You did it! Your 1095 forms are ready and going out to employees. Now what?
You guessed it: Employee confusion. You’re going to get some questions. If you’re the one in charge of providing the answers, remember a great offense is the best defense. You’ll want to answer the most common questions before they’re even asked.
We’ve put together a list of some basic things
employees will want to know, along with sample answers. Tailor these Q&As as
needed for your organization. and then send them out to employees using every channel you can (mail, e-mail, employee meetings, company
website, social media, posters). Tell employees how to get more detailed
information if they need it.
1. What is this form I’m receiving?
A 1095 form is a little bit like a W-2 form.
Your employer (and/or insurer) sends one copy to the Internal Revenue Service (IRS)
and one copy to you. A W-2 form reports your annual earnings. A 1095 form
reports your health care coverage throughout the year.
2. Who is sending it to me, when, and how?
Your employer and/or health insurance company should
send one to you either by mail or in person. They may send the form to you
electronically if you gave them permission to do so. You should receive it by
March 31, 2016. (Starting in 2017, you should receive it each year by January
31, just like your W-2.)
3. Why are you sending it to me?
The 1095 forms will show that you and your
family members either did or did not have health coverage with our organization during each month of
the past year. Because of the Affordable Care Act, every person must obtain
health insurance or pay a penalty to the IRS.
4. What am I supposed to do with this form?
Keep it for your tax records. You don’t actually
need this form in order to file your taxes, but when you do file, you’ll have to tell the IRS whether or not
you had health insurance for each month of 2015. The Form 1095-B or 1095-C
shows if you had health insurance through your employer. Since you don’t
actually need this form to file your taxes, you don’t have to wait to receive
it if you already know what months you did or didn’t have health insurance in
2015. When you do get the form, keep it with your other 2015 tax information in
case you should need it in the future to help prove you had health insurance.
5. What if I get more than one 1095 form?
Someone who had health insurance through more
than one employer during the year may receive a 1095-B or 1095-C from each
employer. Some employees may receive a Form 1095-A and/or 1095-B reporting
specific health coverage details. Just keep these—you do not need to send them
in with your 2015 taxes.
6. What if I did not get a Form 1095-B or a 1095-C?
If you believe you should have received one but
did not, contact the Benefits Department by phone or e-mail at this number or
address.
7. I have more questions—who do I contact?
Please contact _____ at ____. You can also go to
our (company) website and find more detailed questions and answers. An IRS website called
Questions and Answers about Health Care Information Forms for
Individuals (Forms 1095-A, 1095-B, and 1095-C)
covers most of what you need to know.
Congress and the IRS were busy changing laws governing employee benefit plans and issuing new guidance under the ACA in late 2015. Some of the results of that year-end governmental activity include the following:
The PATH Act, enacted by Congress and signed into law on December 18, 2015, made some the following changes to federal statutory laws governing employee benefit plans:
On December 16, 2015, the IRS issued Notice 2015-87, providing guidance on employee accident and health plans and employer shared-responsibility obligations under the ACA. Guidance provided under Notice 2015-87 applies to plan years that begin after the Notice’s publication date (December 16th), but employers may rely upon the guidance provided by the Notice for periods prior to that date.
Notice 2015-87 covers a wide-range of topics from employer reporting obligations under the ACA to the application of Health Savings Account rules to rules for identifying individuals who are eligible for benefits under plans administered by the Department of Veterans Affairs. Following are some of the highlights from Notice 2015-87, with a focus on provisions that are most likely to impact non-governmental employers.
In the recently released Notice 2016-4, the IRS has extended the due dates for certain 2015 Affordable Care Act information reporting requirements.
Specifically, the Notice extends:
In the Notice, the IRS also grants special relief to certain employees and related individuals who receive their Form 1095-C or Form 1095-B, as applicable, after they have filed their returns:
Thus, generally, employers should not be concerned that furnishing these Forms on a delayed basis in accordance with the Notice will force employees to file amended 2015 income tax returns.
