Reporting Under Health Care Reform

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Copyright 2014- Not to be reproduced without express permission of Benefit Express Services, LLC

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Reporting Under Health Care Reform

By

Larry GrudzienAttorney at Law


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Agenda

• Form W-2 Reporting

• Code § 6055 Reporting

• Code § 6056 Reporting


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• Employers must report the “aggregate cost” of “applicable employer-sponsored coverage” on an employee’s Form W-2.

• The Form W-2 reporting requirement is first required for the 2012 tax year–that is, the value must be reported on the Form W-2 issued in January 2013 for the 2012 tax year.

• The same rules apply for 2013, but no guidance for 2014.

• To comply with this requirement, employers must: Determine the applicable employer-sponsored coverage that is provided to each

employee; Calculate the aggregate cost of such coverage for each employee; and Report that cost on each employee’s Form W-2.

Overview


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• In the 2011 version of Form W-2 (Wage and Tax Statement) and related Instructions, one notable change is the addition of new codes for Box 12 reporting, including a new code DD to be used for reporting the cost of employer-sponsored health coverage.

• In March 2011, the IRS issued Notice 2011-28, providing interim guidance on the reporting requirement (including information on how and what to report as well as certain transition relief), and also posted FAQs that incorporate the guidance in the notice.

• In January 2012, the IRS issued Notice 2012-9,restating and amending its guidance and clarifying which employers are exempt, when Health FSAs are not included, when EAPs are included and other issues.

Overview


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• Even though the W-2 reporting requirement is for informational purposes without triggering any tax liability, it would appear that typical information reporting penalties will apply to employers for noncompliance.

• In addition, it is not clear whether penalties would apply for a good faith mistake in reporting the cost of coverage—guidance from the IRS would be welcome.

Overview


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• The interim guidance clarifies that if the employer is not otherwise required to issue a Form W-2 for an individual (such as a retiree or other former employee receiving no compensation), reporting is not required.

• When employees terminate employment during a calendar year, an employer may apply any reasonable method of reporting the cost of coverage provided under a group health plan, provided that the method is used consistently for all employees receiving coverage under that plan who terminate employment during the plan year.

• But regardless of the method of reporting used by the employer for other terminated employees, there is no reporting requirement for an employee to receive a Form W-2 prior to the end of the calendar year, if the employee terminated employment during the year.

Overview


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• All employers that provide “applicable employer-sponsored coverage” during a calendar year are subject to the reporting requirement–including federal, state, and local government entities (a few exceptions apply, such as federally recognized Indian tribal governments).

• For 2013 Forms W-2, under transition relief and until the issuance of further guidance, 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.

Therefore, if an employer files fewer than 250 Forms W-2 in 2011, the employer would not be subject to the reporting requirement for the 2012 calendar year.

This rule applies regardless of whether the employer uses an agent.

Employers Subject to Reporting


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• There are other exceptions to the reporting requirement, including transition relief for:

For employers that provide coverage under a self-insured health plan that is not subject to any federal continuation coverage requirements (e.g., certain church plans);

For plans maintained by the government primarily for members of the military and their families; and

For related employers (within the meaning of Code § 3121(s)), in which case only the common paymaster must report the cost of coverage provided to an employee by all the employers for whom it serves as the common paymaster; and

If related employers employ the same employee, but do not use a common paymaster, the employers may either:

report the total aggregate cost on a single W-2, or

allocate the cost between the employers and report the divided cost on separate Forms W-2.



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• The guidance also addresses the reporting obligations of predecessor and successor employers in the case of an individual transferring to a new employer that qualifies as a successor employer under Code § 3121(a)(1).

• These rules generally require that both entities report–unless the successor employer undertakes to report for the predecessor employer.

• An employer that contributes to a multiemployer plan is not required to include the cost of coverage provided to an employee under that multiemployer plan in determining the aggregate reportable cost.

• If the only applicable employer-sponsored coverage provided to an employee is provided under a multiemployer plan, no reporting is required on the Form W-2.



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• The IRS has indicated that the aggregate reportable cost is not required to be reported on a Form W-2 furnished by a third-party sick pay provider.

• However, a Form W-2 furnished by the employer to an employee must include the aggregate reportable cost regardless of whether that Form W-2 includes sick pay, or whether a third-party sick pay provider is furnishing a separate Form W-2 reporting the sick pay.



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• The Form W-2 reporting requirement applies only to “applicable employer-sponsored coverage,” a term that generally includes any employer-provided group health plan coverage under an insured or self-insured health plan that is excludable from the employee's gross income under Code § 106, or that would be excludable if it were paid for by the employer.

• It is subject to numerous exceptions , such as: Coverage for long-term care; Coverage (whether through insurance or otherwise) described in Code § 9832(c)

(1) (but no exception applies for coverage for on-site medical clinics); Certain stand-alone vision or dental coverage; and Coverage described in Code § 9832(c)(3) (under certain circumstances).

What is “Applicable Employer-Sponsored Coverage”?


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• For purposes of determining whether a specific arrangement is a group health plan, employers may rely upon a good faith application of a reasonable interpretation of the statutory provisions and applicable guidance, including the definition under the IRS COBRA regulations.

