16 if filing electronically)
||5/31/16 (6/30/16 if filing electronically)
Notwithstanding the extensions provided in this Notice, employers and other coverage providers are encouraged to furnish statements and file the information returns as soon as they are ready. Previous guidance granting automatic and permissive extensions of time for filing information returns and permissive extensions of time for furnishing statements will not apply to the extended due dates reflected in the above chart. Employers or other coverage providers that do not comply with these extended due dates may still be subject to significant penalties under Code section 6722 or 6721 for failure to timely furnish and file.
Transitional Relief for Employees Filing Their 2015 Tax Return
The IRS acknowledges that individuals might not receive a Form 1095-B or Form 1095-C by the time they file their 2015 tax returns. Consequently, for 2015 only, individuals may rely upon other information received from employers about their enrollment in minimum essential coverage or offers of coverage for purposes of determining eligibility for the premium tax credit when filing their income tax returns, and need not amend their returns once they receive their Forms 1095-B or C or any corrected Forms 1095-B or C.
IRS Issues Notice 2015-87
The IRS also recently issued Notice 2015-87 to address how certain provisions under the Affordable Care Act (ACA) apply to employer-provided health coverage. The guidance includes 26 questions and answers (Q/As) and is generally applicable to plan years beginning on or after December 16, 2015. However, taxpayers may apply this guidance for all prior periods, and transition relief is available for some rules.
Q/As 1-6 covers the ACA's market reforms -provisions within the jurisdiction of the Treasury Department (Treasury) and the IRS, as well as the Departments of Health and Human Services (HHS) and Labor (DOL) (collectively the Departments). The DOL and HHS have reviewed these Q/As and have advised Treasury and the IRS that they agree with this guidance. Q/As 7-26 pertain to provisions of the Internal Revenue Code (Code), which is solely within the jurisdiction of the Treasury and IRS, and include guidance regarding the employer shared responsibility ("play or pay") rules and related reporting requirements.
Q/As Addressing ACA's Market Reform Rules
The ACA includes certain market reforms that apply to group health plans and health insurance issuers in the group and individual markets. Notice 2015-87 supplements previous guidance addressing health reimbursement accounts (HRAs) and employer payment plans (group health plans under which an employer pays for an employee's individual health insurance premiums). Clarifications on these plans include:
- Market reforms do not apply to retiree HRAs. An HRA covering retirees or other former employees (rather than current employees) is not subject to the ACA's market reforms. Notwithstanding, a retiree/former employee with available funds in the HRA for a month will not be eligible for a premium tax credit for that month should he or she purchase coverage in the Marketplace.
- Family HRAs. An HRA that also permits reimbursement of medical expenses pertaining to the employee's spouse and other dependents (known as a family HRA) cannot be integrated with self-only coverage under the employer's group health plan to comply with the market reforms. Transition relief is available for plan years beginning before January 1, 2016.
- Purchasing individual coverage. With respect to a current-employee HRA or an employer payment plan:
- A current-employee HRA that allows employees to purchase individual market coverage will violate the ACA's market reforms unless that coverage consists solely of excepted benefits. However, using certain previously credited amounts to reimburse medical expenses will not violate the market reforms.
- An employer payment plan may not reimburse the cost of individual coverage offered through a Section 125 cafeteria plan.
Q/As Addressing Affordability of Coverage for Purposes of the Play or Pay Rules
Under the ACA's play or pay rules, employer-sponsored coverage is considered affordable if the employee's required contribution for self-only coverage does not exceed 9.5 percent of his or her household income (as adjusted). The IRS has provided three optional safe harbors for employers to use that permit an employer to use the employee's income to determine whether coverage is affordable: the Form W-2 safe harbor, the rate of pay safe harbor and the federal poverty level safe harbor. Key highlights from the Notice include:
- Adjusted penalty amounts. For 2015, the play or pay penalty amounts are adjusted to $2,080 and $3,120 from the $2,000 and $3,000 statutory penalty amounts. For 2016, the adjusted penalty amounts increase to $2,160 and $3,240, respectively. The IRS anticipates that adjustments for future years will be posted on the IRS.gov website.