Finally, the extensions do not require the submission of any request or other documentation to the IRS and have no effect on information reporting provisions for other years.
Many employers offer affordable health coverage that meets or exceeds the minimum value requirements of the Affordable Care Act (ACA). However, if one or more of their full-time employees claims the coverage offered was not affordable, minimum value health coverage, the employee could (erroneously) get subsidized coverage on the public health exchange. This would cause problems for applicable large employers (ALEs), who potentially face employer shared responsibility penalties, and for employees, which may have to repay erroneous subsidies.
If an employee does receive subsidized coverage on the public exchange, most employers would want to know about it as soon as possible and appeal the subsidy decision if they believed they were offering affordable, minimum value coverage. There are two ways employers might be notified: (1) by the federally facilitated or state-based exchange or (2) by the Internal Revenue Service (IRS).
Employer notices from exchanges
The notices from the exchanges are intended to
be an early-warning system to employers. Ideally, the exchange would notify
employers when an employee receives an advance premium tax credit (APTC) subsidizing
coverage. The notice would occur shortly after the employee started receiving
subsidized coverage, and employers would have a chance to rectify the situation
before the tax year ends.
In a set of Frequently Asked Questions issued September 18, 2015, the Center for Consumer Information and Insurance Oversight (CCIIO) stated the federal exchanges will not notify employers about 2015 APTCs and will instead begin notifying some employers in 2016 about employees’ 2016 APTCs. The federal exchange employer notification program will not be fully implemented until sometime after 2016.
In 2016, the federal exchanges will only send APTC notices to some employers and will use the employer address given to the exchange by the employee at the time of application for insurance on the exchange. CCIIO realizes some employer notices will probably not reach their intended recipients. Going forward, the public exchanges will consider alternative ways of contacting employers.
Employers that do receive the notice have 90 days after receipt to send an appeal to the health insurance exchange.
Employers that do not receive early notice from the exchanges will not be able to address potential errors until after the tax year is over, when the IRS gets involved.
Employer notices from IRS
The IRS, which is responsible for assessing and
collecting shared responsibility payments from employers, will start notifying
employers in 2016 if they are potentially subject to shared responsibility
penalties for 2015. Likewise, the IRS will notify employers in 2017 of
potential penalties for 2016, after their employees’ individual tax returns
have been processed. Employers will have an opportunity to respond to the IRS
before the IRS actually assesses any ACA shared responsibility penalties.
Regarding assessment and collection of the employer shared responsibility payment, the IRS states on its website:
An employer will not be contacted by the IRS regarding an employer shared responsibility payment until after their employees’ individual income tax returns are due for that year—which would show any claims for the premium tax credit.
If, after the employer has had an opportunity to respond to the initial IRS contact, the IRS determines that an employer is liable for a payment, the IRS will send a notice and demand for payment to the employer. That notice will instruct the employer how to make the payment.
Bottom line
For 2015, and quite possibly for 2016 and future years, the
soonest an employer will hear it has an employee who received a subsidy on the
federal exchange will be when the IRS notifies the employer that the employer
is potentially liable for a shared responsibility payment for the prior year.
The employer will have an opportunity to respond to the IRS before any
assessment or notice and demand for payment is made. The “early-warning system”
of public exchanges notifying employers of employees’ APTCs in the year in
which they receive them is not yet fully operational.
