QUESTIONS AND ANSWERS: NEW IRS REQUIREMENTS FOR EMPLOYERS

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1 QUESTIONS AND ANSWERS: NEW IRS REQUIREMENTS FOR EMPLOYERS

2 Big Picture Question: Why is this Reporting Required Now? The new reporting rules have been created because of two different ACA rules. INDIVIDUAL MANDATE The first ACA rule is the individual mandate. This is the requirement that most U.S. citizens must have minimum essential coverage (MEC). Minimum essential coverage is typically some form of major medical coverage. The Internal Revenue Service (IRS) requires health insurers and some employers to tell them whether employees have MEC. With this information, the IRS can determine if an individual has sufficient coverage to avoid a penalty under the individual mandate. We call this MEC Reporting in this Q&A document. EMPLOYER MANDATE The second reason reporting is required is because of the employer shared responsibility rule sometimes called the employer mandate or the Pay or Play Rule. This is the rule that large employers (generally, those with 50 or more full-time employees) must provide sufficient health plan coverage or risk a penalty. The IRS mandates that employers tell them whether the employer offered sufficient health plan coverage to full-time employees. If so, the employer would not face a Pay or Play Rule penalty. We call this the Large Employer Reporting Rule in this Q&A document. 2 QUESTIONS AND ANSWERS NEW IRS REPORTING REQUIREMENTS FOR EMPLOYERS

3 MEC REPORTING 1. Who is responsible for MEC Reporting? Fully-Insured Group Health Plans For fully-insured group health plans, the insurance company is required to report MEC to the IRS and to responsible individuals (this term is defined in Q&A #4 it usually means the employee). Self-Insured Group Health Plans no controlled group For self-insured group health plans established or maintained by a single employer, the employer is required to report MEC to the IRS and to responsible individuals. The employer may use a third party to assist with reporting. Self-Insured Group Health Plan controlled group exists Members of a controlled group are generally all subject to MEC Reporting. For example, suppose a parent corporation has ten subsidiaries, all of which are covered under a single self-insured health plan. All eleven corporate entities (the parent organization and all subsidiaries) must make a MEC report to the IRS and to responsible individuals. However, one member of the controlled group may assist the other members by filing returns and furnishing statements on behalf of all members. Multiemployer Plans For multiemployer plans (e.g., many union plans), the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan is required to report MEC. Self-Insured MEWAs For a self-insured multiple employer welfare arrangement (MEWA), each participating employer reports. Governmental Self-Insured Group Health Plans A governmental employer that provides self-insured group health plan coverage for its employees can, through a written agreement, designate another governmental unit to report MEC. The other governmental unit must be a unit, agency or instrumentality that is part of or related to the same governmental unit as the government employer (for example, a political subdivision of a state may designate the state or another political subdivision of the state). If the designation is made prior to the filing deadline and the designee accepts it, the designee becomes legally obligated to report MEC. 2. What types of health coverage are considered MEC which must be reported? In general, the following are examples of coverage which is MEC and which must be reported: Major medical coverage, whether for active employees or retirees Health Reimbursement Arrangements (HRAs) if they do not supplement major medical coverage (note that the term supplement is not defined; presumably it is similar to the concept of the HRA being integrated with major medical coverage) HRAs during a spend-down period (e.g., after an employee has ceased participating in a major medical plan) appear to be MEC In general, the following is not MEC and need not be reported: Dental plans (if it is an excepted benefit) Vision plans (if it is an excepted benefit) Health Flexible Spending Accounts (Health FSAs), if they are excepted benefits Health Savings Accounts (HSAs) 3. Is information reported to the IRS, to covered employees or both? Both. The rules vary somewhat, though, in terms of what is reported. The following Q&As distinguish between reports to the IRS versus reports to individuals. 3 QUESTIONS AND ANSWERS NEW IRS REPORTING REQUIREMENTS FOR EMPLOYERS

