On September 6, 2013, the IRS issued proposed regulations on information reporting requirements under Internal Revenue Code (IRC) sections 6055 and 6056, which were added by the Affordable Care Act (ACA). Section 6056 requires “applicable large employers” (“ALEs”) to file annual reports detailing the terms and conditions of health coverage provided to full-time employees. Click here for these proposed regulations (72 pages). Section 6055 requires similar annual reporting by insurers, self-insured plans (plan sponsors) and other entities that provide “minimum essential coverage” (“MEC providers”). The section 6055 proposed rules are discussed in a separate article.
The 6056 reporting requirement will be effective for calendar years beginning on or after Jan. 1, 2015, with the first returns due by the end of February 2016 (end of March if filed electronically). The reporting requirements originally were effective in 2014,but IRS Notice 2013-45 provides for a one-year delay. However, the IRS is encouraging voluntary compliance for 2014.
What Reporting is Required under IRC Section 6056 ?
IRC section 6056 requires “applicable large employers” (as defined below) to:
- file annual information returns with the IRS on the terms and conditions of their health care coverage for full-time employees during the prior year (by February 28, or March 31 if filed electronically), and
- furnish written statements by January 31 to each full-time employee whose information was reported to the IRS.
Why does the IRS Need this Information?
Annual Returns: The IRS will use this information to verify employer-sponsored coverage and to administer the employer shared responsibility provisions (also known as “pay-or-play”) under Code section 4980H(a) and (b). Large employers that do not offer affordable coverage (that provides at least minimum value) to full-time employees and dependents face potential penalties under these rules if any full-time employee buys coverage in an individual Health Insurance Marketplace (Exchange) and receives a federal subsidy (either a premium tax credit or cost-sharing reduction).
Annual Employee Statements: Employees will use this information (about coverage that was provided in the prior year) to determine whether they can claim a premium tax credit on their tax returns for health insurance they bought through an individual Marketplace in the prior tax year. Employer group health coverage information is needed because employees are not eligible for premium tax credits if they are offered affordable coverage under an employer-sponsored plan that provides minimum value, or if the employee actually enrolls in an employer-sponsored plan (even if the plan does not meet affordability or minimum value tests).
What Employers are Subject to these Reporting Requirements?
The section 6056 reporting requirements apply to “applicable large employers” (known as “ALEs”). An ALE is an employer that employed, on average, at least 50 full-time employees (including “full-time equivalents”) during business days in the prior calendar year. “Full-time” employees are those employed on average at least 30 hours per week or 130 hours per month.
Employer size is determined on a “controlled group” basis. That is, related employers (under IRC section 414 (b), (c), (m) and (o)) are treated as a single employer for determining employer size if they meet certain IRS criteria. However, the reporting requirements apply separately to each employer member of a large employer controlled group. Each ALE member is responsible for its own reporting obligations.
The proposed regulations allow large employers to use third parties to facilitate filing returns and furnishing employers statements, but they specifically provide that the employer retains responsibility for providing the information. The one exception is that a large employer that is a governmental unit or agency may report on its own or may designate another person to report on its behalf.
The IRS expects that reporting related to full-time employees eligible to participate in a multiemployer plan could be provided in a bifurcated manner. Under this approach, one return, filed by the multiemployer plan administrator, would pertain to the employees eligible to participate in the multiemployer plan. A separate return filed by the employer would pertain to the remaining full-time employees who are not eligible to participate in a multiemployer plan.
What are the Reporting Deadlines?
Annual Returns: Section 6056 returns must be filed with the IRS annually, no later than Feb. 28 (March 31 if filed electronically) of the year after the calendar year to which the return relates.
Due to the one-year transition relief under IRS Notice 2013-45, the first section 6056 returns required to be filed are for the 2015 calendar year and must be filed no later than March 1, 2016 (Feb. 28, 2016, being a Sunday), or March 31, 2016, if filed electronically.
Annual Employee Statements: The employee statements for each calendar year must be furnished to full-time employees by Jan. 31 of the next calendar year. Extensions of this deadline may be available in certain circumstances.