- Adjusted affordability percentage when using one of the affordability safe harbors. The IRS intends to amend the play or pay regulations to reflect that the the 9.5 percent used in the affordability safe harbors should be adjusted, consistent with other ACA provisions. The adjusted percentage is 9.56 percent for plan years beginning in 2015 and 9.66 percent for plan years beginning in 2016.
- Employer HRA contributions and flex credits. To the extent that the contributions may be applied to the cost of medical plan coverage, employer contributions to an HRA and flex credit contributions to a Section 125 cafeteria plan can potentially reduce the employee's required contribution. Specific requirements must also be met to apply this reduction. However, an employer flex contribution that may be also applied to non-health benefits does not reduce an employee's required contribution. Transition relief is available for plan years beginning before January 1, 2017, permitting flex contributions that can be applied towards both health and non-health benefits to be used to reduce an employee's required contribution. This relief is not available for flex contribution arrangements offering non-health benefits that were adopted after December 16, 2015, or that substantially increase the amount of the flex contribution after December 16, 2015.
- Opt-out payments. Opt-out payments will generally increase an employee's required contribution beyond the amount of salary reduction elections. The requirement to increase an employee's contribution by the amount of an opt-out incentive will apply only after final regulations are issued. Thus, for unconditional opt-out arrangements adopted prior to December 16, 2015, there is transitional relief whereby employers are not required to treat opt-out payments as increasing employees' required contributions for purposes of reporting or play or pay.
Note: Because employers may report on Form 1095-C a lower required employee contribution than applies for determining eligibility for premium tax credits, employees enrolled in Exchange coverage may be found ineligible for advance payment of premium tax credits even though their household income is within the eligibility range. Employers are encouraged to notify employees that they can obtain pertinent information about their required contribution using the employer contact telephone number on Form 1095-C.
- Application of the Service Contract Act (SCA) and the Davis-Bacon Act (DBA) requirements to the play or pay rules. The SCA and DBA require federal contract workers to be paid prevailing wages and fringe benefits, which often may be cashed out. The IRS continues to consider how the SCA, the DBA and the play or pay rules may be coordinated. Until further guidance is issued (at least through 2016 plan years), employer fringe benefit payments under the SCA or DBA that may be used to pay for coverage under an eligible employer-sponsored plan will be treated as reducing the employee's required contribution, but only to the extent it does not exceed the amount required under the SCA or DBA.
Q/As Addressing "Hours of Service" to Determine Full-time Employee Status and Equivalents
For purposes of play or pay, the term "hour of service" means each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer, and each hour for which the employee is paid, or entitled to payment by the employer, for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or certain leave of absences. This Notice makes clarification to this definition, including the following:
- Termination of employment. The Notice confirms that an hour of service does not include any hours after the individual terminates employment with the employee.
- Includes both direct and indirect payments. For purposes of determining whether an hour of service must be credited, a payment is deemed to be made by or due from an employer regardless of whether it is made by or due from the employer directly, or indirectly. Indirect payments include payments made through a trust fund or an insurer.
- Short-term or long-term disability payments. Hours of service includes periods during which an individual is not performing services but is receiving payments due to short-term disability or long-term disability unless the cost of the coverage was not paid by the employer directly or indirectly, such as if the cost of the coverage were to be paid solely by the employee with after-tax contributions.
- Workers compensation. Periods during which the employee is not performing services but is receiving payments in the form of state or local workers compensation wage replacement do not result in hours of service.
- Medical reimbursement payments. An hour of service does not include a payment that solely reimburses an employee for medical or medically related expenses incurred by the employee.