• Thus, any coverage subject to the COBRA regulations' definition of group health plan would, in the absence of an exception or transition rule, be subject to the W-2 reporting requirement.



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• Certain Benefit Types Under Code § 9832(c)(1) Are Not Includible:

• The following benefits are not subject to the Form W-2 reporting requirement: Coverage only for accidents (including accidental death and dismemberment

coverage); Disability income coverage; Liability insurance, including general liability and auto liability insurance; Workers' compensation or similar coverage; Automobile medical payment insurance; Credit-only insurance; and Other similar coverage, specified in the regulations, under which benefits for medical

care are secondary or incidental to other insurance benefits (but no such coverage is mentioned in the regulations).



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• Dental and Vision Coverage Is Not Includible Under Certain Circumstances (Transition Relief):

• Applicable employer-sponsored coverage subject to the reporting requirement does not include stand-alone dental, or vision coverage that are “HIPAA-excepted benefits.”

• Generally, to be an excepted benefit, dental or vision benefits must either be offered under a separate policy, certificate or contract of insurance; or participants must have the right not to elect the benefits and if they do elect the benefits, they must pay an additional premium or contribution for that coverage.



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• Certain Independent, Noncoordinated Benefits Under Code § 9832(c)(3) Are Not Included Under Certain Circumstances:

Under this category, coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance is not subject to W-2 reporting, provided that the coverage is offered as independent, noncoordinated benefits.

▪ However, to be excepted, such coverage must be funded by the employee on an after-tax basis for which a deduction under Code § 162(l) is not allowable.

This exception would include most hospital indemnity (e.g., $100 per day) and cancer insurance plans.



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• Coverage Under Health Savings Accounts (HSA) or Archer MSAs Contributions Is Not Includible:

Strictly speaking, HSA and Archer MSA contributions are included in the definition of applicable employer-sponsored coverage, but they are explicitly excluded from the W-2 reporting obligation.

The IRS confirmed this treatment for HSA and Archer MSA contributions.

• Coverage Under Health Reimbursement Arrangements (HRA) Is Not Includible (Transition Relief):

Under transition relief provided in IRS Notice 2011-28, an employer is not required to include the cost of coverage under an HRA in determining the aggregate reportable cost.

If the only applicable employer-sponsored coverage provided to an employee is an HRA, no reporting is required on the Form W-2.



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• Salary Reduction Elections to Health FSAs Are Not Includible:

Health FSA contributions are included in the definition of applicable employer-sponsored coverage.

While the amount of any salary reduction election to a health FSA is excluded from the aggregate reportable cost and is not reported on Form W-2, separate rules apply for health FSAs offered through cafeteria plans under which optional employer flex credits can be applied.

If an employer provides a flex credit, the cost of the FSA should not be reported unless the flex credit causes the employee’s health FSA to exceed his or her salary reduction election.



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• Coverage Under On-Site Medical Clinics, Wellness Programs and Employee Assistance Programs: The cost of employee assistance programs (EAPs), onsite clinics, and other wellness

initiatives which qualify as group health plans (as defined in Internal Revenue Code § 5000(b)(1)) may have to be reported on Form W-2.▪ It will depend on how the employer administers COBRA continuation coverage for such

benefits.

▪ If the employer does not charge a COBRA premium for continued coverage under the EAP, on-site clinic, or wellness programs, the employer is not required to report the value of such coverage on the employee’s W2.

▪ However, if the employer does charge a COBRA premium, it must report the value of the coverage.

Employers will need to carefully review their EAP and wellness programs to determine whether they qualify as “group health plans.”

Failure to properly administer such benefits as group health plans could have potentially far-reaching impact, including COBRA penalties, ERISA penalties, and now W-2 reporting penalties.



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• An employer may include in the aggregate reportable cost the cost of coverage that is not otherwise required to be included under applicable interim relief, such as the cost of coverage under an HRA, a multi-employer plan, an EAP, wellness program, or on-site medical clinic, provided that the calculation of the cost of coverage otherwise meets the requirements and provided that such coverage constitutes applicable employer-sponsored coverage.

• In addition, there is guidance on reporting for programs that include benefits that constitute applicable employer-sponsored coverage and other benefits that do not constitute applicable employer-sponsored coverage, such as a long-term disability program that also provides certain health benefits.

• In this instance, an employer may use any reasonable allocation method to determine the cost of the portion of the program providing applicable employer-sponsored coverage



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• If the portion of the program providing a benefit that is applicable employer-sponsored coverage is only incidental in comparison to the portion of the program providing other benefits, the employer is not required to include either portion of the cost in the aggregate reportable cost.

• Similarly, if the portion of the program providing a benefit that is not applicable employer-sponsored coverage is only incidental to the portion of the program providing a benefit that is applicable employer-sponsored coverage, the employer may, at its option, include the benefit that is not applicable employer-sponsored coverage in determining the reportable cost, notwithstanding the general prohibition on reporting coverage that is not applicable employer-sponsored coverage.



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• The aggregate cost of applicable employer-sponsored coverage provided to an employee is referred to as the “aggregate reportable cost.”

