Affordable Care Act (ACA) IRS Forms 1095 and 1094: Overview & Checklist

Affordable Care Act (ACA) IRS Forms 1095 and 1094: Overview & Checklist Presented by Five Points Mike Ankrum

Today s Agenda Five Points Introduction Overview ACA IRS filing requirements Information needed to complete forms Preparing for 2015 filings Cadillac Tax Questions & Answers

Who is Five Points? Been in business since 1989 Specialize in serving schools & government: Employee benefits brokers and consultants School and government technology Automated Affordable Care Act (ACA) tracking and reporting apps ACA education and consulting

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ACA Legal Team Sean D. McLean Five Points In-House Counsel Adams and Reese LLP -Rob Breunig Larry Grudzien Attorney at Law Waller Lansden Dortch & Davis, LLP James B Bristol Shannon Goff Kukulka Jennifer D. Faucett Employee Benefits Institute of America American Fidelity ACA consulting services

Disclosure If any advice concerning one or more U.S. Federal tax issues is contained in this material or is provided by a speaker reviewing this material, such advice is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code; or (ii) promoting, conducting, or recommending any transaction or matter addressed herein, and you should seek advice from an independent tax advisor based on your particular circumstances.

2015 IRS Reporting Requirements

ACA Compliance Start With the End in Mind The IRS Audit Copyright 2014 Five Points ICT, Inc. All rights reserved.

IRS Reporting First reporting period began Jan 1, 2015 Final requirements have been released!!! All employers that are Applicable Large Employer ALE (50+ FTE employees) Referred to as Code 6055 and 6056 Filing Forms 1094 and 1095 IRS Document storage requirement of 7 years for employers and employees!

Due Dates 1095-C (Statements) Only one 1095-C per recipient! Deadline for sending is Jan 31st (2/1/2016) Statements are mailed to employees last known permanent address Can deliver statements electronically if certain requirements are met: Must receive employee affirmative electronic consent, right to request paper, and ability to withdraw Secure delivery - email is not secure!

Due Dates 1094-C (Transmittal) Paper forms due Feb 28 th (2/29/2016) Mail to address provided in instructions Must file efile if 250+ return filings Electronic transmittal returns are due March 31, 2016 for 2015 Third party can be used for filing returns and employee statements

For ALEs: Information Needed to Complete 2015 Forms Were they members of a controlled group? If yes, the names of each member. The total number of full-time employees for each month in 2015. The total number of all employees for each month in 2015. Does any transitional rule apply for any month during 2015? (e.g. noncalendar year plans) For what months during 2015 were at least 70% of full-time employees offered minimum essential coverage?

For each employee: Information Needed to Complete 2015 Forms Employment date of each employee who became full-time during 2015. Months during 2015 in which the employee was full-time or part-time. Months during 2015 in which employee was subject to a waiting or measurement period. Months during 2015 in which the employee was offeredminimum essential coverage with minimum value in 2015. Months during 2015 in which the employee was coveredby minimum essential coverage with minimum value in 2015. Months in 2015 in which minimum essential coverage offered to spouse and dependent children. If the employee waived coverage, what affordability safe harbor applies. For each month the amount of the employee contribution for the lowest-cost monthly premium for self-only minimum essential coverage that provides minimum value. For self-insured plan, the names and social security numbers for each member of the employee s family and for what months they were covered.

Form 1095-C

Part I identifies employee and ALE Data typically comes from payroll/w-2 Part II reports offers of health coverage, plus cost and safe harbor/relief codes Employer will need to manage data Used to calculate 4980H (b) penalties Part III reports covered individuals Most health plan providers can provide data, but when? ALE responsible for providing copy to employees & IRS

Form 1095-C: ALE must file: For each FT employee; and If self-insured, for all enrolled PT employees and nonemployees (COBRA, retiree, board member, directors, etc.) Can use C forms or B forms for non-employees in self-insured, but why complicate things? We recommend using the C forms One Form 1095-C per recipient (ALE members coordinate)

Form 1095-C: Part II Offer and Coverage 1A. Qualifying Offer: Minimum essential coverage providing minimum value offered to full-time employee with employee contribution for self-only coverage equal to or less than 9.5% mainland single federal poverty line and at least minimum essential coverage offered to spouse and dependent(s). 1B. Minimum essential coverage providing minimum value offered to employee only. 1C. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) (not spouse). 1D. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to spouse (not dependent(s)). 1E. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) and spouse.

