Affordable Care Act Reporting Requirements for 2015 [Webinar Slides]

©2015 Sikich LLP. All rights reserved.

Affordable Care Act Reporting Requirements for 2015

Karen S. Sanchez, CPA, QPA

Partner-in-Charge Employee Benefits

Joy J. Duce, SPHR

Senior Managing DirectorHuman Resource Consulting Services


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What We Will Cover Today» Overview of ACA reporting requirements» Employer Payment Arrangement changes» Next steps


Reporting Requirements


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What Do We Know Today?» Healthcare reform is here to stay and is confusing for our clients.» Guidance is coming out regularly, but there are still many unknowns

as forms for 2015 have not yet been released.» Administrative burden will likely be very significant for many of

our clients.


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Why is Employer Reporting Required?

In order to satisfy certain aspects of the Affordable Care Act (ACA), some employers are subject to certain reporting requirements beginning in 2015.

» Individual Mandate: All individuals must obtain minimum essential coverage or pay a penalty.

» Employee self reports for 2014

» Employer will report data for 2015 and beyond

» Employer Mandate: If an employer fails to provide minimum essential coverage at an affordable rate, the employer may be subject to penalties.

» Policing the Tax Credit: Some individuals may be eligible for a premium tax credit/subsidy if they are not offered affordable coverage through an employer plan. The IRS wants to ensure only those eligible for a credit actually receive the credit.


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Definitions to Know» Affordable Cost Coverage

» If the lowest cost self-only health plan is 9.5 percent or less of your full-time employee’s household income, the income is considered affordable.

» Available Safe Harbors: An employee’s monthly contribution for self-only coverage is affordable if it does not exceed:» Specific to employee:

» Form W-2: 9.5 percent of his/her W-2 wages for that calendar year

» Rate of pay: 9.5 percent of his/her monthly wages (hourly rate of pay times 130 hours or monthly salaried pay)

» Same standard for all employees:» Federal Poverty Line (FPL): 9.5 percent of the FPL for a

single individual (approximately $93 per month for 2014 and 2015)


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Definitions to Know» Minimum Essential Coverage (MEC)

» Employer-provided health coverage that meets certain levels. The broker should be able to provide this information.

» Minimum Value Coverage (MV)» Must cover 60 percent of the total allowed cost of benefits

that are expected to be incurred under the plan.» The broker should be able to provide this information.» HHS has a minimum value calculator to determine if MV is

satisfied.


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Employer Mandate PenaltiesFor 2015, if an employer has 100 or more FTEs, penalties may exist if the following conditions are not met:

1. Must offer minimum value insurance to 70 percent of full-time employees (95 percent in 2016).

2. Insurance must be considered affordable and meet the minimum coverage requirements.

Different excise taxes exist if both parts are not satisfied.


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Employer Mandate Penalty Amount #1

If an employer fails to offer minimum value health coverage to 70 percent of full-time employees (95 percent for 2016)

and

One employee receives a subsidy (either a tax credit or cost-sharing reduction through an exchange)

then

The employer may be liable for a penalty of $2,000 per year for the number of full-time employees (less the first 80 for 2015 and 30 for 2016).

NOTE: The key is to “offer” benefits, but it does not matter if the employee accepts the offer. In addition, coverage for dependent children must also be offered.


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Employer Mandate Penalty Amount #2

If an employer fails to offer affordable minimum value health coverage to at least 70 percent (95 percent after 2015) of its full-time employees

then

The employer will be liable for a penalty of $3,000 per year for each full-time employee who obtained insurance through an exchange and received a subsidy.

Note: The employer is only liable for the greater of Penalty #1 or #2 discussed above. These penalties are determined on a monthly basis.


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How Do Individuals Receive a Subsidy?

» An employee who obtains coverage through an exchange informs the IRS of family income and their employer’s identifying information.

» An employee claims the tax credit on Form 1040.» The IRS receives data from the exchanges and Form 1040, and

assesses the excise tax by sending the employer a bill.» The employer will have a limited time (two months) to contest the

assessment.» Very important to retain sufficient records to be able to

respond to the assessment notices in a timely manner.


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Who Must File?» The IRS uses the term “Applicable Large Employer” (ALE) to define those

required to file.

» An ALE is an organization (including related entities) that employed an average of at least 50 FTE, including full-time equivalent employees, on business days during the preceding calendar year.

» A special rule applies for 2015 for this determination. You may use any consecutive six-month period during 2014, rather than being required to use all 12 months of 2014.