• Because the amount that must be reported relates to the cost of coverage provided, it would appear that in cases where coverage is extended retroactively, W-2 reporting must still be made—it would be helpful if the IRS confirmed this and provided guidance on how to retroactively report for this purpose.

How to Determine the “Aggregate Reportable Cost”?


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• Both Employer and Employee Portions of the Cost are Included (and No

Adjustment for Imputed Income Amounts)

The aggregate reportable cost generally includes both the portion of the cost

paid by the employer and the portion of the cost paid by the employee,

regardless of whether the employee paid for that cost through pre-tax or after-

tax contributions.

It also includes the cost of coverage of the employee and any person covered

by the plan because of a relationship to the employee, including any portion of

the cost that is includible in the employee's gross income–thus, aggregate

reportable cost is not reduced by any imputed income included in the

employee's gross income.

▪ This might include coverage for certain adult children over age 27 as well as non-

dependent domestic partners for whom income is imputed to the employee as a result

of the coverage.

How to Determine the “Aggregate Reportable Cost?”


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• Adjustment for Excess Reimbursements Under a Self-Insured Discriminatory Plan

In determining aggregate reportable cost, the cost of applicable employer-sponsored coverage does not include excess reimbursements of highly compensated individuals that are included in gross income under Code § 105(h).

An excess reimbursement that is included in income is subtracted from the cost of coverage.

Similarly, the cost of applicable employer-sponsored coverage does not include the cost of coverage taken into income as the result of an employee being a 2% shareholder-employee of an employer that is an S corporation.



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• Special Rules for Health FSA Contributions: Health FSA contributions are included in the definition of applicable employer-

sponsored coverage, but special rules apply with respect to the W-2 reporting obligation.

The amount of any salary reduction election to a health FSA is excluded from the aggregate reportable cost and is not reported on Form W-2.

Where the health FSA is offered through a cafeteria plan under which optional employer flex credits (expressed as a fixed amount, or as a formula such as matching salary reduction) can be applied to the health FSA, special rules must be applied to determine whether any amount must be included in the aggregate reportable cost as follows: ▪ If the amount of the employee's salary reduction (for all qualified benefits) equals or exceeds

the amount of the health FSA for a plan year, then the amount of the employee's health FSA is not included in the aggregate reportable cost.

▪ If the amount of the employee's health FSA for a plan year exceeds the employee's salary reduction for that plan year, then the amount of the employee's health FSA minus the employee's salary reduction election for the health FSA must be included in the aggregate reportable cost.



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• Coverage that Straddles Two Reporting Years:

Where a coverage period (e.g. final payroll period) extends beyond December 31 of a reporting year, employers may use a reasonable allocation method to divide the cost between the two years, or treat the coverage period as occurring either entirely before December 31 or entirely after December 31.

The option selected by the employer should be applied consistently to all employees.



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• Aggregate cost is determined under “rules similar to” the COBRA rules for

applicable employer-sponsored coverage (including employee and employer

contributions), including the special rules governing self-insured plans.

• Employers are permitted to calculate reportable cost (i.e., the cost of coverage

under a group health plan) using one of three methods:

The COBRA applicable premium method;

The premium charged method (for insured plans); or

The modified COBRA premium method (for an employer that subsidizes the cost of

coverage or determines the cost of coverage for a year by applying the cost of

coverage in a prior year).

Methods of Calculating the Cost of Coverage


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• COBRA Applicable Premium Method:

Under this method, the reportable cost equals the COBRA applicable premium for that coverage for that period.

The employer must calculate the COBRA applicable premium in a manner that satisfies the requirements under Code § 4980B(f)(4).

Under current guidance, this means that the employer must make such calculation in good faith compliance with a reasonable interpretation of the statutory requirements under Code § 4980B.



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• Premium Charged Method:

The premium charged method may be used to determine the reportable cost only for an employee covered by an employer's insured group health plan.

In such a case, the employer must use the premium charged by the insurer for that employee's coverage (i.e., for single-only coverage or for family coverage, as applicable to the employee) for each period as the reportable cost for that period.



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• Modified COBRA Premium Method:

This method is available to an employer only where it subsidizes the cost of COBRA

(so that the premium charged to COBRA qualified beneficiaries is less than the

COBRA applicable premium) or where the actual premium charged by the employer

to COBRA qualified beneficiaries for each period in the current year is equal to the

COBRA applicable premium for each period in a prior year.

If the employer subsidizes the COBRA cost, it may determine the reportable cost for

a period based upon a reasonable good faith estimate of the COBRA applicable

premium for that period, if such reasonable good faith estimate is used as the basis

for determining the subsidized COBRA premium.

If the actual premium charged by the employer to COBRA qualified beneficiaries for

each period in the current year is equal to the COBRA applicable premium for each

period in a prior year, the employer may use the COBRA applicable premium for

each period in the prior year as the reportable cost for each period in the current

year.



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• Reportable Cost Must Be Determined on a Calendar-Year Basis:

Although an employer may use a 12-month determination period that is not the calendar year for purposes of applying the COBRA applicable premium under a plan, that same 12-month period may not be used for purposes of calculating the reportable cost for the year under the plan.

Instead, the reportable cost under a plan must be determined on a calendar-year basis.