The Patient-Centered Outcomes Research Institute (PCORI) fee was established under the Affordable Care Act (ACA) to advance comparative clinical effectiveness research. The PCORI fee is assessed on issuers of health insurance policies and sponsors of self-insured health plans. The fees are calculated using the average number of lives covered under the policy or plan, and the applicable dollar amount for that policy or plan year. The past PCORI fees were—
The new adjusted PCORI fee is—
Employers and insurers will need to file Internal Revenue Service (IRS) Form 720 and pay the updated PCORI fee by July 31, 2016
Transitional Reinsurance Fee
Like the PCORI fee, the transitional reinsurance fee was established under the ACA. It was designed to reinsure the marketplace exchanges. Contributing entities are required to make contributions towards these reinsurance payments. A “contributing entity” is defined as an insurer or third-party administrator on behalf of a self-insured group health plan. The past transitional reinsurance fees were
The new adjusted transition reinsurance fee is—
In July 2015, President Obama signed into law the Trade Preferences Extension Act of 2015. Included in the bill was an important provision that affects welfare and retirement benefit plans. The Act sizably increases filing penalties for information return and statement failures under the Internal Revenue Code, effective for filings after December 31,2015. Employers now face significantly larger penalties for failing to correctly file and furnish the ACA forms 1094 and 1095 (shared responsibility reporting requirements) as well as Forms W-2 and 1099-R.
Background
Sections 6721 and 6722 of the IRC impose penalties associated with failures to file- or to file correct- information returns and statements. Section 6721 applies to the returns required to be filed with the IRS, and Section 6722 applies to statements required to be provided generally to employees.These penalty provisions apply to the ACA shared responsibility reporting Forms 1094-B, 1094-C, 1095-B, and 1095-C (Sections 6055 & 6056) failures as well as other information returns and statement failures, like those on Forms W-2 and 1099.
For ACA:
The Sections 6055 & 6056 reporting requirements are effective for medical coverage provided on or after January 1, 2015, with the first information returns to be filed with the IRS by February 29, 2016 (or March 31,2016 if filing electronically) and provided to individuals by February 1, 2016.
Increase in Penalties
The Trade Preferences Extension Act of 2015 (Act) contains several tax provisions in addition to the trade measures that were the focus of the bill. Provided as a revenue offset provision, the law significantly increases the penalty amounts under Sections 6721 and 6722. A failure includes failing to file or furnish information returns or statements by the due date, failing to provide all required information, as well as failing to provide correct information.
The law increases the penalty for:
Other penalty increase also apply, including those associated with timely filing a corrected return. Penalties could also provide a one-two punch under the ACA for employers and other responsible entities. For example, under Sec 6056, applicable large employers (ALE) must file information returns to the IRS (the 1094-B and 1094-C) as well as furnish statements to employees (the 1095-B and 1095-C). So incorrect information shared on those forms could result in a double penalty- one associated with the information return to the IRS and the other associated with individual statements to employees.
Final regulations on the ACA reporting requirements provide short-term relief from these penalties. For reports files in 2016 (for 2015 calendar year info), the IRS will not impose penalties on ALE members that can show they made a “good-faith effort” to comply with the information reporting requirements. Specifically, relief is provided for incorrect or incomplete info reported on the return or statement, including Social Security numbers, but not for failing to file timely.
In a 6-3 decision handed down June 25th by the U.S. Supreme Court, the IRS was authorized to issue regulations extending health insurance subsidies to coverage purchased through health insurance exchanges run by the federal government or a state (King v. Burwell, No. 14-114 ).
This means employers cannot avoid employer shared responsibility penalties under IRC section 4980H (“Code § 4980H”) with respect to an employee solely because the employee obtained subsidized exchange coverage in a state that has a health insurance exchange set up by the federal government instead of by the state. It also means that President Barack Obama’s 2010 health care reform law will not be unraveled by the Supreme Court’s decision in this case. The law’s requirements applicable to employers and group health plans continue to apply without change.
What Was the Case About?
IRC section 36B (“Code § 36B”), created by the Patient Protection and Affordable Care Act of 2010 (“ACA”), provides that an individual who buys health insurance “through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act” (emphasis added) generally is entitled to subsidies unless the individual’s income is too high. Thus, the words of the statute conditioned one’s right to an exchange subsidy on one’s purchase of ACA coverage in a state run exchange.
Since 2014, an individual who fails to maintain health insurance for any month generally is subject to a tax penalty unless the individual can show that no affordable coverage was available. The law defines affordability for this purpose in such a way that, without a subsidy, health insurance would be unaffordable for most people.
