Since the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, became law in 2010, each year has seen the introduction of new tax compliance requirements for individuals, businesses, or both—and 2015 was no exception. This filing season, certain employers, as well as providers of minimum essential coverage, will have to meet significant information-reporting requirements to both the IRS as well as the insured.
The reporting requirements are considered the glue that holds together two of the largest pieces of PPACA: the individual and employer mandates. Since 2014, the individual mandate has required most Americans to purchase minimum essential coverage, qualify for an exemption from this requirement, or pay a penalty on their tax return. Beginning in 2015, the employer mandate places a requirement on applicable large employers (ALEs)—which are businesses with 50 or more full-time plus full-time equivalent (FTE) employees—to provide health insurance to 95% or more of their employees and dependents up to age 26.
Several new forms have been issued for both employers and insurance providers to file to comply with the new reporting rules. ALEs will file Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. The type of information reported by an ALE on the forms is meant to help the IRS pinpoint those employers that are required to but do not offer minimum essential coverage to their employees and their employees’ spouses and dependents. If it fails to provide the appropriate insurance, the employer is subject to steep penalties. The information reported on the returns also lets the IRS know if an employee is eligible for the premium tax credit.
Providers of minimum essential coverage will file Form 1095-B, Health Coverage, and Form 1094-B, Transmittal of Health Coverage Information Returns, to report information to the IRS and enrollees about individual coverage. Recipients of Form 1095-B can show they have minimum essential coverage and will not owe a penalty on their tax return associated with the individual mandate.
Who is subject to the information-reporting requirements?
ALEs are subject to the information-reporting requirements of Sec. 6056.
Any provider, such as an insurance company that issues minimum essential coverage to an individual, is subject to the information-reporting requirements of Sec. 6055.
Which form to file?
What information is necessary to complete the forms?
The type and sheer volume of data that an employer has to gather to file Forms 1095-C and 1094-C is overwhelming, especially since certain information must be tracked by month. Employers have found themselves in the difficult position of having to implement new systems to track reportable data such as the following:
- Whether the employer offered minimum essential coverage each month to the employee and the employee’s spouse and dependents;
- Whether the employee and the employee’s spouse and dependents were enrolled in the coverage;
- Whether the employee’s share of the lowest-cost monthly premium for self-only minimum essential coverage provides minimum value;
- Which affordability safe harbor was used for each employee;
- Whether the employee was full-time or part-time, on a monthly basis;
- The total number of employees, by month, and the total number of full-time employees, by month;
- Whether the employee was a new hire eligible for the coverage waiting period;
- Whether the employee was a new variable-hour, seasonal, or part-time employee in the initial measurement period; and
- Whether the employer was a member of a controlled group or affiliated service group.
An insurer will have to report the following information on Forms 1095-B and 1094-B:
- Enrollee’s name, address, and Social Security number;
- Employer’s name, address, and federal employer identification number;
- Insurance provider’s name, address, and federal employer identification number; and
- Covered individual’s name, Social Security number, and months of coverage.
What are the penalties for noncompliance?
The information-reporting rules are a serious business. ALEs as well as providers of minimum essential coverage can be hit with penalties of $250 for each information return not filed and another $250 for not providing each employee/enrollee with an accurate return. The total amount of penalties is capped at $3 million annually—a staggering amount! As you can see, the penalties provide employers and insurers a significant incentive to file the forms correctly and on time.
Kristin Esposito, CPA, MST, is the senior technical manager–tax advocacy at the AICPA.