Other Issues


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• Employer Must Reflect Any Changes in Reportable Cost During the Year: If the cost for a period changes during the year (e.g., 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.

Other Issues


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• Employer Must Account for Any Changes in Employee's Coverage During the

Year: If an employee changes coverage during the year, the reportable cost must take into

account the change in coverage by reflecting the different reportable costs for the

coverage elected by the employee for different periods.

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 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.

Other Issues


• Using a Composite Rate:

An employer is considered to charge employees a composite rate:

▪ If there is a single coverage class under the plan (that is, if an employee elects coverage, all

individuals eligible for coverage under the plan because of their relationship to the employee

are included in the elections and no greater amount is charged to the employee regardless of

whether the coverage will include only the employee or the employee plus other such

individuals); or

▪ If there are different types of coverage under a plan (for example, self-only coverage and

family coverage, or self-plus-one coverage and family coverage) and employees are charged

the same premium for each type of coverage.

In such a case, the employer using a composite rate may calculate and use

the same reportable cost for a period for:

▪ The single class of coverage under the plan; or

▪ All the different types of coverage under the plan for which the same premium is

charged to employees, provided this method is applied to all types of coverage

provided under the plan.

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Other Issues


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• The IRS has indicated that future guidance may prospectively limit the

availability of some or all of this transition relief–but it will not apply earlier

than January 1 of the calendar year beginning at least six months after it is

issued and will not limit the availability of the transition relief for the 2012

and 2013 Forms W-2.

• Transition relief is available for the following:

Employers filing fewer than 250 Forms W-2;

Certain Forms W-2 furnished to terminated employees before the end of the year;

Relief with respect to multiemployer plans;

HRAs;

Certain dental and vision plans; and

Self-insured plans of employers not subject to COBRA continuation coverage or

similar requirements.

Transition Relief: IRS Notice 2011-28


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• The notice clarifies that the reporting requirement does not apply to certain types of coverage, including the following: Dental and vision plans meeting the conditions of an “excepted benefit” for

certain HIPAA purposes;

Coverage in an employee assistance program, wellness program or on-site medical clinic if COBRA enrollees aren’t charged a premium for that coverage;

Health flexible spending arrangements funded solely by salary reduction contributions; and

Certain independent, non-coordinated hospital or fixed indemnity insurance offered on an after-tax basis to employees.



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• New and revised information in the notice includes these details:

Coverage cost may be based on the employer’s available information as of Dec.

31. Therefore, subsequent notifications or elections (e.g., divorce) needn’t be

considered.

Alternative methods may be used to calculate the reportable amount if coverage

extends over a payroll period that includes a Dec. 31, provided the method is used

for all employees.

Coverage reporting relief for employers filing fewer than 250 Forms W-2 is based

on the prior calendar year and is determined without taking into account the use

of certain agents.



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• Employers should add the following new items to their Form W-2 action plan:

Determine whether stand-alone dental and vision benefits meet the HIPAA definition of “excepted benefits.”

Evaluate whether EAP, wellness programs, and onsite clinics are “group health plans” for purposes of COBRA, and if so, how the reportable cost will be determined.

Choose a consistent method for allocating the cost of coverage when a benefit program includes both medical and nonmedical benefits, and for allocating the cost of coverage for reporting periods that straddle two reporting years.

As always, coordinate with payroll staff and vendors to ensure proper reporting on the Form W-2.

Communicate with employees regarding the new information they’ll see reported on their Form W-2.

Employer Action Steps


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• Any person who provides “minimum essential coverage” to an individual during a calendar year to report certain health insurance coverage information to the IRS.

• The reporting person must also provide a written statement to the covered individual.

• Reporting generally is not required for HRAs, on-site medical clinics, wellness programs that provide reduced premiums or cost-sharing under a group health plan, or coverage that supplements the primary plan of the same plan sponsor.

Overview


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• Code § 6055 reporting originally was to apply to coverage provided on or after January 1, 2014, but the IRS delayed reporting for one year.

• Reporting is required under Code § 6055 beginning in early 2016 to report coverage provided in 2015.

Effective Date


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• The reporting entity (e.g., health insurers and employers sponsoring self-insured plans) must prepare separate information returns for individuals, furnish the individuals with copies of the information returns (or a substitute statement), and use a single transmittal form to file the individual information returns with the IRS.

• The timing of reporting is similar to Form W-2 reporting.

• For furnishing statements to “responsible individuals,” the deadline is January 31 of the following calendar year.

• An extension of time to furnish statements will be provided, including up to 30 days for a showing of good cause upon written application to the IRS.

• For filing the return and transmittal with the IRS, the deadline is February 28 (March 31 if filed electronically) of the following year.

• An extension of time may be available for filing the return and transmittal.

Reporting Deadlines


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• Code § 6055 makes the following entities are responsible to report:

insurers with respect to all insured coverage not reported by the Exchanges, including coverage under insured employer plans;

plan sponsors of self-insured group health plan coverage;

the executive department or agency of a governmental unit that provides coverage under a government-sponsored program; and

any other entity that provides minimum essential coverage to an individual.

Who is Subject to this Reporting Requirement?