4 MEC REPORTING 4. What information is required to be reported to the IRS? The following information must be reported to the IRS: Employer s name, address and employer identification number (EIN) Name, address, and taxpayer identifying number (TIN) (or date of birth if a TIN is not available) of the responsible individual, who is the primary insured, employee, former employee, parent, or other related person who enrolls one or more individuals in a group health plan offering minimum essential coverage. A TIN typically is a Social Security number Name and TIN, or date of birth if a TIN is not available, of each individual covered under the group health plan offering MEC For each covered individual, the months for which, for at least one day, the individual was enrolled in coverage and entitled to receive benefits and Any other information specified in the IRS forms or their instructions 5. Is a MEC report required for individuals who are offered health plan coverage but do not enroll? No. 6. How and when must employers or insurers comply with MEC reporting to the IRS? Two new forms Forms 1094-B and 1095-B will be used. The Forms have not yet been released. They likely will be released in 2014, after final MEC reporting rules have been issued. 7. Will employers and insurers submit these new forms electronically to the IRS? Yes, for larger groups. Employers submitting 250 or more returns of any type (e.g., Form W-2, Form 1099) must file electronically. Those submitting fewer than 250 returns may file electronically or on paper. 8. By when must the MEC Forms be submitted to the IRS? These Forms will first be required for the 2015 calendar year that is, the first returns will be sent to the IRS in early For electronic filings, the deadline is March 31 of the year following the year being reported. Are the IRS deadlines in Q&A #8 the same as for reporting to covered individuals? No. Individuals generally, covered employees must receive their statements by January 31 of the year following the coverage year. For 2016, the deadline is extended to February 1 because January 31 is a Sunday. See Q&A #10 for a discussion of which individuals receive the MEC reporting information. 10. Which individuals must receive the MEC reporting information? The statement must be provided to the responsible individual, as defined in Q&A #4, above. This is usually the covered employee. The employer or insurance company is not required to provide the MEC reporting information to related individuals, such as a spouse or dependent. 4 QUESTIONS AND ANSWERS NEW IRS REPORTING REQUIREMENTS FOR EMPLOYERS

5 MEC REPORTING 11. What must be included in the MEC reporting information provided to the responsible individual? The MEC reporting information provided to the responsible individual must contain the following information: The policy number (for insured group health plans) Name, address, and contact number for the insurance company or employer and The information above that is reported to the IRS with respect to that individual (as noted in Q&A #4, above), except that the reporting does not need to include the complete TIN employers may report using only use the last four digits of a person s Social Security number. 12. How must employers and insurance companies report this information to responsible individuals? A copy of Form 1095-B can be provided to the responsible individual. A substitute Form may also be used, although the details on this Form are not yet clear. The Form can be electronically distributed to the responsible individual only if certain (somewhat strict) rules for electronic delivery are followed. These electronic delivery rules are nearly identical to those for the electronic delivery of Form W What if the employer or insurance company Does not know a responsible or covered individual s Social Security number/tin? If the employer or insurance company does not know a responsible or covered individual s TIN, it must make a reasonable effort to collect the TIN(s). A reasonable effort to collect a TIN involves three requests for the TIN. First, there is an initial request for the TIN (for example, at the time of enrollment). Then, there must be two consecutive annual TIN requests. If the insurance company or employer does not obtain the TIN, the individual s date of birth may be used. 14. Will we need to collect the Social Security number/tin for spouses and dependents? Likely, yes, especially for employers with self-insured group health plans. This could be a significant issue for some employers with self-insured group health plans. Some employers do not currently collect this information. These employers will want to make a reasonable effort (as noted in Q&A #13), to begin collecting that information. Employers with selfinsured group health plans may want to start collecting Social Security numbers/tins in the near future and not wait until 2015 to gather this information. It is not clear if insurers will collect this information themselves or request that the employers collect the information and provide it to the insurer. 5 QUESTIONS AND ANSWERS NEW IRS REPORTING REQUIREMENTS FOR EMPLOYERS

