IRS Issues Guidance Implementing the Health Insurance Coverage Information Reporting Requirements Under the Affordable Care Act
On September 5, 2013, the Internal Revenue Service (“IRS”) issued two sets of proposed regulations (Proposed Regulations Sections 1.6055-1 and 1.6055-2 and Proposed Regulations Sections 301.6011-9, 301.6056-1 and 301.6056-2) implementing the information reporting requirements under Internal Revenue Code Sections 6055 and 6056 added by the Patient Protection and Affordable Care Act (the “Act”). These reports are intended to help the IRS determine compliance with the Act’s individual and employer shared responsibility requirements and individual eligibility for the federal premium tax credit for coverage purchased through the State and Federal Health Insurance Exchanges/Marketplaces.
Who Is Subject to the Reporting Requirements and Purpose of the Reports
Compliance with the Individual Shared Responsibility Requirement (Reports to the IRS and to Employees).
Under Section 6055 of the Internal Revenue Code (the “Code”), the following entities must file annual information returns with the IRS via the Form 1095-B (or another form designated by the IRS) and transmittal form, Form 1094-B, regarding the coverage they provide and information about the individuals to whom such coverage was provided:
- Plan sponsors of self-insured health plans as follows:
- For single-employer self-insured plans, the employer;
- For self-insured plans covering the employees of related corporations and are treated as sponsored by more than one employer, each of the participating employers:
- For multi-employer self-insured plans, the association, committee, joint board of trustees or other similar group of representatives of the parties who establish or maintain the plan;
- For self-insured plans maintained by an employee organization, the employee organization;
- For self-insured Multiple Employer Welfare Arrangements (“MEWAs”), each participating employer; and
- For other self-insured plans, the designated plan sponsor.
- Health insurance issuers;
- Government agencies; and
- Other persons who provide minimum essential coverage to an individual.
“Minimum essential coverage” includes:
- Coverage under an employer-sponsored plan (generally medical and prescription drug plans, but not coverage that consists of “excepted benefits” such as limited scope dental or vision plans, health flexible spending accounts, or health reimbursement arrangements that supplement minimum essential coverage);
- Coverage purchased through the State and Federal Health Insurance Exchanges/Marketplaces
- Coverage under a government sponsored program including Medicare, Medicaid, CHIP, TRICARE, coverage through Veterans Affairs, and Peace Corps volunteer coverage; and
- Other coverage designated by the Department of Health and Human Services (e.g., self-funded student health coverage, Medicare Advantage plans, etc.) as minimum essential health coverage.
Statements that Must Be Furnished to Employees:
Section 6055 further requires the above-referenced reporting entities to furnish written statements to each individual who is reported on the annual return required by Section 6055 by January 31 of the year following the applicable coverage year. The information reported will allow individual taxpayers to establish and the IRS to verify that the taxpayer and any tax dependents were covered by “minimum essential coverage” and their months of enrollment during the coverage year. The first reports to employees are due by January 31, 2016 for coverage provided during 2015.
Note: The reporting requirements under Section 6055 apply to employers that sponsor a self-insured plan irrespective of their number of employees. Employers that offer coverage through insured plans only are not subject to the reporting requirements under Section 6055, but may be subject to the reporting required by Section 6056 to determine compliance with the employer shared responsibility requirement (see below).
Compliance with the Employer Shared Responsibility Requirement (Reports to the IRS and to Employees).
If an employer is an “applicable large employer” (“ALE”) (i.e., it had 50 or more full-time employees, taking into account full-time equivalents, in the prior year), then the employer must also file the annual information return required by Section 6056 of the Code via the Form 1094-C. [Note: For a multi-employer plan, the proposed regulations allow the plan’s administrator to file the Section 6056 return on behalf of any contributing employer that is subject to the requirement with respect to those full-time employees who are eligible to participate in the multi-employer plan. The contributing employer, however, retains responsibility for meeting its Section 6056 reporting obligation and must sign any Section 6056 return filed on its behalf.]
This annual return reports information about the ALE’s compliance with the employer shared responsibility requirement under Section 4980H of the Code. Under Section 4980H, beginning in 2015, an ALE will be subject to two potential penalties if that coverage does not meet certain Section requirements: an “A” penalty if it does not offer health coverage to at least 95% of its full-time employees and their dependents or a “B” penalty if the coverage it offers to 95% of its full-time employees and their dependents is “unaffordable”1 as defined under § 36B(c)(2)(C) (i)(II) of the Code, or does not provide “minimum value”, as defined under Section 36B(c)(2)(C)(ii) of the Code.2 The “A” penalty is assessed with respect to the total number of the employer’s full-time employees minus 30, while the “B” penalty is assessed with respect to only those full-time employees who purchase State or Federal Health Insurance Exchange coverage with a federal premium tax credit.
Section 6056 also requires these employers to furnish statements to their employees via the Form 1095-C, which will enable an employee to determine whether he or she can claim a premium tax credit under Section 36B of the Code for individual coverage purchased through the State or Federal Health Insurance Exchange/Marketplace.
Note: Subsequent guidance may allow employers to combine the employee statements required by Sections 6055 and 6056 into one statement or forgo the statement required by Section 6056 altogether if the coverage provided by the employer meets the minimum value requirement and does not require the employee to pay any amount towards the cost of that coverage.
