Introduction: New Annual Reporting Requirements
The Patient Protection and Affordable Care Act (“PPACA”) crafted employer shared responsibility rules, also known as the pay or play penalties, that impose one of two types of penalties on large employers (employers with over 50 full-time employees or full-time equivalents) if they fail to offer coverage to their full-time employees or offer coverage that is not affordable (employee cost shares exceed 9.5% of an employees’ W-2 self-only income) and/or does not provide minimum required coverage as described by PPACA. PPACA also imposes a penalty on certain individuals who fail to obtain minimum required coverage. Beginning in 2014, a taxpayer (or an individual for whom the taxpayer is liable) that does not purchase minimum required coverage for one or more months during the year, unless an exemption applies, will be liable for the individual shared responsibility payment on his or her individual tax return.
The new Code Sections 6055 and 6056 filing requirements are intended to provide the Internal Revenue Service (IRS) with the information it needs to determine whether an employer or an individual should be assessed a penalty under PPACA for failing to offer or purchase the required coverage.
Code Section 6055
Code Section 6055 requires health insurance companies and employers that sponsor self-insured health plans to report information concerning the type and period of coverage to the IRS and to the covered individuals. Section 6055 reporting is intended to serve as verification that the individual has purchased coverage under his or her employer sponsored plan for purposes of enforcing the individual responsibility requirements. Code Section 6056 requires large employers to provide information to the IRS about whether coverage is offered to their full-time employees and their dependents. This information will allow the IRS to determine whether an employer owes a penalty under the pay or play rules and whether an employee is eligible for a premium tax credit on a marketplace exchange.
How to Report
Employers with 50 or more FTEs use Forms 1094-C and 1095-C to report the information required under Code Sections 6055 and 6056. Form 1094-C is used to report to the IRS summary information for the employer and to transmit the Forms 1095-C to the IRS. Form 1095-C is used to report information about each applicable employee.
A large employer subject to the pay or play rules must file one or more Form(s) 1094-C and must file a Form 1095-C (or substitute) for each employee who was a full-time employee of the employer (and for any other employee who has coverage under the employer’s plan, even if the employee is not a full-time employee) for any calendar month during the year. If an employer provides coverage through an insured plan, the insurance company is obligated to complete that portion of the 1095-C form that requires specific coverage information for individual employees.
The IRS has released draft forms and instructions to be used for Section 6055 and 6056 reporting, including, draft Form 1095-C, draft Form 1094-C and draft instructions for draft Forms 1094-C/1095-C. The forms and instructions are expected to be finalized later in this year and can found on the following websites http://www.irs.gov/pub/irs-dft/f1094c–dft.pdf; http://www.irs.gov/pub/irs-dft/f1095c–dft.pdf.
When to File
There is no filing requirement for 2014; employers may voluntarily file for coverage provided in 2014. Forms 1094-C and 1095-C for the 2015 year (with 2015 data) must be filed by February 29, 2016 (if paper filing) and by March 31, 2016 (if filing electronically). For calendar year 2015, Form 1095-C must be furnished to employees by February 1, 2016. Employers filing 250 or more Forms 1095-C must file electronically.
New Cafeteria Plan Change in Status Options
The IRS recently announced two new qualifying events that will allow employees to change their midyear elections under their employer’s cafeteria plan. Both are optional choices that an employer may elect if the plan or SPD is amended to permit the new qualifying events.
First Option: Reduction in Hours
If it later turns out that an employee who was initially expected to work on average at least 30 hours per week does not, the amended rules allow the employee to drop his or her employer-provided group health plan coverage, even if the employee is still eligible to participate in the his or her employer’s group health plan. The change in election, however, is only permitted if the employee intends to enroll in some other group health plan, i.e., a spouse’s, or intends to purchase coverage through an exchange. The administrator of the employer’s cafeteria plan may rely on an employee’s reasonable representation about the intended enrollment.
Second Option: Exchange Coverage
An employee who is eligible to enroll in coverage through an exchange (during an exchange’s open enrollment or special enrollment period) may drop his or her employer-provided group health plan coverage midyear. The change in election is only permitted if the employee intends to enroll in coverage through an exchange. The administrator of the employer’s cafeteria plan may rely on an employee’s reasonable representation about the intended enrollment.
If an employer chooses to adopt one or more of these midyear election changes for its cafeteria plan, a plan amendment is necessary. The amendment generally must be adopted on or before the last day of the plan year in which the additional changes are allowed and can be effective retroactively to the first day of that plan year, provided that the plan operates in accordance with the guidance, including notification to participants of the amendment.
Special Rule for the 2014 Plan Year
Under a special rule, an employer that adopts these new midyear election changes for its 2014 cafeteria plan year has until the last day of the 2015 plan year to adopt the amendment. Although plan amendments may be adopted retroactively, election changes to revoke coverage retroactively are not permitted.