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• Combined reporting on a single form (Form 1095-C) under Code §§ 6055 and 6056 for applicable large employers.

• Although employers who are not applicable large employers are not subject to Code § 6056 reporting, such employers have Code § 6055 reporting obligations if they sponsor self-insured plans.

• One member of a controlled group may assist the other members by filing returns and furnishing statements on behalf of all members, thus providing administrative flexibility.

• However, each employer is treated as a plan sponsor separately liable for timely and correct reporting.

Who is Subject to this Reporting Requirement?


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• The return must contain the following information:

the name, address, and taxpayer identification number (TIN) of the primary insured, and the name and TIN of each other individual obtaining coverage under the policy;

the dates during which the individual was covered during the calendar year;

if the coverage is health insurance coverage, whether the coverage is a qualified health plan (QHP) offered through a health benefit Exchange;

if the coverage is health insurance coverage and that coverage is a QHP, the amount of any advance cost-sharing reduction payment or of any premium tax credit with respect to such coverage; and

any other information required by the IRS.

What Information Must Be Reported to the IRS?


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• If health insurance coverage is through an employer-provided group health plan, the return must contain the following information:

the name, address, and employer identification number (EIN) of the employer maintaining the plan;

The name, address, and TIN for the “responsible individual” (generally, the employee or former employee in the case of an employer plan) and for each individual enrolled in minimum essential coverage (plus the months enrolled).

If the coverage is under an employer plan, the employer information and whether coverage was enrolled in through a SHOP Exchange; and

Any other information the IRS may require to administer the new tax credit for eligible small employers under Code § 45R.

a taxpayer identification number (TIN)—generally, a Social Security number—for all covered individuals (including a spouse and dependents)

Additional Information Required


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• A reporting entity to file a return for each individual to whom minimum essential coverage is provided, along with a transmittal form on or before February 28 (March 31 if filed electronically) of the year following the calendar year in which the coverage is provided.

Manner for Filing Returns


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• A reporting entity reporting as an applicable large-employer member will report on Forms 1094-C (transmittal) and 1095-C (or other form designated by the IRS).

• A substitute form may be used if it complies with applicable guidance that applies to substitute forms.



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• Large-employer members will file a combined return for all reporting under Code §§ 6055 and 6056.

• An applicable large-employer member that sponsors a self-insured plan will report on Form 1095-C, completing both sections to report the information required under Code §§ 6055 and 6056.

• An applicable large-employer member that provides insured coverage also will report on Form 1095-C, but will complete only the section of Form 1095-C that reports the information required under Code § 6056.



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• Entities reporting as insurers, sponsors of self-insured plans that are not reporting as applicable large-employer members, and others will report on Forms 1094-B and 1095-B (or other form designated by the IRS).

• A substitute form may be used if it complies with applicable guidance that applies to substitute forms.



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• Electronic filing is required by high-volume filers (those who file at least 250 returns under Code § 6055).

• The proposed regulations would have required electronic filing if the reporting entity filed 250 information returns of any type—e.g., including Forms W-2 and 1099.

• Like transmittals of other information returns, the transmittal (Forms 1094-B or 1094-C) is not treated as a separate return but must be electronically filed in the form and manner required by the IRS when the Form 1095 is electronically filed.



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• The person who is required to report the health insurance coverage to the IRS (as described above) must also furnish a written statement to each individual whose name must be included in the information return and include:

the name, address, and contact information of the reporting person; and

the information required to be shown on the return with respect to that individual.

• An individual statement be furnished to each “responsible individual” (under an employer plan, this is generally the employee or former employee who enrolls one or more individuals for coverage).

• This statement must be furnished to the covered individual on or before January 31 of the year following the calendar year for which the information was required to be reported to the IRS.

Written Statements to Covered Individuals


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• A statement may be made either by furnishing to the responsible individual a copy of the return filed with the IRS or on a substitute statement.

• A substitute statement must include the information required to be shown on the IRS return and must comply with applicable guidance relating to substitute statements.

• It is anticipated that reporting entities will be able to check a box on the information return to report that an individual was covered for all 12 months of the calendar year.

• Employers submitting Forms 1095-C combining Code §§ 6055 and 6056 reporting also will provide individuals a single statement.

• Reporting entities may furnish statements with the Form W-2 in the same mailing.



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• If mailed, the statement must be sent to the responsible individual’s last known permanent address or, if no permanent address is known, to the individual’s temporary address.

• A reporting entity’s first class mailing to the last known permanent address or, if no permanent address is known, the temporary address discharges the requirement to furnish the statement.

• Electronic furnishing of statements to individuals is permitted if the recipient affirmatively consents.

• Consent to receive a statement in electronic format must be in a manner that reasonably demonstrates that the recipient is able to access the statement in the electronic format in which it will be furnished.



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• An employer that fails to comply with these reporting requirements is subject to penalties for failure to file an information return and failure to furnish payee statements.

• The provisions of Code § 6724 providing relief for a failure due to reasonable cause (not reasonable neglect) apply to reporting under Code § 6055.

• If the information reported on a return (including a transmittal) or a statement required by Code § 6055 is incomplete or incorrect as a result of a change in circumstances (such as a retroactive change in coverage), a failure to timely file or furnish a corrected document is considered a failure to file or furnish a correct return or statement under Code §§ 6721 and 6722.

