Under the Affordable Care Act (ACA), is your business client an Applicable Large Employer (ALE)? Should they be preparing to file Form 1095-C and Form 1094-C? Yes? No? Not sure?
We asked our experts at Thomson Reuters Checkpoint the top 3 questions tax practitioners may have regarding the new ACA reporting requirements for large employers. Fully understanding the ALE reporting requirements and compliance guidelines will help you support your business clients, whether they must comply with the reporting or not. Let’s get started.
1: Does the employer fall into the ACA’s required reporting category of “applicable large employer”?
A business is an applicable large employer (ALE) if it employed 50 or more full-time employees, including full-time equivalent employees (FTEs), during the prior calendar year. This means that employers with 50 or more full-time employees (including FTEs) during 2014 must report information to the IRS about the health care coverage they offered (or didn’t offer) to employees and their dependents for tax year 2015 on Forms 1095-C and 1094-C.
2: Will the Applicable Large Employer be subject to a penalty?
An ALE may have to pay one of two shared responsibility penalties if it did not offer affordable minimum essential coverage that provides minimum value to its full-time employees and at least minimum essential coverage to the employee’s dependents, and one or more of those employees enrolled in coverage through a state insurance marketplace and received a premium tax credit.
The first type of penalty, the Section 4980H(a) penalty, may be owed if the ALE does not offer minimum essential coverage to at least 95% (70% for 2015) of its full-time employees (and their dependents), and at least one full-time employee received a premium tax credit for purchasing health insurance coverage through a state insurance marketplace.
The second type of penalty, the Section 4980H(b) penalty, may apply if the ALE does offer minimum essential coverage to at least 95% (70% for 2015) of its full-time employees (and their dependents) and at least one full-time employee received a premium tax credit for purchasing health insurance coverage through a state insurance marketplace. This could occur because the health coverage that was offered is not affordable to the employee or does not provide minimum value, or if the employee was not one of the 95% who was offered coverage.
3: What are the ACA ALE reporting requirements on Forms 1095-C and 1094-C?
Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) and Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage) are used to report the information the IRS needs to administer the employer shared responsibility penalties. The information is also used to identify individuals who are ineligible for a premium tax credit because they were offered employer-provided insurance that was affordable and provided minimum value.
Specific information reported to the IRS and employees include the following:
- Whether employees were offered coverage by their employer
- Whether employees enrolled in employer-sponsored coverage
- Each ALE’s monthly number of full-time employees
- Whether each ALE offered coverage to the required number of full-time employees and their dependents
- Whether the ALE’s offer of coverage to each full-time employee was affordable and provided minimum value
- Whether the ALE qualified for transition relief
KEEP UP WITH NEW HEALTH CARE REFORM REQUIREMENTS WHILE EARNING CPE
There are two levels in the ACA ALE reporting requirements – reporting is required for both the employer and the individual employees
Form 1094-C is filed with the IRS by each ALE to report employer-level information and is also used to transmit Forms 1095-C to the IRS. The Form 1094-C is more than just a transmittal. It includes a considerable amount of substantive information that helps the IRS determine if a Section 4980H(a) penalty may apply, including the ALE’s number of full-time employees, whether minimum essential coverage was offered to enough full-time employees, whether the ALE is a member of an aggregated ALE group (and if so, the other members of the group) and whether the ALE is eligible for certain 2015 transition relief.
Form 1095-C provides employee-level information about the health coverage offered (or not offered) to each employee (and their dependents) and is filed with the IRS and furnished to employees. Information is also provided on the Form 1095-C to help determine employer eligibility for relief from a Section 4980H(b) penalty. ALEs that provide self-insured coverage include additional information on Form 1095-C about the individuals covered by the health insurance.
How and when an Applicable Large Employer should file
An ALE that is required to file 250 or more forms 1095-C must file Forms 1095-C and 1094-C electronically through the ACA Information Returns (AIR) filing system. This new system is completely separate and distinct from systems used for other IRS electronic filings (such as the FIRE system used for filing other information returns like Form 1099-MISC). ALEs that file fewer than 250 Forms 1095-C may file on paper but are encouraged to file electronically.
The due date for filing Form 1095-C and 1094-C with the IRS is March 31 if filing electronically (February 28 if filing on paper). Form 1095-C must be furnished to employees by January 31. However, the IRS has extended the due dates for 2015 reporting to allow employers additional time to prepare the initial returns.
Extended Due Dates:
- Electronic filing with IRS – June 30, 2016
- Paper filing with IR – May 31, 2016
- Furnished to employees – March 31, 2016
Penalties for employers
Failure to timely furnish or file Forms 1095-C and 1094-C, or filing incorrect forms, can result in penalties of up to $260 per form. Penalty relief is available for incomplete or incorrect 2015 Forms 1095-C and 1094-C if the employer makes a good faith effort to comply with the reporting requirements.
The information reporting burden is on your employer client. How can you help?
Make sure you are up to speed on the dynamics of the compliance and reporting aspects of this next part of the Health Care Reform process. Thomson Reuters Checkpoint has the resources you need to make sure your clients are ready to face the challenge of ACA ALE reporting requirements.