The plaintiffs in King, residents of one of the 34 states that did not establish a state run health insurance exchange argued that if subsidies were not available to them, no health insurance coverage would be affordable for them and they would not be required to pay a penalty for failing to maintain health insurance. The IRS, however, made subsidized federal exchange coverage available to them similar to coverage in a state run exchange.
It is ACA § 1311 that established the funding and other incentives for “the States” to each establish a state-run exchange through which residents of the state could buy health insurance. Section 1311 also provides that the Secretary of the Treasury will appropriate funds to “make available to each State” and that the “State shall use amounts awarded for activities (including planning activities) related to establishing an American Health Benefit Exchange.” Section 1311 describes an “American Health Benefit Exchange” as follows:
Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an “Exchange”) for the State that (A) facilitates the purchase of qualified health plans; (B) provides for the establishment of a Small Business Health Options Program and © meets [specific requirements enumerated].
An entirely separate section of the ACA provides for the establishment of a federally-run exchange for individuals to buy health insurance if they reside in a state that does not establish a 1311 exchange. That section – ACA § 1321 – withholds funding from a state that has failed to establish a 1311 exchange.
Notwithstanding the statutory language Congress used in the ACA (i.e., literally conditioning an individual’s eligibility subsidized exchange coverage on the purchase of health insurance through a state’s 1311 exchange), the Supreme Court determined that the language is ambiguous. Having found that the text is ambiguous, the Court stated that it must determine what Congress really meant by considering the language in context and with a view to the placement of the words in the overall statutory scheme.
When viewed in this context, the Court concluded that the plain language could not be what Congress actually meant, as such interpretation would destabilize the individual insurance market in those states with a federal exchange and likely create the “death spirals” the ACA was designed to avoid. The Court reasoned that Congress could not have intended to delegate to the IRS the authority to determine whether subsidies would be available only on state run exchanges because the issue is of such deep economic and political significance. The Court further noted that “had Congress wished to assign that question to an agency, it surely would have done so expressly” and “[i]t is especially unlikely that Congress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort.”
What Now?
Regardless of whether one agrees with the Supreme Court’s King decision, the decision prevents any practical purpose for further discussion about whether the IRS had authority to extend taxpayer subsidies to individuals who buy health insurance coverage on federal exchanges.
The ACA’s next major compliance requirements for employers: Employers with fifty or more fulltime and fulltime equivalent employees need to ensure that they are tracking hours of service and are otherwise prepared to meet the large employer reporting requirements for 2015 (due in early 2016) ). Employers of any size that sponsor self-funded group health plans need to ensure that they are prepared to meet the health plan reporting requirements for 2015 (also due in early 2016). All employers that sponsor group health plans also should be considering whether and to what extent the so-called Cadillac tax could apply beginning in 2018.
The Affordable Care Act added a patient-centered outcomes research (PCOR) fee on health plans to support clinical effectiveness research. The PCOR fee applies to plan years ending on or after Oct. 1, 2012, and before Oct. 1, 2019. The PCOR fee is due by July 31 of the calendar year following the close of the plan year. For plan years ending in 2014, the fee is due by July 31, 2015.
PCOR fees are required to be reported annually on Form 720, Quarterly Federal Excise Tax Return, for the second quarter of the calendar year. The due date of the return is July 31. Plan sponsors and insurers subject to PCOR fees but not other types of excise taxes should file Form 720 only for the second quarter, and no filings are needed for the other quarters. The PCOR fee can be paid electronically or mailed to the IRS with the Form 720 using a Form 720-V payment voucher for the second quarter. According to the IRS, the fee is tax-deductible as a business expense.
The PCOR fee is assessed based on the number of employees, spouses and dependents that are covered by the plan. The fee is $1 per covered life for plan years ending before Oct. 1, 2013, and $2 per covered life thereafter, subject to adjustment by the government. For plan years ending between Oct. 1, 2014, and Sept. 30, 2015, the fee is $2.08. The Form 720 instructions are expected to be updated soon to reflect this increased fee.