• Penalties under Code §§ 6721 and 6722 are reduced if a reporting entity files a corrected return within 30 days after the required filing date.

• Penalties also are reduced, but by a lesser amount, if a reporting entity makes a correction by August 1 following the reporting date.

Penalties of Noncompliance


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• Certain employers are required to report to the IRS whether they offer their full-time employees and their employees' dependents the opportunity to enroll in “minimum essential coverage” under an eligible employer-sponsored plan and to provide certain other information.

• Reporting employers must also provide a related written statement to their full-time employees.

• This is referred to this reporting requirement as Code § 6056 reporting.

Overview


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• Code § 6056 reporting originally was to apply to coverage provided on or after January 1, 2014, but the IRS delayed reporting for one year.

• Reporting is required under Code § 6056 beginning in early 2016 to report coverage provided in 2015.

• The IRS has encouraged voluntary Code § 6056 reporting for coverage provided in 2014 by using any of the available reporting methods set forth in these final regulations.

Effective Date


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• An applicable large employer must prepare separate information returns for individuals, furnish the individuals with copies of the information returns (or a substitute statement), and use a single transmittal form to file the individual information returns with the IRS.

• The IRS has indicated that the forms and instructions for the returns and transmittals will be made available in draft form in the “near future.”

Reporting Deadlines


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• The timing of reporting is similar to Form W-2 reporting.

• For furnishing statements, the deadline is January 31 of the following calendar year.

• There is an extension of time to furnish statements, including up to 30 days for a showing of good cause upon written application to the IRS.

Reporting Deadlines


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• For filing the return and transmittal with the IRS, the deadline is February 28 (March 31 if filed electronically) of the following year.

• An extension of time may be available for filing the return and transmittal.

• A combined reporting is available on a single form (Form 1095-C) under Code §§ 6055 and 6056 for applicable large employers.

Reporting Deadlines


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• “Applicable large employers” that must satisfy the reporting requirement are the same employers that may be liable for the tax under Code § 4980H if they do not provide affordable, minimum value health coverage to their full-time employees (and their dependents).

• Generally, an employer is an “applicable large employer” for a calendar year if it employed an average of at least 50 full-time employees on business days during the preceding calendar year (an employer must convert part-time employees into full-time equivalents).

Who is an Applicable Large Employer?


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• The employees of all employers within the controlled group are taken into account in determining whether any member of the controlled group is an applicable large employer.

• Every applicable large-employer member that is an employer of an employee that is its full-time employee for one or more months of the calendar year must file and furnish a Code § 6056 return with respect to services performed by the employee reflecting the months in which the employee was a full-time employee of that applicable large-employer member.



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• There must be only one Code § 6056 employee statement (Form 1095-C) for each full-time employee with respect to each employee’s employment with the applicable large-employer member, so that all required information for a particular full-time employee of the applicable large employer member is reflected on a single Form 1095-C.

• Only applicable large-employer members with full-time employees are subject to the filing and statement furnishing requirements of Code § 6056 (and only with respect to their full-time employees).

• Applicable large-employer members without any full-time employees are not subject to Code § 6056 reporting requirement.



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• the name, address, and employer identification number (EIN) of the applicable large-employer member;

• the name and telephone number of the applicable large employer’s contact person;

• the calendar year for which the information is reported;

• a certification (by calendar month) as to whether the applicable large-employer member offered to its full-time employees and their dependents the opportunity to enroll in “minimum essential coverage” under an eligible employer-sponsored plan (as defined in Code § 5000A(f)(2));

• the months during the calendar year for which coverage under the plan was available;

• each full-time employee’s share of the lowest-cost monthly premium (self-only) for coverage providing minimum value offered to that full-time employee under an eligible employer-sponsored plan, by calendar month;

• the number of full-time employees the applicable large-employer member had for each month during the calendar year;

• the name, address, and taxpayer identification number of each full-time employee during the calendar year and the months, if any, during which the employee was covered under the plan; and

• any other information required by the IRS.

Information Required to be Reported to the IRS Under the General Reporting Method:


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• Certain information in the Code § 6056 statutory language is not be required under the regulations.

• This includes the length of any waiting period, the employer’s share of total allowed cost of benefits, the monthly premium for the lowest-cost option enrollment categories other than self-only, and the months in which an employee’s dependents were covered.

Information Required to be Reported to the IRS Under the General Reporting Method:


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• Additional information is required to be reported under the general method of Code § 6056 reporting.

