Employee Benefits Compliance, Employer Mandate, Large Employers, Penalties, Reporting Requirements, Subsidies

Federal Tax Reporting Requirements Under the Affordable Care Act

As employers’ awareness and understanding of the Employer Shared Responsibility (“Pay-or-Play”) provisions has increased, many employers have started asking how the government will know whether employer-provided coverage was “affordable” and provided “minimum value” and to which employees the coverage was offered.  These are important issues, since the Affordable Care Act (ACA) imposes a penalty on an employer only if a full-time employee received a subsidy for purchasing health insurance in an exchange, and an employee is not eligible for a subsidy if employer-provided health coverage was available and met “affordability” and minimum value requirements. 

To answer these questions, of January 1, 2014, new federal tax reporting requirements apply under Code sections 6055 and 6056 (added by ACA sections 1502(a) and 1514(a), respectively).  Employers and other reporting entities will need to have systems in place by the beginning of 2014 to start collecting the necessary information, because the first information returns will be filed in 2015 (reporting on coverage provided in 2014).  It is anticipated that proposed regulations (expected soon) will allow employers with insured health plans to contract with issuers to have the issuers include in their annual filings some or all of the information employers are also required to file.  However, employers will still have to be involved in the process of helping Health and Human Services (HHS) and Exchanges determine which employees are eligible for subsidies (premium tax credits and cost-sharing reductions).  (In recently-proposed regulations, HHS proposed methods by which employers might voluntarily be able to provide this information when an employee applies to an Exchange for health insurance coverage.)

If employers are not involved early in the process, they will spend more time later in the process (after the end of the year) contesting the eligibility of employees whom the government certified as eligible for subsidies based on the information available at the time the individuals applied for coverage in the Exchange.  Thus, employers need to understand the process, the reporting requirements, and the importance of being involved in the process earlier rather than later.  This article focuses on the reporting requirements. (For additional information, go to www.HealthReformUpdates.com)

Brief Summary of the New Reporting Requirements

Large employers (those with at least 50 full-time employees or “full-time equivalents” )will be required to file annual reports with the IRS on the terms and conditions of their health care coverage for full-time employees during the prior year.  The IRS will use this information to verify employer-sponsored coverage and to administer the employer shared responsibility provisions under Code section 4980H(a) and (b).  Employers also must furnish written statements by January 31 to each full-time employee whose information was reported to the IRS.  (Code section 6056 and IRS Notice 2012-33)

Additionally, entities that provide “minimum essential coverage” (insurance issuers, self-funded plan sponsors and government agencies that administer government-sponsored health insurance programs) will be required to file annual reports that provide information on each individual for whom they provide the coverage.  It is anticipated that regulations will make insurance issuers responsible for the reporting for insured group health plans.  (Code section 6055 and IRS Notice 2012-32)

In Notices 2012-32 and 2012-33, the IRS requested comments on issues arising under these two reporting requirements, including possible ways the IRS can coordinate and minimize duplication between the information required to be reported and furnished by employers and other entities (such health insurance issuers and government providers of health coverage). 

Comparison of Filing Requirements Under Code Sections 6055 and 6056

As indicated below, much of the filing information required by sections 6055 and 6056 is duplicative. The IRS will provide, to the maximum extent feasible, that any large employer return required under 6056 may be filed as part of a return or statement under 6055 or 6051 (relating to employer reporting on Form W-2).  A large employer that offers insured health coverage may contract with the issuer to have the issuer provide the information required under 6056 as part of the return and statement provided by the issuer under 6055.

Information Required in Annual Filings Employer Filing (6056) Provider* Filing (6055)
The large employer's name and EIN (6055 filing requires employer's address, but presumably the 6056 filing also would) X X
The date of the filing X X
Whether the large employer offers its full-time employees (and their dependents) the opportunity to enroll in  minimum essential coverage under an eligible employer-sponsored plan, X
The duration of any waiting period for such coverage X
The months during the prior calendar year when coverage was available X
The monthly premium for the lowest-cost option in each enrollment category under the plan X
The employer's share of the total allowed costs of benefits (not clear if this is actuarial value?) X
Portion of the premium paid by the employer X
The number of full-time employees for each month of the prior calendar year X
Each full-time employee's name, address, SSN, and the months (if any) during which the full-time employee (or any dependents) were covered under the employer plan X X
Whether the coverage offered is a QHP offered through an Exchange X
If the coverage is a QHP offered through an Exchange, the amount of any advance payment of the premium tax credit or cost-sharing reduction X
Any other information required by the IRS X X

* Provider is an entity that provides “minimum essential coverage” (MEC).  This includes insurance companies (issuers), self-insured plan sponsors and government entities that administer government-sponsored  health insurance programs.