This chart summarizes the fee schedule based on the plan year end and shows the Form 720 due date. It also contains the quarter ending date that should be reported on the first page of the Form 720 (month and year only per IRS instructions). The plan year end date is not reported on the Form 720.
For insured plans, the insurance company is responsible for filing Form 720 and paying the PCOR fee. Therefore, employers with only fully- insured health plans have no filing requirement.
If an employer sponsors a self-insured health plan, the employer must file Form 720 and pay the PCOR fee. For self-insured plans with multiple employers, the named plan sponsor is generally required to file Form 720. A self-insured health plan is any plan providing accident or health coverage if any portion of such coverage is provided other than through an insurance policy.
Since the fee is a tax assessed against the plan sponsor and not the plan, most funded plans subject to ERISA must not pay the fee using plan assets since doing so would be considered a prohibited transaction by the U.S. Department of Labor (DOL). The DOL has provided some limited exceptions to this rule for plans with multiple employers if the plan sponsor exists solely for the purpose of sponsoring and administering the plan and has no source of funding independent of plan assets.
Plans sponsored by all types of employers, including tax-exempt organizations and governmental entities, are subject to the PCOR fee. Most health plans, including major medical plans, prescription drug plans and retiree-only plans, are subject to the PCOR fee, regardless of the number of plan participants. The special rules that apply to Health Reimbursement Accounts (HRAs) and Health Flexible Spending Accounts (FSAs) are discussed below.
Plans exempt from the fee include:
If a plan sponsor maintains more than one self-insured plan, the plans can be treated as a single plan if they have the same plan year. For example, if an employer has a self-insured medical plan and a separate self-insured prescription drug plan with the same plan year, each employee, spouse and dependent covered under both plans is only counted once for purposes of the PCOR fee.
The IRS has created a helpful chart showing how the PCOR fee applies to common types of health plans.
Health Reimbursement Accounts (HRAs) - Nearly all HRAs are subject to the PCOR fee because they do not meet the conditions for exemption. An HRA will be exempt from the PCOR fee if it provides benefits only for dental or vision expenses, or it meets the following three conditions:
Health Flexible Spending Accounts (FSAs) - A health FSA is exempt from the PCOR fee if it satisfies an availability condition and a maximum benefit condition.
Additional special rules for HRAs and FSAs . Once an employer determines that its HRA or FSA is subject to the PCOR fee, the employer should consider the following special rules:
The IRS provides different rules for determining the average number of covered lives (i.e., employees, spouses and dependents) under insured plans versus self-insured plans. The same method must be used consistently for the duration of any policy or plan year. However, the insurer or sponsor is not required to use the same method from one year to the next.
A plan sponsor of a self-insured plan may use any of the following three
methods to determine the number of covered lives for a plan year:
1. Actual count method. Count the covered lives on each day of the plan year and divide by the number of days in the plan year.
Example: An employer has 900 covered lives on Jan. 1, 901 on Jan. 2, 890 on
Jan. 3, etc., and the sum of the lives covered under the plan on each day of
the plan year is 328,500. The average number of covered lives is 900 (328,500 ÷
365 days).
2. Snapshot method. Count the covered lives on a single day in each quarter (or more than one day) and divide the total by the number of dates on which a count was made. The date or dates must be consistent for each quarter. For example, if the last day of the first quarter is chosen, then the last day of the second, third and fourth quarters should be used as well.
Example: An employer has 900 covered lives on Jan. 15, 910 on April 15, 890 on
July 15, and 880 on Oct. 15. The average number of covered lives is 895 [(900 +
910+ 890+ 880) ÷ 4 days].
As an alternative to counting actual lives, an employer can count the number of
employees with self-only coverage on the designated dates, plus the number of
employees with other than self-only coverage multiplied by 2.35.