6 MEC REPORTING 15. Our health plan operates on a noncalendar year basis (e.g., it renews on July 1). How does this affect MEC reporting? It does not affect it. MEC reporting will be done on a calendar-year basis, even if your health plan operates on a non-calendar year basis. 16. What are the penalties for non-compliance? The penalty is generally $100 per missed MEC report, with a limit of $1.5 million per year. However, the penalties can be reduced in some situations (e.g., good faith efforts to comply) or increased in some situations (e.g., intentionally violating the requirement). 17. The reporting is not required for a while until early What actions should we take between now and then to prepare for this new reporting rule? There are a few action steps, including: If your group health plan is self-funded, gather Social Security numbers for spouses and dependents. If your group health plan is fully-insured, consider verifying that the insurer will gather that information (and will not rely on you to provide it). Verify that other entities in your controlled group are aware of this rule and whether one entity will be selected to do the reporting for the other controlled group members. Alliant will provide a reporting checklist once final regulations have been issued. 6 QUESTIONS AND ANSWERS NEW IRS REPORTING REQUIREMENTS FOR EMPLOYERS

7 LARGE EMPLOYER REPORTING 18. WHO IS RESPONSIBLE FOR LARGE EMPLOYER REPORTING? Fully-Insured and Self-Insured Group Health Plans An employer that is an applicable large employer (ALE) is responsible for Large Employer Reporting. This term (ALE) has the same meaning as it does in the Pay or Play Rule: an employer with an average of at least 50 full-time and full-time equivalent employees during the prior year. Controlled Group Exists If an employer is part of a controlled group that includes other employers on any day of a month, each employer in the group (or ALE Member) must report for that month, even if the ALE Member individually has fewer than 50 full-time or full-time equivalent employees. Example of Controlled Group Rules Octopus, Inc. consists of a parent corporation with 50 full-time employees and eight subsidiaries which are 100% owned by Octopus, Inc. Four of the subsidiaries have 100 full-time employees; the other four have 20 full-time employees. Which entities must comply with the Large Employer Reporting Rule? All of them, even the four subsidiaries with only 20 employees. Octopus, Inc. will be in a controlled group with all eight subsidiaries because it owns 100% of the subsidiaries. Thus, each of the subsidiaries even those with only 20 full-time employees will be considered a large employer which is subject to the Large Employer Reporting Rule. Each of the subsidiaries is an ALE Member. Each ALE Member is responsible for Large Employer Reporting, although the ALE Members may delegate the reporting requirement to one or more Members (although the delegating ALE Member remains liable if the other ALE Member fails to file). Multiemployer Plans The IRS anticipates that the plan administrator of a multiemployer plan may perform Large Employer Reporting on behalf of each ALE Member that is a contributing employer. The administrator could file for the employees covered by that plan (although the ALE Member would sign the actual form submitted to the IRS). However, it appears the ALE Member would remain liable for any reporting errors made by the plan administrator. Employers that contribute to multiemployer plans may want to seek some type of assurance (and perhaps indemnification) from the multiemployer plan that the Large Employer Reporting will be accurately and timely completed. Governmental Plans A governmental employer can, by written agreement, designate another governmental unit to report MEC. The other governmental unit must be part of or related to the same governmental unit as the ALE Member (for example, a political subdivision of a state may designate the state or another political subdivision of the state). If the designation is made prior to the filing deadline, and the designee accepts it, the designee becomes legally obligated to conduct the Large Employer Reporting. 19. What types of health coverage relate to this Large Employer Reporting Rule? The Large Employer Reporting discloses whether a full-time employee was offered the opportunity to enroll in MEC under an eligible employer-sponsored plan. This will include: Major medical coverage Most HRA coverage (but see below for a discussion of whether HRA coverage could ever be an excepted benefit which would avoid the Large Employer Reporting rule) Coverage which is usually not subject to the Large Employer Reporting rule includes: Excepted benefits, such as most dental or vision plans 7 QUESTIONS AND ANSWERS NEW IRS REPORTING REQUIREMENTS FOR EMPLOYERS