» Any employer with at least 50 FTE must file for 2015.

NOTE: Any employer who issued at least 50 W-2 in 2014, may be subject to the reporting rules and should review further to identify requirements.


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Determining ALE Status Considerations

» Special rule for seasonal workers:» An employer is not considered an ALE if they had 50 or more

employees during 120 or fewer days, during four or fewer calendar months during the preceding year and the 50-employee threshold was exceeded due to seasonal workers.

» In determining ALE status consider all related employers:» For-Profit Entities use 414(b) (c ) (m) and (o)» Not-for-Profit use 80 percent or more of control factors


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Applicable Large Employer Determination1. Calculate the number of FTEs per month:

Total number of FTEs (30+ hours/week) + Total hours of service by

all part-time / 120 = Number of FTEs for Month

2. Average monthly FTEs for 12 months

(Transition rule for 2015 only; may choose any period of six consecutive

months in 2014 rather than entire calendar year to determine ALE status

for 2015)

3. If average monthly FTE for prior calendar year is greater than 50 then

employer is an ALE.

A calculator is also available to assist with this determination on this website:

https://www.healthcare.gov/shop-calculators-fte

https://www.healthcare.gov/shop-calculators-fte


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Example ALE Determination for 2016 Using 2015 Data


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What Must Be Filed?There are four forms that may need to be filed by an ALE:

» 1095-C Employer-Provided Health Insurance Offer and Coverage: Large employers will provide one to each enrollee. The form provides information on the coverage provided and to whom and when the coverage was offered.

» 1094-C Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns: Transmittal form employers will file with IRS along with all the Forms 1095-C.

» 1095-B Health Coverage: Insurers and self-funded plans will provide one to each enrollee. The form provides information on the coverage provided.

» 1094-B Transmittal of Health Coverage Information Returns: Transmittal form insurers and self-funded plans will file with the IRS along with all the Forms 1095-B.

http://www.irs.gov/pub/irs-dft/f1095c--dft.pdf

http://www.irs.gov/pub/irs-dft/f1094c--dft.pdf

http://www.irs.gov/pub/irs-dft/f1095b--dft.pdf

http://www.irs.gov/pub/irs-dft/f1094b--dft.pdf


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Transition Relief for Some EmployersWhen are employer mandate penalties effective?

“Transition Relief” announced February 10, 2014» Employers with 50 to 99 FTEs – delayed until 1/1/16» Employers with 100 FTEs or more – effective 1/1/15

» However, transition rules for 2015 may minimize need for changes until 1/1/16.

NOTE: All ALEs must still file for 2015 even though employers with fewer than 100 FTEs will not be subject to employer mandate penalties. However, penalties for failure to file may still be assessed for 2015.


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Which Forms to File?Insured Health Plan Self-Insured Health Plan

Small employer (Fewer than 50 FTEs)

Small employers do not file. The insurer files Form 1095-B.

File Form 1095-B.

Applicable Large Employer (ALE)(50 to 99 FTEs)

ALE control group member files Form 1095-C I and II (not Part III), even though they may not be subject to an employer mandate in 2015. Insurer then files Form1095-B.

File Form 1095-C Parts I, II and III, even though they may not be subject to an employer mandate in 2015.

ALE(100 or more FTEs)

ALE control group member files Form 1095-C Parts I and II (not Part III). Insurer files Form 1095-B.

ALE member files Form 1095-C Parts I, II and III.


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What the Employees Receive» Employer issues Form 1095-C to each employee who was full-time

during one or more months, and each part-time employee who was enrolled in self-insured coverage during one or more months.

» Insurance company issues (for fully insured plans) Form 1095-B to each employee covered by fully insured plan.

NOTE: In a fully insured plan, the employees will receive both the 1095-C from the employer and a 1095-B from the insurance company.


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What the IRS Receives» Employer files

» 1094-C transmittal form» Copies of each employee’s form 1095-C

» Insurance Company files (for fully insured plans)» 1094-B transmittal form» Copies of each employee’s form 1095-B


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Form 1095-C (Employee Statement)


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1095-C Information Required» All ALE (self-insured or fully insured)

» 1095-C Parts I & II: Information for each FTE» Part I

» Name, SSN and address for each FTE» Employer information

» Part II» Offer of coverage code (line 14) must apply to all days in

the month not just one day» Employee cost for lowest cost plan» Safe Harbor codes (line 16)

» Part III» Only filed by self-insured plans


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1095-C Line 14 Code Series 1 (Offer of Coverage Codes)