• The following information will be reported through the use of indicator codes for some information, as part of the Code § 6056 return (as well as the number of individual employee statements being submitted):

Additional Information


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• information as to whether the coverage offered to full-time employees and their dependents under an employer-sponsored plan provides minimum value and whether the employee had the opportunity to enroll his or her spouse in the coverage;

• the total number of employees, by calendar month;

• whether an employee’s effective date of coverage was affected by a permissible waiting period under Code § 4980H, by calendar month;

• whether the applicable large-employer member had no employees or otherwise credited any hours of service during any particular month, by calendar month;

• whether the applicable large-employer member is a person that is a member of an aggregated group, determined under controlled group rules, and, if applicable, the name and EIN of each employer member of the aggregated group constituting the applicable large employer on any day of the calendar year for which the information is reported;

• if an appropriately designated person is reporting on behalf of an applicable large-employer member that is a governmental unit or any agency or instrumentality thereof for purposes of Code § 6056, the name, address, and identification number of the appropriately designated person;

• if an applicable large-employer member is a contributing employer to a multiemployer plan, whether, with respect to a full-time employee, the employer is not subject to an assessable payment under Code § 4980H due to the employer’s contributions to the multiemployer plan; and

• if a third party is reporting for an applicable large-employer member with respect to the applicable large-employer member’s full-time employees, the name, address, and identification number of the third party (in addition to the name, address, and EIN of the applicable large-employer member already required under the regulations



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• In an effort to simplify and streamline the Code § 6056 reporting process under the general reporting rules, the IRS anticipates that certain information described above as applied to a particular full-time employee will be reported to the IRS, and furnished to the full-time employee, through the use of a code rather than by providing specific or detailed information.

• Specifically, it is contemplated that the following information will be reported with respect to each full-time employee for each calendar month using a code:



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• minimum essential coverage meeting minimum value was offered to (1) the employee only, (2) the employee and the employee's dependent's only, (3) the employee and the employee’s spouse only, or (4) the employee and the employee’s spouse and dependents;

• coverage was not offered to the employee and (1) any failure to offer coverage will not result in a payment under Code § 4980H(a) or (b), for example because the employee was in a limited non-assessment period for certain employees, as defined in Treas. Reg. § 54.4980H-1(a)(26), (2) the employee was not a full-time employee, (3) the employee was not employed by the applicable large-employer member during that month, or (4) no other code or exception applies;

• coverage was offered to the employee for the month although the employee was not a full-time employee for that month;

• the employee was covered under the plan; and

• the applicable large-employer member met one of the affordability safe harbors under Treas. Reg. § 54.4980H-5(e)(2 with respect to the employee.



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• It is anticipated that if multiple codes apply with respect to a full-time employee for a particular calendar month, the reporting format will accommodate the necessary codes.

• The final regulations adopted the comment that employers not be required to report whether they expect to be an applicable large-employer member the following year.

• Similarly, the regulations do not require that employers be required to report information relating to the look-back measurement method for determining full-time employee status set forth in Treas. Reg. § 54.4980H



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• Each applicable large-employer member to file a return with respect to its full-time employees along with a transmittal form on or before February 28 (March 31 if filed electronically) of the year following the calendar year in which the coverage is provided.

• A separate return for each individual employee on Form 1095-C, or another form the IRS designates, or on a substitute form.

• The information returns are to be submitted to the IRS with a transmittal form, Form 1094-C.

• Each Form 1095-C and the transmittal Form 1094-C will together constitute an information return to be filed with the IRS.

Manner for Filing and Form of Return


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• All applicable large-employer members with self-insured group health plans will use a combined Form 1095-C to satisfy the Code §§ 6055 and 6056 reporting requirements and will therefore only be required to report on a single form information regarding whether an employee was covered.

• Applicable large-employer members that provide insured coverage will report information regarding whether an employee was covered once on the Code § 6056 portion of the combined Form 1095-C and will leave the section of the form pertaining to Code § 6055 information blank.

Manner for Filing Return and Form of Return


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• Electronic filing is required by applicable large-employer members who are high-volume filers (those who file at least 250 returns under Code § 6056).

• Electronic is required for filing if the applicable large-employer member filed 250 information returns of any type; e.g., including Forms W-2 and 1099.

• Like transmittals of other information returns, the transmittal (Form 1094-C) is not treated as a separate return but must be electronically filed in the form and manner required by the IRS when the Form 1095 is electronically filed.

• Each Code § 6056 return for a full-time employee is counted as a separate return.

• Applicable large-employer members filing fewer than 250 returns during the calendar year may choose to make the Code § 6056 returns on the prescribed paper form, but are permitted (and encouraged) to file Code § 6056 returns electronically.

Manner for Filing Return and Form of Return


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• An applicable large-employer member required to file a return under Code § 6056 must furnish to each of its full-time employees identified on the return a written statement showing:

the name, address, and contact information of the applicable large-employer member; and

the information required to be shown on the Code § 6056 return with respect to the full-time employee.

• This statement must be furnished to the covered individual on or before January 31 of the year following the calendar year for which the information was required to be reported to the IRS.

Written Statements to Full-Time Employees


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• The Code § 6056 employee statement may be made by furnishing a copy of the Code § 6056 return on Form 1095-C (or another form the IRS designates) or a substitute employee statement for that full-time employee.

• A substitute statement must include the information required to be shown on the IRS return and must comply with applicable guidance relating to substitute statements.

• An employee statement is not required to include a copy of the transmittal form (Form 1094-C) that accompanies the return (Form 1095-C).

• Also, as part of the alternative reporting methods, in certain circumstances, other methods of furnishing information to an employee may be sufficient.



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• Applicable large-employer members will provide only a single employee statement (with the Code § 6056 information and, with respect to employers with a self-insured group health plan, Code § 6055 information).

