QUESTION: We are an applicable large employer (ALE) subject to employer shared responsibility under the Affordable Care Act (ACA). We sponsor an insured health plan. In addition to employees working in our U.S. offices, we have some employees who work in Puerto Rico. What Form 1095-C obligations do we have for the Puerto Rico employees?
ANSWER: It probably is not necessary for you to file Form 1095-C for employees working in Puerto Rico. As background, ALEs are required to prepare Form 1095-C for all full-time employees. The form is filed with the IRS and furnished to employees.
The IRS uses this Form 1095-C to evaluate whether an ALE may be liable for a shared responsibility penalty under the ACA. The form provides information on whether each full-time employee received an offer of health plan coverage and whether the offered coverage provided minimum value and was affordable. It also indicates circumstances that may not trigger a penalty even though the employee did not receive an offer of coverage (e.g., because the employee was in a permissible waiting period).
Full-time status generally is defined as 130 or more hours of service in a calendar month. Hours of service include each hour for which an employee is paid, or is entitled to payment, for the performance of duties for the employer and generally include hours for which an employee is paid even if the employee does not perform duties (such as sick and vacation days). However, hours are not included to the extent that compensation for the services constitutes income from sources outside the U.S. (within the meaning of Code §§ 861–863). Thus, when calculating hours of service, the location where the services are performed is relevant.
Noting this exclusion of hours for which an employee receives compensation that is taxed as income from sources outside the U.S., IRS guidance provides that, for this purpose, “the term United States refers to only the 50 States and the District of Columbia and does not include the U.S. territories.” Since Puerto Rico is a U.S. territory—not a state—employees working only in Puerto Rico would not be credited with hours of service to determine whether they are full-time employees for purposes of employer shared responsibility. Thus, an ALE sponsoring an insured health plan would not have to prepare Form 1095-C for these employees. The rules are slightly different for ALEs sponsoring a self-insured health plan. These ALEs must report enrollment in the self-insured plan for all employees and non-employees.
For more information, see EBIA’s Form 1094/1095 Workbook at Section VI.E (“Total Full-Time Employees”). See also EBIA’s Health Care Reform manual at Section XXVIII.C (“Penalty Tax Hinges on Whether Employer Offers Coverage to Full-Time Employees”).
Contributing Editors: EBIA Staff.