8 LARGE EMPLOYER REPORTING Some HRA coverage could possibly be an excepted benefit. For example, if the HRA was limited to reimbursement of just dental and/or vision expenses, the HRA might be an excepted benefit. Note that this is not clear and it may require the employer to charge for the coverage. Note that the MEC Reporting Rule, discussed above, contains an exception for HRA coverage which supplements other health plan coverage. The Large Employer Reporting rule does not contain a similar exception. Retiree coverage: While retiree health plan coverage will generally be MEC, the Large Employer Reporting Rule only requires reporting of full-time employees. While the current IRS guidance does not specifically discuss retirees, retirees would not seem to be employees for these reporting rules and, therefore, it appears that no reporting would be required for months when a retiree is covered by an employer health plan (e.g., COBRA provided in the year after the employee retires). However, note that reporting generally would be required for months in which an employee was an active employee. For example, suppose an employee worked from January through October, 2015 then retired and elected COBRA. The employer would report for the January through October time period, but not for the November and December COBRA coverage periods. 20. Does the Large Employer Reporting Rule require disclosures to the IRS, employees or both? Both. Like the MEC Reporting Rule, the Large Employer Reporting Rule has some slight differences between the two. The following Q&As distinguish between Large Employer Reporting sent to the IRS versus information provided to employees. 21. What information is required to be reported to the IRS? It depends on whether the ALE Member uses the general method for reporting (the General Method), and/or a simplified method. 22. What information is required under the General Method? An ALE member using the General Method must report: ALE Member s name, address and EIN Name and telephone number of the ALE Member s contact person Calendar reporting year Certification as to whether the ALE Member offered its full-time employees and their children up to age 26 the opportunity to enroll in MEC under an employer-sponsored plan, by calendar month Number of full-time employees for each month in the calendar year For each full-time employee: months for which plan coverage was available For each full-time employee: employee s share of the lowest-cost monthly premium for selfonly coverage providing minimum value, by calendar month and Name, address and TIN for each full-time employee, and the months, if any, that the employee was covered under the plan In addition, the IRS anticipates that an ALE Member will use special indicator codes to indicate the following: Whether an employee s coverage was not effective during certain months because of a waiting period Whether the coverage offered to employees and their children to age 26 is minimum value coverage under the employer s plan Whether the employee had the opportunity to enroll his or her spouse in the coverage The total number of employees, by calendar month Whether an employee s effective date of coverage was affected by a waiting period If the ALE Member was not conducting business during any particular month(s) If the ALE Member expects that it will not be an ALE Member the following year 8 QUESTIONS AND ANSWERS NEW IRS REPORTING REQUIREMENTS FOR EMPLOYERS

