September 11, 2013
On September 5, 2013, the Internal Revenue Service (IRS) released two proposed rules on the Affordable Care Act (ACA)'s requirements for certain employers to provide information to the IRS and to covered individuals about the health plan coverage they offer (or do not offer) to their employees. These reporting requirements, found in Internal Revenue Code sections 6055 and 6056, are intended to provide the IRS with information to administer other ACA requirements - in particular, the employer and individual mandates. They will also allow individuals to establish verification of their coverage to determine if they will qualify for a premium tax credit in the Marketplace. Earlier this summer, these reporting requirements were delayed until 2015, along with the employer mandate, commonly referred to as the "play or pay" penalties.
Reporting entities are permitted to use third parties to facilitate filing returns and furnishing statements to comply with reporting requirements. However, these arrangements do not transfer the potential liability for failure to report.
Code section 6055 requires health insurance issuers, self-insured health plan sponsors, government agencies that administer government-sponsored health insurance programs (for example, Medicare, Medicaid, CHIP or TRICARE), and any other entity that provides minimum essential coverage (MEC), to file an annual report with the IRS and provide a statement to covered individuals about the type and period of coverage offered.
To avoid collecting duplicate or unnecessary information, the proposed rule provides that health insurance issuers are not required to submit information returns on individuals enrolled for coverage under a qualified health plan offered through the Marketplace, since this information will be reported to the IRS by the Marketplace. However, issuers must report on qualified health plans offered in the Small Business Health Options Program (SHOP) because the Marketplace will not be reporting on these plans.
Under Code Section 6055, reporting is not required for health savings accounts (HSAs) because these plans do not provide MEC. Additionally, reporting is not required for arrangements such as health reimbursement arrangements (HRAs) that supplement MEC. The reporting requirements under this section DO NOT apply to employers with fully insured plans.
Code section 6056 requires all large employers that are subject to the employer mandate to report certain health care coverage information offered to their full-time employees to the IRS. Specific information required to be reported under Code section 6056 includes information about the applicable large employer offering coverage (including contact information for the employer, the number of full-time employees, and providing a list of full-time employees and information about the coverage offered to each, by month, including the cost of self-only coverage.
Related employers are treated as a single employer for determining employer size if they meet certain IRS criteria under Code section 414. Each large employer (and each member of a group of related companies that constitute a large employer) is responsible for its own reporting obligations, however. Thus, each member of a controlled group with employees is responsible for filing its own return and providing coverage statements to its full-time employees.
The information returns must be filed with the IRS by February 28 (or March 31, if filed electronically) of the year following the calendar year coverage was offered. The first Code section 6055 and 6056 reporting returns will be due in 2016 for coverage provided in 2015. For 2014, employers are encouraged to voluntarily comply with the reporting requirements; however, compliance is completely optional for 2014 and no penalties will be assessed for failing to comply.
Electronic filing of returns is required for all large employers filing 250 or more returns during the calendar year, although waivers can be provided in the case of hardship. Also, all types of returns (including information returns, income tax returns, employment tax returns and excise tax returns) are aggregated for purposes of the 250-return threshold. An employer filing fewer than 250 returns during the calendar year is encouraged to file its returns electronically, but is permitted to use the paper form.
Both Code section 6055 and 6056 require reporting entities to furnish a statement annually to individuals enrolled in MEC (section 6055) and full-time employees (section 6056). Among other things, this information will be used to determine whether employees can claim a premium tax credit on their tax returns for coverage purchased through the Marketplace.
The individual statements for each calendar year must be furnished to all responsible individuals enrolled by January 31 of the next calendar year. Extensions of this deadline may be available in certain circumstances. The first employee statements (meaning the statements for 2015) must be furnished no later than February 1, 2016 (as January 31, 2016 falls on a Sunday).
The proposed rules permit electronic delivery of statements to individuals if the recipient consents. The proposed rules also permit furnishing only one statement per address.
In addition to Code sections 6055 and 6056, section 6051 requires employers to report the aggregate cost of health coverage on Forms W-2. Large employers with self-insured plans are subject to the reporting requirements of all three sections. Key aspects of the proposed rules include a variety of options to potentially reduce or streamline these reporting requirements, including the following:
The IRS and Treasury Department are seeking additional comments and suggestions from interested parties and have encouraged the submission of additional comments on the Code section 6055 and 6056 proposed rules through early November. The public comments will be taken into account in developing final reporting rules.
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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.