This article was written by Lisa Klinger, J.D. and Susan Grassli, J.D.
On July 24, 2014, the IRS released draft forms relating to the information reporting requirements under IRC sections 6055 and 6056, and also final and temporary and proposed regulations addressing issues affecting premium tax credits. Additionally, the IRS set the maximum annual individual mandate penalty for 2014 at $2,448 per individual and $12,240 for families of five or more.
The Draft Forms
The draft forms operationalize the information reporting requirements under IRC sections 6055 and 6056. The IRS previously issued final regulations on these on March 5, 2014. The draft forms issued today are:
- 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 IRS along with all the Forms 1095-B
- 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 on to whom and when the coverage was offered.
- 1094-C Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. Transmittal form insurers and self-funded plans will file with IRS along with all the Forms 1095-C
- 1095-A Health Insurance Marketplace Statement. Exchanges will provide to their enrollees
- 8962 Premium Tax Credit (PTC). Individuals who receive premium tax credits will file this with the IRS (with their 1040, 1040A or 1040NR)
- 8965 Health Coverage Exemptions. Individuals who are claiming an exemption from the individual mandate will file this with the IRS (with their 1040, 1040A or 1040NR)
IRS provides these draft forms to help employers, tax professionals software providers and other stakeholders prepare for these new reporting provisions and to invite comments from them. The drafts are not final and should not be used to actually report. The IRS anticipates that draft instructions relating to the forms will be posted to IRS.gov in August. Both the forms and instructions will be finalized later this year but no specific date was provided.
Maximum Individual Mandate Penalty
The IRS also issued guidance on July 24th setting the maximum individual mandate penalty for 2014. Individuals who do not have at least minimum essential coverage and who are not exempt from the individual mandate or the individual mandate penalty must pay a tax/penalty for failure to comply. For noncompliance in 2014, the annual penalty is the greater of $95 per person or 1% of modified adjusted gross income (AGI). For a family the maximum dollar penalty is three times the individual dollar amount. (E.g., in 2014 this will be 3 x $95 = $285.) The dollar amount and percent of AGI increase in subsequent years, to $325 or 2% of income in 2015, and to $695 or 2.5% of modified AGI in 2016. However, there is a cap on the maximum dollar amount for the percent of AGI test, for higher-income individuals. The ACA limits the annual penalty amount to the average cost of a bronze level plan for the applicable family size for that year. The IRS has determined this to be $204 per month for individual policies for 2014, which is $2,448 per individual per year (12 x $204) and $12,240 for a family of five or more (5 x $204 = $1,020 x 12 = $12,240).
Background on Information Reporting
The Affordable Care Act (ACA) requires large employers, group health plans to report information about the health coverage plan and eligible employees to the IRS and to employees. IRC section 6056 applies to large employers who sponsor insured plans, and section 6055 applies to health plans themselves and to employers who sponsor self-funded plans.
Regulators need this information from large employers in order to administer the Individual Mandate and the Employer Mandate (Employer Shared Responsibility provisions) and to determine which employees may be eligible for subsidies (Premium Tax Credits and Cost Sharing Reductions) if they purchase health insurance in the Individual Exchange/Marketplace. Large employers that do not offer affordable coverage that provides at least minimum value to full-time employees and dependents face potential penalties if any full-time employee buys coverage in an individual Exchange and receives a premium tax credit.
Large Employer Information Reporting is effective for calendar years after December 31, 2014. This date reflects the previously-issued one-year delay. The 2015 reports to the IRS are to be filed no later than February 28, 2016 (but because this is a Sunday, it’s actually March 1, 2016), and no later than March 31 if reporting electronically. Electronic filing is required for all large employers filing at least 250 returns (each full-time employee is counted as a separate return). Those filing fewer than 250 returns may choose to file in paper form, but are permitted (and encouraged) to file electronically. The 2015 reports to full-time employees are due by January 31, 2016 (but because this is a Sunday, it’s actually February 1, 2016).
On March 5, 2014, final regulations on Information Reporting under the ACA were issued. The final rules provide for a single, consolidated form that large employers, who meet certain qualifications, will be able to use in order to report to the IRS in lieu of the more cumbersome general reporting methods. (For more information on these reporting rules, see our March 2014 article on this website.)
The final rules referred to, but did not provide, the actual forms employers would use to report. The forms the IRS released on July 24, 2014, (listed above) are the draft versions of these forms.