Form 1095-C: Part II Applicable Codes 1F. Minimum essential coverage NOT providing minimum value offered to employee; employee and spouse or dependent(s); or employee, spouse and dependent(s). 1G. Offer of coverage to employee who was not a full-time employee for any month of the calendar year (which may include one or more months in which the individual was not an employee) and who enrolled in self-insured coverage for one or more months of the calendar year. 1H. No offer of coverage (employee not offered any health coverage or employee offered coverage that is not minimum essential coverage). 1I. Qualified Offer Transition Relief 2015: Employee (and spouse or dependents) received no offer of coverage, received an offer that is not a qualified offer, or received a qualified offer for less than 12 months. Enter if other employees received qualifying offers (but this employee did not), or if this employee received a qualifying offer for some months during the year (code 1A would be entered for those months) but not for other months during the year (code 1I would be entered for those months).

4980H (b) Penalty Also known as the Affordability penalty Applies to FT employees who were not offered qualified coverage, or were offered coverage that was unaffordable If the employee gets subsidized coverage on the FFM the 2015 penalty is the lesser of: $2,084 x total FTs minus 80, or Up to $3,126/12 x # of FTs for whom your coverage is unaffordable each month

4980H (b) Penalty An example of when the 4980H (b) penalty: Sub teacher/bus driver/part-time coach works more than 130 hours in any given month under monthly measurement If E receives subsidy in FFM, then ALE is penalized approximately $260 per month for every E who works 130+ hours 10 employees = $2,600 per month penalty

Coverage Must Be Affordable General rule = Employee cost can t be more than 9.56% of the employee s household income ALE won t know household income Great news! There are three Affordability Safe Harbors for ALEs to use: 1. W-2Safe Harbor 2. Federal Poverty Line Safe Harbor 3. Rate of Pay Safe Harbor

Form 1095-C: Part II Applicable Safe Harbor Codes 2A. Enter code 2A if the employee was not employed on any day of the month. Do not use code 2A for a month if the individual is an employee of the employer on any day of the month. Do not use this code for the month during which an employee terminates employment with the employer. 2B. Enter code 2B if the employee is not a full-time employee for the month and did not enroll in minimum essential coverage, if offered for the month. Enter code 2B also if the employee is a full-time employee for the month and whose offer of coverage (or coverage if the employee was enrolled) ended before the last day of the month solely because the employee terminated employment during the month (so that the offer of coverage or coverage would have continued if the employee had not terminated employment during the month). Also use this code for January 2015 if the employee was offered health coverage no later than the first day of the first payroll period that begins in January 2015 and the coverage offered was affordable for purposes of the employer shared responsibility provisions under Code 4980H and provided minimum value.

Form 1095-C: Part II Applicable Safe Harbor Codes 2C. Enter code 2C for any month in which the employee enrolled in health coverage offered by the employer, regardless of whether any other code in Code Series 2 might also apply. 2D. Enter code 2D for any month during which an employee is in a Limited Non-Assessment Period 2E. Enter code 2E for any month for which the multi-employer interim guidance applies for that employee.

Form 1095-C: Part IIApplicable Safe Harbor Codes 2F. Enter code 2F if the employer used the Code 4980H Form W-2 safe harbor to determine affordability for purposes of Code 4980H(b) for this employee for the year. If an employer uses this safe harbor for an employee, it must be used for all months of the calendar year for which the employee is offered health coverage. 2G. Enter code 2G if the employer used the Code 4980H federal poverty line safe harbor to determine affordability for purposes of Code 4980H(b) for this employee for any month(s). 2H. Enter code 2H if the employer used the Code 4980H rate of pay safe harbor to determine affordability for purposes of Code 4980H(b) for this employee for any month(s). 2I. Enter code 2I if non-calendar year transition relief for Code 4980H(b) applies to this employee for the month.

Form 1095-C Part III Covered Individual

Form 1095-C: Part III Is the State ready to send you the data? Will they provide monthly? When will you receive the data? Will it include Non-Employees; Cobra/Retirees? What format will it be coming to you in, will you be able to audit the data?

Questions?