Effective Date and Reporting Deadlines for Returns and Statements Required by Sections 6055 and 6056
Both sets of proposed regulations apply to calendar years starting on or after December 31, 2014. Under the proposed regulations, information must be reported to the IRS by February 28, or March 31 if filed electronically, of the year following the calendar year on which the employer or provider is reporting. This means that the first returns under Section 6055 and 6056 are due to the IRS by February 28, 2016 or March 31, 2016 if filed electronically for coverage provided in 2015. While a reporting entity can choose to file the Section 6055 return in paper form or electronically, the Section 6056 return must be filed with the IRS electronically unless the employer filed fewer than 250 returns during the calendar year (e.g., if the employer must file 150 Section 6056 returns and 200 Forms W-2 for a year, then it must file the Section 6056 return electronically).
The individual statements to employees must be furnished by January 31 of the year following the applicable coverage year (e.g., January 31, 2016 for coverage provided in 2015). Note: The proposed regulations allow for electronic distribution of the statements to covered individuals, but only if the individual affirmatively consents to such electronic delivery and certain hardware and software minimum requirements are met.
Section 6055 Reporting Requirements for Providers of “Minimum Essential Coverage”
What Information Must Be Reported to the IRS?
The proposed regulations require reporting entities to file Section 6055 returns with the IRS with the following information:
- The name of each individual enrolled in minimum essential coverage;
- The name and address of the primary insured or other related person (e.g., a parent or spouse) who submits the application for coverage;
- The taxpayer identification number (“TIN”, i.e., Social Security Number) for each covered individual (or date of birth if a TIN is not available after reasonable efforts have been made to collect the TIN) [note: no penalty will be assessed on a reporting entity for failing to report an individual’s TIN if the entity made reasonable efforts to collect the TIN];
- The months during which each individual was covered (i.e., any month during which the individual had coverage on at least one day during the month); and
- For reporting employers, the employer’s name, address, and employer identification number (“EIN”), and whether coverage was provided through the ”Small Business Health Options Program” (“SHOP” ), which is available through the State and Federal Health Insurance Exchanges/Marketplaces.
What Information Must Be Included in the Statements to Covered Individuals?
The proposed regulations require reporting entities to furnish annual statements that include the following information to each covered individual by January 31 of the year after the applicable coverage year:
- The name, address, and a contact number for the reporting entity, and
- The information that was reported to the IRS pursuant to Section 6055 with respect to the covered individual (see above).
Section 6056 Reporting Requirements for Applicable Large Employers
As referenced above, Section 6056 requires Applicable Large Employers (“ALEs”) to report information to the IRS concerning their compliance with the employer shared responsibility provisions under Section 4980H and the type of coverage provided to full-time employees, as well as furnish related coverage statements to each full-time employee.
What Information Must Be Reported to the IRS?
Under the proposed regulations, ALEs must report the following information:
- The name, address, and EIN of the ALE;
- The name and telephone number of the ALE’s contact person and the calendar year for which the information is reported;
- A certification as to whether the ALE offered its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan;
- 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 (note: information regarding coverage provided to a dependent is not required in a Section 6056 return, as such information is separately reported under Section 6055);
- For each full-time employee, the employee’s share of the lowest cost monthly premium (self-only) for coverage providing minimum value; and
- The name, address and TIN of each full-time employee during the calendar year and the months, if any, during which the employee was covered.
The preamble to the proposed regulations under Section 6056 state that the IRS and Treasury Department anticipate issuing future guidance requiring employers to also report the following information on their Section 6056 returns:
- Whether the coverage they provide meets the “minimum value” standard under Section 36B(c)(2)(C)(ii) of the Code and whether employees had the opportunity to enroll his or her spouse;
- The total number of employees by calendar month;
- Whether coverage was affected by a waiting period;
- The particular month(s) for which the ALE was not conducting business;
- If the ALE does not expect to be an ALE in the following calendar year;
- If the ALE contributes to a multi-employer plan, whether a full-time employee is treated as eligible to participate in the plan due to the ALE’s contributions to the multi-employer plan.
What Information Must Be Included in the Statements to Full-Time Employees?
The proposed regulations also require ALEs to furnish statements to all full-time employees, spouses, and dependents by January 31 of the year following the applicable coverage year that includes the following information:
- The name, address and EIN of the ALE; and
- The information required to be shown on the Section 6056 return with respect to the full-time employee.
Penalties for Noncompliance
ALEs and reporting entities that fail to comply with the Section 6055 and 6056 reporting requirements will be subject to penalties under Sections 6721 and 6722, as high as $100 per failure and up to $1,500,000 annually.3 However, these penalties may be waived under Section 6724 if noncompliance was due to reasonable cause and not willful neglect.4 For more information, the full text of the proposed regulations can be found at:
- Providers of Minimum Essential Coverage: http://www.gpo.gov/fdsys/pkg/FR-2013-09-09/pdf/2013-21783.pdf
- Applicable Large Employers: http://www.gpo.gov/fdsys/pkg/FR-2013-09-09/pdf/2013-21791.pdf
1 Under § 36B(c)(2)(C)(i)(II), health coverage is considered affordable if the employee premiums cost is less than 9.5% percent of household income.
2 Under § 36B(c)(2)(C)(ii), a plan fails to provide minimum value if “the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs.”
3 ALEs may also be subject to shared responsibility penalties if they do not prove they provided minimum value coverage to employees.
4 Penalties may be lower if the failure is corrected before August 1of the reporting year.