The first section 6056 employee statements (meaning the statements for 2015) must be furnished no later than Feb. 1, 2016 (Jan. 31, 2016, being a Sunday).
On the Annual Returns, what Information is Required?
The following information must be reported on the section 6056 information return:
- The employer’s name, address and EIN, the name and telephone number of the employer’s contact person and the calendar year for which the information is reported;
- A certification as to whether the employer offered its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan, by calendar month;
- The number of full-time employees for each month during the calendar year;
- For each full-time employee, the months during the calendar year for which coverage under the plan was available;
- Each full-time employee’s share of the lowest-cost monthly premium (self-only) for coverage providing minimum value offered to that full-time employee, by calendar month; and
- The name, address and TIN of each full-time employee during the calendar year and the months the employee was covered under an eligible employer-sponsored plan.
Additional information related to the employer and coverage is expected to be requested. Some of the information will be provided through the use of indicator codes, rather than detailed explanations or summaries.
Additional Information about the Annual Section 6056 IRS Returns
Forms: Section 6056 information returns may be filed using Forms 1094-C and 1095-C or any other form(s) designated by the IRS. A substitute form may be used if it includes the required information and complies with IRS procedures or other guidance.
Electronic filing: Large employers filing 250 or more returns during the calendar year are required to file section 6056 returns electronically, although waivers can be provided in the case of hardship. All types of returns (including information returns, income tax returns, employment tax returns and excise tax returns) are aggregated for purposes of the 250-return threshold. Also, each section 6056 return is a separate return.
A large employer filing fewer than 250 returns during the calendar year is encouraged to file section 6056 returns electronically, but is permitted to use the paper form.
On the Annual Employee Statement, what Information is Required?
As explained above, employers required to file annual section 6056 information returns must also furnish an annual written statement to each full-time employee identified on the annual IRS return. The statement must include the following information:
- The employer’s name, address and EIN; and
- The information required to be shown on the section 6056 return with respect to the employee.
Additional Information on Furnishing Employee Statements
Employee statements may be provided either by furnishing to the full-time employee a copy of Form 1095-C or any other form designated by the IRS. A substitute statement may be used if it includes the required information and complies with IRS procedures or other guidance.
Statements furnished to employees under section 6056 are not required to disclose their complete TINs.
The proposed regulations permit electronic furnishing of section 6056 employee statements if certain notice, consent and hardware or software requirements are met. The same rules and process currently in place for electronic furnishing of Forms W-2 will apply to providing the section 6056 employee statements electronically.
Combined and Simplified Reporting for Large Employers with Self-Insured Plans
Large employers with self-insured plans are subject not only to the section 6056 reporting requirements explained above, but also to reporting requirements under section 6051—which requires employers to provide Forms W-2, and section 6055—which requires information reporting by any person or entity that provides minimum essential coverage to an individual.
The proposed rules include provisions that reduce duplicative reporting and otherwise simplify reporting. For example, self-insured health plans may be able to furnish a single statement to covered individuals for both sections 6055 and 6056.
The proposed rules outline a general method of information reporting that can apply to all employers. Additionally, the IRS is considering simplified reporting methods, such as using codes on Form W-2, that employers could use for certain groups of employees. This simplified reporting may apply only to a limited number of self-insured employers, however. Specifically, the IRS is considering whether to allow employers that provide mandatory minimum value coverage under a self-insured plan to an employee, spouse and dependents, with no employee contribution, to not file a section 6056 annual return, but instead to file only the summary information in the section 6056 transmittal form, and to file and furnish only the return required under section 6055 (the “MEC provider” return), and include a code on the employees’ Forms W-2.
What Penalties Apply if an Employer does Not Comply with the Reporting Requirements?
Employers that do not comply with the filing and statement furnishing requirements of section 6056 may be subject to penalties for failure to file a correct information return and failure to furnish correct payee statements. However, these penalties may be waived if the failure is due to reasonable cause and not to willful neglect.
IRS Request for Comments
The IRS has requested comments on a number of provisions. Comments can be submitted for a period of 60 days after the proposal is published in the Federal Register. A hearing on the proposed rules will be held on Nov. 18, 2013.