Code Description

1A Minimum Value (MV) offered at less than 9.5 percent of federal poverty level (FPL) ($93.18/mo)

1B Offer to EE only

1C Offer to EE + Dependent (not spouse)

1D Offer to EE + Spouse (non-dependent)

1E MV offered to EE, at least Minimum Essential Coverage (MEC) offered to spouse and dependents

1F MEC that is not MV offered to employee

1G Self-funded offered to part-time EE

1H No offer of coverage to full-time employee

1I No offer to employee but employer using qualifying offer relief


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1095-C Line 16 Code Series 2 (Safe Harbor Codes)

Code Description

2A Not employed any day that month

2B Part-time or termination month when not covered all month

2C Enrolled in coverage (use over any other code if applicable)

2D EE in non-assessment period (e.g. waiting period)

2E Multi-employer plan interim relief

2F W-2 Safe Harbor

2G FPL Safe Harbor

2H Rate of pay Safe Harbor

2I Non-calendar year plan employer transition relief


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1095-C Self-Funded Plans» Must complete Form 1095-C Part III» Additional related information required for all covered individuals

(employee, spouses and dependents):» Name» SSN or DOB if SSN not available (must attempt to obtain SSN)» If individual had coverage in any employer-sponsored Minimum

Essential coverage for each calendar month (Y or N)» If covered one day of the month, then considered to have

coverage for that month.


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1094-C (Page 1) Transmittal


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1094-C Information Required» All ALE (self-insured or fully insured)

» Part I: Basic employer information and in the case of a governmental employer that designates another governmental entity as the filing entity, identifying information for that entity.

» Part II: Line 21states employer’s status if a member of a controlled group/affiliated service group (list other members in the controlled group on page 3 of Form 1094-C). Likely will be no for governmental entities.


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1094-C (Page 2)


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Information Required 1094-C (Page 2)Column Description

a Did the employer offer minimum essential coverage to 70 percent of FTEs determined separately by month for all twelve months?

“Yes” means not subject to $2,000 excise tax for that month

b Number of FTEs*

c Total number of employees*

d Is employer part of a controlled group?

e Transition relief code: A for 50-99 FTE relief or B for all other 100+ transition relief

*See next slide for how to determine


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Information Required 1094-C (Page 2)Column Description

b Number of FTEs*(If the employer marked “98 percent offer method” then this column does not need to be completed)

c Total number of employees*

*In determining these counts select one of four dates each month to count and be consistent. • 1st day of the month• Last day of the month• 1st day of 1st payroll period starting during the month• Last day of 1st payroll period starting during the month,

but only if that day is in the same month that payroll started


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Penalties for Failure to Comply with Reporting RequirementsForms 1094-C and 1095-C help the IRS enforce the ACA employer mandate. For employers with more than 100 FTEs, the following penalties could apply for 2015:» Failure to file 1094-C and 1095-C: $100 for each delinquent or

incorrect return; maximum penalty per year of $1,500,000» Failure to provide informational statement to employee: $100 for

each missing statement; maximum penalty per year of $1,500,000

NOTE: The IRS may not assess penalties in 2015 if an employer can demonstrate good faith to comply.


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When is Reporting Due?» Same timing as W-2 reporting for 2015

» Employer Reporting » Must be filed no later than February 29, 2016 (or March 1,

2016 due to the 29th falling on a Sunday) » No later than March 31, 2016 if filing electronically

» Employee Reporting» Due by January 31, 2016 (or February 1, 2016 due to the

31st falling on a Sunday)


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Electronic Filing» Electronic filing is required for all large employers filing at least 250 returns (each

employee is a separate return)

» All are encouraged to file electronically (those with fewer than 250 returns may

elect to file in paper form)

» Employee copies

» Electronic filing is permitted only if recipient affirmatively consents to receive

the statement in electronic format

» Consent may be obtained on paper or electronically (i.e. via email)

» An employee who gives consent on paper must confirm the consent

electronically

» Two ways to provide electronically

» Via email

» Inform individual how to access on employer’s website

» Sikich will have filing solution to create economies for employer


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Healthcare Reform’s Impact on Payroll/HR/Benefits


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The Payroll Perspective» Each system is different and has varying capabilities.» Clients need to think about what they need their system to do going

forward.» They are advised to work with their current payroll system to make

changes for tracking and reporting.» Clients should already be engaged in a process to deal with

administrative burdens.


