The IRS previously issued three sets of FAQs that provide guidance on employer responsibilities under the Affordable Care Act (ACA). This guidance was recently updated to include significant clarifications and help employers ensure that they're in compliance with the rules. Here, we highlight the extensive updates that were issued in December 2016 and that you may find useful in fulfilling your information-reporting obligations for 2016, if you're subject to the requirements.
The employer shared responsibility provisions of the ACA require an applicable large employer (ALE) to pay a penalty if it doesn't offer minimum essential health coverage (or doesn't offer coverage that is affordable and provides minimum value) to its full-time employees and at least one full-time employee purchases coverage through a health insurance marketplace and receives a premium tax credit. Full-time employees are generally those who average at least 30 hours of service per week during a given month.
An ALE for a calendar year is an employer that employed an average of at least 50 full-time employees or the equivalent on business days during the preceding calendar year. To determine the number of full-time equivalent employees (FTEs), the overall hours worked by part-time employees during a month are added up, and the total is divided by 120 hours (equal to four weeks multiplied by 30 hours per week) and added to the number of full-time employees. However, the actual penalty is applicable solely to the health coverage status of full-time employees, not FTEs.
FAQs on Information Reporting
There are various reporting requirements associated with the employer shared responsibility provisions that apply to both coverage providers and employers. In general, every health insurance issuer, sponsor of a self-insured health plan, government agency that administers government-sponsored health insurance programs and other entity that provides "minimum essential coverage" must file annual returns reporting information for each individual for whom such coverage is provided. They also must furnish a written statement to each individual listed on the return showing the information that must be reported to IRS for that individual.
The information reported on Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is used to determine whether an employer may be liable for a penalty under the employer shared responsibility provisions of the ACA, as well as the amount of any penalty. Form 1095-C is also used by the IRS and the employee in determining the eligibility of the employee (and his or her family members) for the premium tax credit.
The FAQs provide additional information about completing these forms for the 2016 calendar year (for filing in 2017). Here's what's been revised under the updated guidance:
Question 9. Do ALE members that are combined to form a single employer (an "aggregated ALE group") file one authoritative transmittal reporting summary information for all ALE members in the aggregated ALE group?
The revisions clarify that an aggregated ALE group may not file one authoritative transmittal reporting summary information for all members in the group. Rather, the reporting requirements apply separately to each member.
Question 26. Should an ALE member report coverage under a Health Reimbursement Arrangement (HRA) for an individual who's enrolled in both the HRA and the employer's other self-insured major medical group health plan?
Under the updated guidance, enrollment in an HRA must generally be reported in the same manner as enrollment in other minimum essential coverage, unless an exception applies. One such exception is that if an individual is covered by two or more plans that provide minimum essential coverage and that are provided by the same reporting entity, reporting is required for only one of them for that month.
Question 27. Should an ALE member report coverage under an HRA for an individual who's eligible for the HRA because the individual is enrolled in the employer's insured group health plan?
The revised guidance states that if an individual is eligible for an HRA because the individual is enrolled in an employer's insured group health plan for which reporting is required, reporting generally isn't required for the HRA.
However, an ALE member must report HRA coverage for an employee who's enrolled in the HRA but not enrolled in another group health plan of the employer.
FAQs on Offers of Health Insurance Coverage
Certain employers are required to report to the IRS information about whether they offered health coverage to their employees and, if so, information about the coverage offered. This information also must be provided to employees. With respect to reporting offers of health insurance coverage, the FAQs provide that:
Question 23. For purposes of reporting, including reporting facilitated by a third party, may an ALE member file more than one Form 1094-C?
The revisions explain that an ALE member may file more than one Form 1094-C, provided that one (and only one) of those transmittals is an "authoritative transmittal" reporting aggregate employer-level data for the ALE member.
Question 24. May an ALE member satisfy its reporting requirements for an employee by filing and furnishing more than one Form 1095-C that together provide the necessary information?