- No 501- hour limit. There is no 501-hour limit on the hours of service required to be credited for any single continuous period during which an employee performs no duties, if the hours of service would otherwise qualify as hours of service. However, the 501-hour limit on hours of service required to be credited to an employee of an educational organization during employment break periods in a calendar year continues to apply.
Q/As Addressing Miscellaneous ACA Related Issues
The Notice also provides guidance regarding the following ACA related items:
- Break-in-service rules for educational organizations. The IRS intends to amend the play or pay rules to extend the 26-week break-in-service rule (and the related definition of "employment break period") to also apply to any employee providing services primarily to educational organizations for whom a meaningful opportunity to work the entire year is not made available, even if their direct employer is not the educational organization.
- AmeriCorps members. An AmeriCorps member providing services to a grantee receiving assistance under the national service laws is not considered an employee (of either AmeriCorps or the grantee) for purposes of these rules.
- Offers of TRICARE coverage. An offer of coverage under TRICARE for any month due to employment with an employer that results in eligibility for TRICARE is treated as an offer of minimum essential coverage by that employer under an eligible employer-sponsored plan for that month.
- Application of controlled group aggregation rules to governmental entities. Government entities may continue to apply a reasonable, good faith interpretation of the employer aggregation rules under Code sections 414(b), (c), (m), and (o) for purposes of determining whether the entity is an ALE subject to the play or pay rules and related reporting requirements under Code section 6056.
- Use of employer identification numbers (EINs). For an aggregated ALE group, a separate Form 1094-C (with accompanying Forms 1095-C) must be filed by, or on behalf of, each ALE member under that ALE member's EIN, and that these same principles apply to governmental employers. When a designated governmental entity (DGE) is reporting on behalf of an ALE that is a governmental entity, the DGE files a separate Form 1094-C under the name and EIN of each designating ALE member, and shows its own name and EIN as the DGE.
Q/As Addressing Other Issues
Notice 2015-87 also addresses various other issues related to employer-sponsored health coverage, including:
- Contributions to a health savings account (HSA) by individuals receiving medical benefits from the Department of Veterans' Affirs (VA). An individual actually receiving medical benefits from the VA is eligible to make HSA contributions as long as the medical benefits consist solely of (1) disregarded coverage, (2) preventive care, or (3) hospital care or medical services under any law administered by the Secretary of Veterans Affairs for service-connected disability.
- Carry-over amounts in a health flexible spending arrangement (health FSA). Several Q/As clarify the application of the $500 carry over of unused amounts remaining at the end of the plan year in a health FSA.
- The carryover amount is included in determining the amount of the benefit that a qualified beneficiary is entitled to receive under COBRA continuation coverage during the remainder of the plan year in which a qualifying event occurs.
- Furthermore, a qualified beneficiary is allowed to continue to submit expenses under the same terms as similarly situated non-COBRA beneficiaries in the next year, for up to $500 in reimbursable expenses. The maximum amount that can be required as an applicable premium for the carryover amount for periods after the end of the plan year is zero, and the maximum period the carryover is required to be made available is the period of COBRA continuation coverage (e.g., 18 months).
- A health FSA may also limit the availability of the carryover of unused amounts to individuals who have elected to participate in the health FSA in the next year, and/or limit the availability of the carryover to a maximum period (e.g. for one year).
Notice 2016-4 is available at https://www.irs.gov/pub/irs-drop/n-16-4.pdf.
Notice 2015-87 is available at https://www.irs.gov/pub/irs-drop/n-15-87.pdf
For More Information
For more information about this ACA Pathways or about any other health care reform-related provisions, please contact your Burnham Benefits consultant or Burnham Benefits at:
This ACA Pathways is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. The information contained in this ACA Pathways includes emerging health care news from a limited perspective and does not encompass all views. The information was selected from a wide range of sources selected on the basis of their potential impact on employers and/or their employee benefit plans. For more information, please contact Burnham Benefits.
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