• Employers are permitted to mail to an employee in the same mailing one or more of the required information returns, such as the combined Code §§ 6055 and 6056 employee statement and the Form W-2.



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• If mailed, the statement must be sent to the full-time employee’s last known permanent address or, if no permanent address is known, to the employee’s temporary address.

• An applicable large-employer member’s first class mailing to the last known permanent address or, if no permanent address is known, the temporary address discharges the requirement to furnish the statement.

• Electronic furnishing of statements is permitted to full-time employees if the recipient affirmatively consents.

• Consent to receive a statement in electronic format must be in a manner that reasonably demonstrates that the recipient is able to access the statement in the electronic format in which it will be furnished



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• If an employer offers sufficient coverage to make it unlikely that the employer will be subject to a penalty under Code § 4980H because its employees will generally be ineligible for a premium tax credit, simplified reporting methods might be appropriate.

• Eligible applicable large-employer members may use one of the following alternative reporting methods:

Alternative Methods for Code § 6056 Information Reporting


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• Reporting Based on Certification of Qualifying Offers:

The applicable large-employer member must certify on the Code § 6056 transmittal form (Form 1094-C) that, for all months during the year in which the employee was a full-time employee with respect to whom a Code § 4980H penalty could apply, it made a “qualifying offer”

A “qualifying offer” is an offer to one or more of its full-time employees for all months during the year for which the employee was a full-time employee and which are not within a limited non-assessment period, of minimum essential coverage providing minimum value at an employee cost for employee-only coverage not exceeding 9.5% of the mainland single federal poverty line, and that includes an offer of minimum essential coverage to the employees’ spouses and dependents.



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• Certification of Qualifying Offers for 2015

The applicable large-employer member must

▪ (a) certify that it has made a qualifying offer to at least 95% of its full-time employees and to their spouses and dependents, and

▪ (b) in lieu of providing a Form 1095-C (or another form the IRS designates) to its employees, satisfy its Code § 6056 furnishing requirement with respect to all of its full-time employees by furnishing a statement to each of its full-time employees, by January 31 of the year following the year to which the statement relates.



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• Certification of Qualifying Offers for 2015

• If the applicable large-employer member meets the conditions described above, then the employer will be treated as reporting the required Code § 6056 information to the IRS if it files with the IRS Form 1095-C, providing the employee’s name, Social Security number, and address, and indicates, using an indicator code, either that a qualifying offer was made for all 12 months or the specific months of the calendar year that it was not, and provides the statement to the employee.

• This alternative reporting method for 2015 is optional and an applicable large-employer member may use any other available reporting method.



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• Option to Report Without Separate Identification of Full-Time Employees (98% Offer Rule)

An applicable large-employer member that otherwise meets its reporting obligation under Code § 6056 is not required to identify on its return whether a particular employee is a full-time employee for one or more calendar months of the reporting year, or to report the total number of its full-time employees for the reporting year, if it certifies on its transmittal form that it offered minimum essential coverage providing minimum value that was affordable under Code § 4980H to at least 98% of the employees (and their dependents) with respect to whom it reports for purposes of Code § 6056 (regardless of whether the employee is a full-time employee for purposes of Code § 4980H for a calendar month during the year).



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• Reporting for Applicable Large-Employer Members With Fewer Than 100 Full-Time Employees

To assist applicable large employers that are in the smaller size range, such as those with at least 50 full-time employees but fewer than 100 full-time employees (including full-time equivalent employees), in transitioning into compliance with Code § 4980H, transition relief is provided from Code § 4980H for 2015 (plus, in the case of any non-calendar plan year that begins in 2015, the portion of the 2015 plan year that falls in 2016).



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• Reporting for Applicable Large-Employer Members With Fewer Than 100 Full-Time Employees

The applicable large-employer member must certify on its Code § 6056 transmittal form for calendar year 2015, as prescribed by the form and instructions, that it meets the eligibility requirements under Code § 4980H.

Applicable large-employer members with non-calendar-year plans will certify with regard to their 2015 plan year, including the months of their 2015 plan year that fall in calendar year 2015, on the Code § 6056 transmittal form for 2015, and will certify with regard to the months of their 2015 plan year that fall in calendar year 2016 on the Code § 6056 transmittal form for 2016 (that is the Code § 6056 transmittal form that will be filed in 2017).



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• An employer that fails to comply with these reporting requirements is subject to penalties for failure to file an information return and failure to furnish payee statements.

• The regulations provide that the provisions of Code § 6724 providing relief for a failure due to reasonable cause (not reasonable neglect) apply to reporting under Code § 6056.

• If the information reported on a return (including a transmittal) or a statement required by Code § 6056 is incomplete or incorrect as a result of a change in circumstances (such as a retroactive change in coverage), a failure to timely file or furnish a corrected document is considered a failure to file or furnish a correct return or statement under Code §§ 6721 and 6722.

Penalties for Noncompliance


• Larry Grudzien

Phone: 708-717-9638

Email: [email protected]

Website: www.larrygrudzien.com

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Contact Information

mailto:[email protected]

http://www.larrygrudzien.com/

Recruiting & HR

Reporting Under Health Care Reform