3. Form 5500 method. If a Form 5500 for a plan is filed before the due date of the Form 720 for that year, the plan sponsor can determine the number of covered lives based on the Form 5500. If the plan offers just self-only coverage, the plan sponsor adds the participant counts at the beginning and end of the year (lines 5 and 6d on Form 5500) and divides by 2. If the plan also offers family or dependent coverage, the plan sponsor adds the participant counts at the beginning and end of the year (lines 5 and 6d on Form 5500) without dividing by 2.
Example: An employer offers single and family coverage with a plan year ending
on Dec. 31. The 2013 Form 5500 is filed on June 5, 2014, and reports 132
participants on line 5 and 148 participants on line 6d. The number of covered
lives is 280 (132 + 148).
To evaluate liability for PCOR fees, plan sponsors should identify all of their plans that provide medical benefits and determine if each plan is insured or self-insured. If any plan is self-insured, the plan sponsor should take the following actions:
The IRS released the 2016 cost-of-living adjustment amounts for health savings accounts (HSAs). Adjustments have been made to the HSA contribution limit for individuals with family high deductible health plan (HDHP) coverage and to some of the deductible and out-of-pocket limitations for HSA-compatible HDHPs.
The HSA contribution limit for an individual with self-only HDHP coverage remains at $3,350 for 2016. The 2016 contribution limit for an individual with family coverage is increased to $6,750. These limits do not include the additional annual $1,000 catch-up contribution amount for individuals age 55 and older, which is not subject to cost-of-living adjustments.
HSA-compatible HDHPs are defined by certain minimum deductible amounts and maximum out-of-pocket expense amounts. For HDHP self-only coverage, the minimum deductible amount is unchanged for 2016 and cannot be less than $1,300. The 2016 maximum out-of-pocket expense amount for self-only coverage is increased to $6,550. For 2016 family coverage, the minimum deductible amount is unchanged at $2,600 and the out-of-expense amount increases to $13,100.
During this year, businesses will be hearing a lot about the Affordable Care Act’s (ACA’s) information reporting requirements under Code Sections 6055 and 6056. Information gathering will be critical to successful reporting, and there is one aspect of that information gathering which employers might want to take action on sooner rather than later – collecting Social Security numbers (SSNs), particularly when required to do so from the spouses and dependents of their employees. There are, of course, ACA implications for not taking this step, as well as data privacy and security risks for employer and their vendors.
Under the ACA, providers of “minimum essential coverage” (MEC) must report certain information about that coverage to the Internal Revenue Service (IRS), as well as to persons receiving that MEC. Employers that sponsor self-insured group health plans are providers of MEC for this purpose, and in the course of meeting the reporting requirements, must collect and report SSNs to the IRS. However, this reporting mandate requires those employers (or vendors acting on their behalf) to transmit to the IRS the SSNs of employee and their spouses and dependents covered under the plan, unless the employers either (i) exhaust reasonable collection efforts described below, (ii) or meet certain requirements for limited reporting overall.
Obviously, employers are familiar with collecting, using and disclosing employee SSNs for legitimate business and benefit plan purposes. Collecting SSNs from spouses and dependents will be an increased burden, creating more risk on employers given the increased amount of sensitive data they will be handling, and possibly from vendors working on their behalf. The reporting rules permit an employer to use a dependent’s date of birth, only if the employer was not able to obtain the SSN after “reasonable efforts.” For this purpose, reasonable efforts means the employer was not able to obtain the SSN after an initial attempt, and two subsequent attempts.
From an ACA standpoint, employers with self-insured plans that have not collected this information should be engaged in these efforts during the year (2015) to ensure they are ready either to report the SSNs, or the DOBs. At the same time, collecting more sensitive information about individuals raises data privacy and security risks for an organization regarding the likelihood and scope of a breach. Some of those risks, and steps employers could take to mitigate those risks, are described below.
Employers navigating through ACA compliance and reporting requirements have many issues to be considered. How personal information or protected health information is safeguarded in the course of those efforts is one more important consideration.