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Questions Clients are Asking» Am I considered a “large” or “small” employer under the ACA?» How will my system handle:

» Tracking of hire dates (multiple hire dates, rehires)» Documentation of employment status» Reporting of hours worked

» Full-time equivalents» Seasonal, variable hour and temporary employees» Managing hours worked

» Tracking of measurement periods and stability periods

» Automatic enrollment


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Administrative Concerns from Clients» How will I determine measurement periods, administrative periods

and stability periods? » How will I track hours to determine eligibility for part-time/variable

employees?» Who within my organization will be responsible for handling the

additional administrative responsibilities?» Tracking hours/reporting requirements» Enrollments » Questions» 1094-C and 1095-C forms

» What are my outsourcing options?


Employer Payment Arrangements


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IRS Changes Rules for Taxability of Employer-Provided Medical Expenses for Certain Arrangements

» In Notices 2015-17 and 2013-54, the IRS provides guidance on the application of the market reform provisions of the Affordable Care Act (ACA) to certain group health plans.

» In the past, employers have utilized a variety of methods to provide tax-free medical benefits to their employees.

» The IRS’ recent guidance impacts some of the payment arrangements beginning January 1, 2014.

» One important change is that payments for health insurance outside of group health plans generally are no longer permissible. Employers will no longer be able to directly pay or reimburse employees’ premiums for individual health insurance policies that provide major medical coverage on a tax-free basis. The employer may be subject to excise taxes even if the payments are made on an after-tax basis. (Note that dental and vision coverage are not covered by this guidance).


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Impact on Various Health PlansEmployer Group Health Plans» Insurance premiums paid by the employer under group health plans

continue to be excludible from an employee’s income. Group health plans have been subject to additional mandates.

» Employee contributions paid to the employer for group health plans continue to be tax-free if made pursuant to the requirements of a Section 125 plan.

» IRS Notice 2013-54 does not impact the taxability of these payment arrangements.


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Impact on Various Health PlansHRAs (Health Reimbursement Arrangements)» An HRA is an arrangement funded solely by an employer and

provides for payment of qualifying medical care expenses (under Code Sec. 213(d)) incurred by the employee or his/her spouse, dependents and children under 27 years old, up to a maximum dollar amount for a coverage period. This reimbursement is excludable from the employee's income.

» In IRS Notice 2013-54, the IRS clarified that an HRA is considered a group health plan and therefore must meet group health plan requirements such as no annual limits on medical expenses. HRAs by definition limit benefits up to a certain dollar amount, and these arrangements would clearly violate the new rules. The IRS Notice created an exception for HRAs that are integrated with group health plans and retiree-only HRAs.


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HRAs (continued)» If HRAs meet the rules for being considered integrated with an HRA

as outlined in the Notice, employers may continue providing tax-free reimbursements of qualifying medical expenses.

» On or after January 1, 2014, if an HRA does not meet the new requirements, any payments made to employees will become taxable. If the employer does not sponsor a group health plan then a stand-alone HRA will no longer be permissible. HRA arrangements should be reviewed to ensure they meet the new requirements. The guidance also indicates that an HRA may not provide for reimbursements of an individual insurance policy and integration with an individual health insurance plan will not satisfy the new requirements.


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Impact on Various Health PlansEmployer Payment Plans» Under pre-2014 rules, an "employer payment plan" allowed for an

employer to make tax-free reimbursements to employees for individual health insurance policy premiums and other qualifying medical expenses under Code Sec. 106.

» Effective January 1, 2014, employers can no longer make payments to employees for individual insurance premiums or other out-of-pocket health costs outside of a group health plan. If such payments are made, even on an after-tax basis, the employer could be subject to excise taxes of $100/day per affected individual until corrected.

» Notice 2015-17 provides transition relief for employers not subject to ACA until June 30, 2015.


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Impact on Various Health PlansHealth Flexible Spending Arrangement (Health FSA)

» A health flexible spending arrangement (Health FSA) is designed to reimburse employees

for medical care expenses (under Code Sec. 213(d), other than premiums) incurred by

the employee or the employee's spouse, dependents and children under 27 years old.

» Previously, the IRS provided regulations permitting an employee to pay for individual

health insurance premiums on a pre-tax basis through a Section 125 plan. The employer

was required to obtain substantiation of the employee’s payment of the premium before

making a pre-tax reimbursement. This reimbursement was not included in the Health FSA

component of the plan, although it could be provided by the plan in a separate provision.