Under the updated guidance, an ALE member may not satisfy its reporting requirements for an employee by filing and furnishing more than one Form 1095-C that together provide the necessary information. There must be only one Form 1095-C for each full-time employee for that full-time employee's employment with the ALE member.
FAQs on the Shared Responsibility Rules
If you still have questions about whether you're considered an ALE for 2016 and whether you've complied with the shared-responsibility requirements, you may find the revised FAQs regarding the employer shared responsibility provisions helpful:
Question 8. If an employer hires additional employees, including some part-time employees, how does it determine if the entity has become large enough to be an ALE?
The revisions clarify that if an employer hires additional employees, including some part-time employees, during the current calendar year, the employer must take those employees into account when determining if it's an ALE for the next calendar year.
Question 9. Do the employer shared responsibility provisions apply only to large employers that are for-profit businesses or to other large employers as well?
The revisions clarify that all employers that are ALEs are subject to the employer shared responsibility provisions. This includes for-profit, government and nonprofit employers, regardless of whether the entity is a tax-exempt organization.
Question 20. Is a full-time equivalent employee different than a full-time employee?
According to the revised answer to this question, the number of an employer's FTEs is relevant only for purposes of determining whether the employer is an ALE.
Question 24. How does an employer count a particular employee's hours of service if that employee works for two employers that are treated as one employer under the employer shared responsibility provisions (for example, different subsidiaries under a parent corporation that together form an aggregated ALE group)?
The rules for combining employers that have a certain level of common, or related, ownership, apply for purposes of determining whether an employer employs at least 50 FTEs.
Question 28. What counts as an "offer of coverage" under the employer shared responsibility provisions?
The updated guidance stipulates that an ALE makes an "offer of coverage" to an employee if it provides the employee an effective opportunity to enroll in the coverage (or to decline coverage) at least once for each plan year. Coverage refers to minimum essential health coverage under an eligible employer-sponsored plan.
Question 34. For purposes of the employer shared responsibility provisions, in determining what counts as an offer of coverage to at least 95% of an employer's full-time employees (and their dependents), does an employer have to take into account full-time employees (and their dependents) that are eligible for coverage through another source?
Under the revisions, the determination of what counts as an offer of coverage to at least 95% of an ALE's full-time employees applies regardless of whether any full-time employees have coverage from another source, such as Medicare, Medicaid or a spouse's employer.
Question 43. Who's an employee's dependent for purposes of the employer shared responsibility provisions?
The revisions explain that a dependent is an employee's child, including a child who has been legally adopted, or legally placed for adoption with the employee, who has not reached age 26. A dependent doesn't include:
- A spouse, or
- A stepchild, foster child or child who doesn't reside in the United States (or a country contiguous to the United States) and who isn't a U.S. citizen or national.
Question 44. If an ALE is made up of multiple employers (called ALE members), is each separate ALE member liable for its own employer shared responsibility payment, if any?
According to the updated answer, if an ALE is made up of multiple ALE members, each separate ALE member is liable for its own employer shared responsibility payment.
Still Got Questions?
The rules for providing health care benefits can be overwhelming to employers. These FAQs offer some guidance, but tax and financial professionals can help explain the shared responsibility provisions and the related reporting requirements using plain English.
Also be aware that the deadlines for filing ACA information forms are fast approaching. The due date for filing 2016 Forms 1094-B, Transmittal of Health Coverage Information Returns; 1095-B, Health Coverage, 1094-C and 1095-C with the IRS are February 28, 2017, if not filing electronically, or March 31, 2017, if filing electronically. However, the IRS extended the information reporting deadlines until March 2, 2017, for furnishing 2016 Forms 1095-B and 1095-C to individuals.
In the meantime, stay tuned for changes to health care coverage requirements. Health care reform has been made a top priority during President Trump's first 100 days in office and Congress has already begun to pass related legislation.