Reporting Requirements on Large Employers

Large employers that are subject to the Employer Shared Responsibility provisions must file an annual report with the IRS (in January 2015) on the terms and conditions of their health care coverage for full-time employees during the prior year.  The IRS will use this information to verify employer-sponsored coverage and to administer the employer shared responsibility provisions under 4980H(a) and (b).  Employers also must furnish a written statement by January 31 to each full-time employee whose information was reported to the IRS.  As noted earlier, regulations expected soon may relieve large employers with insured plans of some or all of these reporting requirements, if the information is reported annually by the health insurance issuer.  Self-funded plan reporting will be done either by the plan sponsor or possibly by the third-party administrator.

As summarized in the matrix above, the annual return (required by Code section 6056) that large employers will file with the IRS must:

  • Include the large employer’s name and EIN
  • Include the date of the filing
  • Certify whether the large employer offers its full-time employees (and their dependents) the opportunity to enroll in  minimum essential coverage under an eligible employer-sponsored plan, and if so certify:
    • The duration of any waiting period for such coverage
    • The months during the prior calendar year when coverage was available
    • The monthly premium for the lowest cost option in each enrollment category under the plan
    • The employer’s share of the total allowed costs of benefits
  • Report the number of full-time employees for each month of the prior calendar year
  • Report each full-time employee’s name, address, SSN, and the months (if any) during which the full-time employee (or any dependents) were covered under the employer plan
  • Include such other information that may be required by the IRS.

The following information must be included in the annual statement that large employers must provide by January 31 to each full-time employee whose information is included in the annual IRS filing for the prior year:

  • Employer’s name and address
  • Employer’s contact information (including phone number)
  • Information related to coverage provided to that employee (and dependents) that is required to be reported on the 6056 annual return (the information listed abovGovernmental units or agencies may designate a person to comply with these reporting requirements on their behalf.

Reporting Requirements on Entities that Provide Minimum Essential Coverage (“MEC Providers”)

Insurance issuers, self-insured plan sponsors and government agencies that administer government-sponsored health insurance programs must file annual returns reporting information for each individual for whom minimum essential coverage is provided.  These returns are required by Code section 6055.  It is anticipated that regulations will make insurance issuers responsible for the reporting, for insured group health plans, and that the regulations will “include guidance intended to minimize administrative burden and duplicative reporting.”

All information returns reporting minimum essential coverage must contain:

  • Name, address and SSN of the primary insured and each other individual covered
  • Dates each individual was covered during the calendar year
  • Whether the coverage is a Qualified Health Plan (QHP) offered through the Exchange (if the reporting entity is an issuer)
  • If it is a QHP offered through an Exchange, the amount of any advance payment of the premium tax credit under ACA 1412 or any cost-sharing reduction under ACA 1402
  • Any other information IRS requires.

A return filed by an insurance issuer for coverage provided through an employer group health plan also must contain:

  • Plan sponsor’s name, address and EIN
  • Portion of the premium paid by the employer
  • Any other information the IRS may require for administering the tax credit under section 45R (for individuals who purchase coverage in an Exchange)

Additionally, the entity that files the information return with the IRS (reporting minimum essential coverage) must furnish a written statement to each individual listed on the return that shows the information that was reported to the IRS for that individual.

IRS Request for Additional Comments

In Notice 2012-32, the IRS and Treasury also asked for comments on an entire page of issues relating to filing, such as:

    1. How to determine when an individual’s coverage begins and ends for purposes of reporting the dates of coverage
    2. How to minimize duplication between the reporting required by health insurance issuers and others under section 6055 and reporting required by Exchanges/Marketplaces under Code section 36B(f)(3).