9 LARGE EMPLOYER REPORTING Information regarding whether the ALE Member is a member of a controlled group and, if yes, the name and EIN of each employer member of the controlled group The tier of coverage offered to the employee (e.g., employee-only, employee plus dependents, employee and spouse only, family) If an employee was not offered coverage, the reason why (e.g., waiting period, employee not full-time for a month, and/or employee was not employed by ALE Member for that month) Whether coverage was offered to employee although the employee was not a full-time employee during a month and Whether the ALE Member met one of the affordability safe harbors with respect to the employee. 23. What information is required under the simplified method? The IRS is considering several potential simplified methods for Large Employer Reporting that would be optional alternatives to the General Method. These simplified methods are designed for certain classes of employees. If a particular full-time employee does not fit into one of the classes of employees eligible for one of the simplified methods, the employer must use the General Method for that employee. Thus, a large employer could end up using both the General Method for some full-time employees and one or more of the potential simplified methods for other full-time employees. The IRS anticipates that a significant number of employees will fit into one or more of the classes of employees eligible for one of the simplified methods. Following are descriptions of the contemplated simplified methods. Note that they are still only being considered currently, so they may not actually be adopted. Offer of Coverage Remains Same For Entire Calendar Year This method would eliminate the Form 1095-C in favor of special Form W-2 reporting. This method could be used for any employee employed for the entire calendar year if the employer s offer of coverage, the individuals to whom the offer of coverage is made, and the employee contribution for the lowest-cost option for self-only coverage all remain the same for each month of the calendar year. The employer would use certain letter codes on the Form W-2 to indicate whether minimum value coverage was offered to the employee. The employer would also enter the monthly dollar amount of the required employee contribution for the lowest-cost, minimum value, self-only coverage. Example SIMPLIFIED METHOD #1 Compliant Company has 100 full-time employees, all of whom are employed for the entire year. Compliant Company offers all full-time employees, spouses and dependents the opportunity to enroll in minimum value health coverage. Using Simplified Method #1, Compliant Company could avoid filing Form 1095-C for its full-time employees if it uses a special letter code on Form W-2 to report that an offer of coverage had been made to the employee and the employee s spouse and dependents, and a dollar amount indicating the required monthly employee contribution for the employer s lowest-cost minimum value self-only coverage. 9 QUESTIONS AND ANSWERS NEW IRS REPORTING REQUIREMENTS FOR EMPLOYERS

10 LARGE EMPLOYER REPORTING SIMPLIFIED METHOD #2 SIMPLIFIED METHOD #3 Employer Certifies That Employees Not Offered Coverage Were Not Full-Time Employees Under this method, a large employer would use Form 1095-C, but would not be required to identify the number of full-time employees or specify whether a particular individual offered coverage is or is not a full-time employee. The large employer would certify that all of its employees to whom it did not offer coverage during the calendar year were not full-time employees or were otherwise ineligible for coverage (e.g., because they were in the initial permitted waiting period following the date of hire). This method avoids the employer s obligation to identify the full-time status of its employees prior to filing the Form 1095-C. If an employee offered coverage qualifies for tax subsidies through the Marketplace and the IRS contacts the employer with further inquiry, the large employer could determine at that point whether the employee was a full-time employee for one or more months during that calendar year and supply that information to the IRS. Example Generous Company has 100 employees and makes an offer of minimum value coverage to 90 of the employees. Generous Company has not determined whether the 90 employees offered coverage are full-time or not, but Generous Company has determined that the 10 employees not offered coverage are not full-time for any calendar month during the year. Using Simplified Method #2, Generous Company would certify that the only employees not offered coverage were not full-time or were otherwise ineligible for coverage (e.g., because they were in the initial permitted waiting period following the date of hire). Generous Company would file a Form 1095-C and provide an employee statement for each of the 90 employees, but would not be required to report either the total number of full-time employees for the year or whether any particular employee was full-time for any calendar month. Self-Insured Employers Offering Mandatory and Free Minimum Value Coverage This method can only be used by employers who provide mandatory minimum value coverage under a self-insured group health plan to an employee, an employee s spouse, and an employee s dependents, with no employee contribution. An employer using this method would submit Form 1094-C (summary transmittal form) but not Form 1095-C. The employer would not be required to deliver copies of Form 1095-C to its full-time employees. The employer would still be required to perform MEC Reporting and regular W-2 reporting. 24. How must employers using the General Method comply with Large Employer Reporting to the IRS? A large employer must submit Form 1095-C for each full-time employee, accompanied by a single transmittal Form 1094-C for all of the Forms 1095-C filed for a given calendar year. These forms will be made available at a later date. Employers submitting 250 or more returns must file electronically. Employers submitting fewer than 250 returns may file electronically or on paper. 25. By when must large employers report this information to the IRS? The report is first required for 2015 that is, the first report will be filed with the IRS by March 31, For electronic returns, the deadline is March 31 of the year following the year being reported. For paper returns, the deadline is February 28 of the year following the year being reported. For 2016, the deadline is extended to March 1 because February 28 is a Sunday. 10 QUESTIONS AND ANSWERS NEW IRS REPORTING REQUIREMENTS FOR EMPLOYERS