» Effective January 1, 2014, tax-free reimbursements of individual health insurance

premiums are no longer an allowable benefit under a Section 125 Plan. In addition, in

order for a Health FSA to be considered exempt from certain market reforms, the

employer must make available a group health plan that meets the Affordable Care Act

requirements. The guidance also places certain restrictions on the amount of employer

matching contributions that may be provided.


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Impact on Various Health PlansSummary» Employers should review their payment practices surrounding all

medical payments to ensure they meet the new requirements. If an employer wants to continue paying for medical expenses, but does not want to sponsor a group health plan, the employer may be subject to significant penalties. » In Notice 2015-17, the IRS temporarily suspended issuing

penalties for these types of arrangements through June 30, 2015.

» The above is a brief overview of a limited number of the provisions provided in IRS Notice 2013-54. Additional provisions may impact your plans and all provisions should be reviewed in detail.


Next Steps


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2015 Next Steps» Determine which forms must be filed for 2015 (based on average

number of employees per month in 2014).

» If an employer has more than 50 FTEs per month, gather data to prepare the filings.

» Inquire of each vendor what data will be provided

» Evaluate options to aggregate data

» Secure software filing solution to submit forms to IRS and to employees

» Review employer mandate rules to determine if subject to any penalties.

» Retain documentation for all aspects of compliance with ACA.

» Review payment practice for any types of health payments to ensure none are paid outside of a qualifying plan to avoid penalties.

» Start early!


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How can Sikich Assist?» Determination of filing requirement and potential penalties for 2015.» Design and testing of internal systems to collect and monitor payroll

data that will be needed for IRS compliance, including working with payroll vendors.» Test interim data summer/fall

» Assistance with building compliance file to respond to IRS notices and audits.

» Preparation of IRS filings and employee notices.» Responses to IRS excise tax assessments.» Planning for 2016 to determine if to continue offering coverage or

pay penalties.


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Sikich Services Prepare for 2016Plan for 2016 issues prior to open enrollment:

» Manage workforce size eligible for coverage

» Expand utilization of employees working less than 30 hours?

» Utilize contractors?

» Hire more seasonal employees?

» Evaluate coverage options

» Exchanges vs. providing own policy?

» Review welfare plan compliance

» Ensure 5500 filed if more than 100 participants

» Ensure plan document is in place; first request during DOL audits which are increasing in frequency

» DOL assesses penalties for failure to have proper plan document and Summary Plan Descriptions. Insurance policy documents are often not sufficient.


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Cadillac Tax in 2018» If a plan provides benefits in excess of a certain level, a 40 percent

excise tax will be imposed on the actuarial value of those benefits.» Benefits offered under Collective Bargaining Agreements (CBA)

should be evaluated as part of renewal of CBA as many provide benefits in excess of these levels. Once the CBA is established, it will be challenging to reduce benefits even if the employer is subject to taxes.

» Tax will ultimately be paid by the employer even though benefits may be required by union contracts.

» IRS released some guidance in February 2015 in Notice 2015-16. The Notice included a request for comments on a variety of issues and the IRS will be releasing additional guidance in this area to clarify how the calculation should be done.


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Additional Resources» Sikich’s website has a paged with ACA resources (link provided

below):

» Guide to reporting requirements» Links to IRS resources including FAQ» A recording of this webinar will be added

» http://www.sikich.com/insights-resources/thought-leadership/ebooks/affordable-care-act-reporting-requirements

Please complete survey responses to assist us in planning for meeting our client’s ACA filing needs.

http://www.sikich.com/insights-resources/thought-leadership/ebooks/affordable-care-act-reporting-requirements









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Thank you for attending!

We are available to assist you through the process:

Determine your filing requirements

Plan who will provide data

Secure software filing system

Test data before end of year

Please complete the survey to assist us in planning for the upcoming filing deadline.












Contact Information

Sikich LLP

1415 W. Diehl Road, Suite 400

Naperville, IL 60563

This document is not written tax advice directed at the particular facts and circumstances of any person. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this document may be considered to contain written tax advice, any written advice contained in, forwarded with, or attached to this document is not intended to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

Karen S. Sanchez, CPA, QPAPartner-in-ChargeEmployee BenefitsP: (630) 566-8519

E: [email protected]

Joy J. Duce, SPHRSenior Managing Director

Human Resource Consulting ServicesP: (630) 566-8454

E: [email protected]

mailto:[email protected]

mailto:[email protected]

Affordable Care Act Reporting Requirements for 2015 [Webinar Slides]

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