11 LARGE EMPLOYER REPORTING 26. Which employees must receive the Large Employer Reporting information? Only full-time employees must receive the Large Employer Reporting information. 27. How do we determine if an employee is full-time? The Pay or Play Rule contains a definition of who is a full-time employee. In general, an employee is full-time if he or she works 30 hours per week. Unfortunately, the new Large Employer Reporting guidance does not provide any examples of how it interacts with the Pay or Play rule, although it appears that the rules will be the same. Consider the following example. Example Goodco hires a new employee, Libby, on December 1, Goodco does not know whether Libby will average 30 hours per week in the future the answer likely depends on whether Goodco receives a future large order for its products. Under the Pay or Play Rule, Goodco can generally treat Libby as a variable hour employee and take about 12 months to determine whether Libby is a full-time employee who must receive an offer of coverage under Goodco s health plan. Can Goodco take the same position for Large Employer Reporting purposes that is, that she is not full-time until near the end of 2016? It appears so. The definition of full-time employee is the same for both Pay or Play Rule and Large Employer Reporting Rule purposes. When Goodco files its first Large Employer Report in early 2016 (which covers the 2015 calendar year), it appears that Goodco would not list Libby as a full-time employee in its report to the IRS. Goodco also would not provide a report to Libby in early 2016, as Libby has not yet become a full-time employee. Note that this appears to be true even if Libby worked more than 30 hours per week in December 2015 e.g., if she averaged 35 hours per week in that month. 28. What information must be provided to full-time employees? Each full-time employee must receive a statement that includes the name, address and EIN of the ALE Member. It also must include the information required to be shown on the Form 1095-C with respect to the full-time employee. Note that this is a lot of information see Q&A # How and when must an employer using the General Method comply with Large Employer Reporting to full-time employees? A copy of Form 1095-C can be provided to the full-time employee or a substitute statement provided. The copy can be electronically disclosed to the employee only if certain rather-strict rules for electronic delivery are followed. The deadline for providing these statements to full-time employees is January 31 of the year following the year being reported. For 2016, the deadline is extended to February 1 because January 31, 2016 is a Sunday. 30. Can an ALE Member s third party administrator report on the employer s behalf? Yes, an ALE Member may contract with and use third parties to facilitate filing returns with the IRS and delivering employee statements. However, the ALE Member remains liable to the IRS for failure to report and furnish the required documents for example, if the third party administrator fails to make the report. Similarly, one ALE Member may contract with another ALE Member to do the reporting. 11 QUESTIONS AND ANSWERS NEW IRS REPORTING REQUIREMENTS FOR EMPLOYERS

12 LARGE EMPLOYER REPORTING 31. What are the penalties for non-compliance? The penalty is generally $100 per missed report, with a limit of $1.5 million per year. However, the penalties can be reduced in some situations (e.g., good faith efforts to comply) or increased in some situations (e.g., intentionally violating the requirement). 32. The reporting is not required for a while until early What actions should we take between now and then to prepare for this new reporting rule? As noted in Q&A #17 (relating to the MEC Reporting Rule), there are several possible action steps for the Large Employer Reporting Rule, including: Verify how you will determine which employees are full-time and how you will track that status Verify that your systems can gather and record all the information discussed in Q&A #22. If not, determine how to gather and record all the information. Alliant will provide a reporting checklist once final regulations have been issued. CA License No. 0C Alliant Employee Benefits, a division of Alliant Insurance Services, Inc. All rights reserved. 12 QUESTIONS AND ANSWERS NEW IRS REPORTING REQUIREMENTS FOR EMPLOYERS