Form 1094-C Transmittal

Transmittal is 3 pages Part I & II -Transmits 1095-Cs Part II Identifies the ALE and eligibility for transitional relief and simplified reporting (appears to add work!) Part III Reports MEC offer to FT employees & transition relief Used to calculate 4980H (a) penalties! Typically payroll and health plans won t have data needed Pay hours is likely to be different than HCR average hours

If the employer meets the eligibility requirements and is using one of the Offer Methods and/or one of the forms of Transition Relief indicated, each applicable box must be check on line 22. There are four options available in this section. You are required to select all that apply. A. Qualifying Offer Method B. Qualifying Offer Method Transitional Relief C. Code 4980H Transition Relief D. 98% Offer Method Form 1094-C: Part II Certification of Eligibility After examining the options available it is questionable that most employers will have a net benefit from selecting these options with the exception being Code 4980H Transition Relief Consult with your ACA advisor to determine if other options apply

Full-Time Employee Defined Full-time =30 hrs/week or 130 hrs/month Includes PTO - vacation, sick time, etc. Stipends paid to PT coaches Document actual hours worked for audits Add special hourly credits/exclusions to calculation ACA average hours to determine FT status

Tracking Hours Worked: All W2 s Hourly employees requires actual hours Non-hourly employees have two options: Actual hours worked (paper time sheets and/or electronic time tracking) Or, use an equivalency method: o 1 hour worked in a day = 8 hours credit per day, or o 1 hour worked in a week = 40 hours credit per week This is where payroll records potentially fall short!

Using Payroll Modes Acceptable payroll modes are: Semi-monthly, bi-weekly, weekly, or daily records Monthly data is not permitted in conjunction with shifting rules Aligning all employees pay periods to align with the 1 st day of month is not likely Many school and government ALEs have monthly payroll modes, so therefore payroll records won t work

Time Tracking Accuracy Accuracy of HCR Calculations Bottom Line: Daily Data = Highest Accuracy! Semi-Monthly Bi-weekly Weekly Daily Time Tracking Data Interval Time & Attendance systems are highly recommended!

Tracking Hours Worked Unless payroll records have all of the crediting rules applied, then the data is incorrect Incorrect average hour calculations puts ALEs at risk of Code 4980H (a) the 95% rule penalties: $2,084 per full-time employee minus the first 30 employees (80 employees 2015) 400 FT employees = $770,000 penalty Good news in 2015 is 70% offered verses 95% is available if you make the right selection

Monthly Measurement Verses Look Back Method

The General Measurement Rule Employers measure average hours on an on-going monthly basis This creates a lack of flexibility in scheduling your workforce, and also subjects ALEs the Code 4980H (a) and (b) penalties each month For these reasons the Look Back measurement method was created If you did not adopt the Look Back method in 2014 you will be in the monthly measurement method for at least 2015

The VHE Look Back Method Allows ALEs to calculate employees average hours in the past to determine eligibility Methodology = Measurement Period, Administrative Period, and Stability Period Typically a 12 month measurement period Stability periods must match MP Provides flexibility to work part-time, seasonal, and VHEs more than 30 hour per week in peak demand periods!

On-Going Employees Nancyaveraged 34 hours per week Nancyconsidered full time eligible Oct 15 Oct 15 Jan 1 Dec 31 Measurement Period (Look Back Period) Administration Period (Waiting Period) Stability Period (Benefits Period) Joeyaveraged 28 hours per week Joeyconsidered not full time & not eligible Copyright 2013 Five Points Benefits. All rights reserved.

On-Going Employees Tracked Over Successive Periods Safe Harbor Period #1 Measurement Period Administration Period Stability Period Oct 15 Oct 15 Jan 1 Dec 31 Measurement Period Administration Period Stability Period Safe Harbor Period #2 Copyright 2013 Five Points Benefits. All rights reserved.

New Employee Determination (Variable Hour Workers) New Variable Hour Employee Feb 1, 2014 Feb 1, 2015 Mar 1, 2015 Feb 28, 2016 Initial Measurement Period Initial Administration Period Initial Stability Period Oct 5, 2014 Oct 5, 2015 Jan 1, 2016 Dec 31, 2016 Measurement Period #2 Administration Period #2 Stability Period #2 Ongoing Standard Measurement Group Copyright 2014 Five Points Benefits. All rights reserved.

Credits are Applied to: Educational breaks in service of 4+ weeks like summer breaks and sub breaks Subject to 501 Hour Limit on Credits PTO such as vacation, disability, etc. uncertain how workers comp will be handled Special unpaid leaves such as FMLA, Military Leaves, and Jury Duty Rehired employees within 13 weeks (26 weeks for schools) of termination date Unlikely payroll systems track these rules

Week Different Measurement Periods = Separate Tracking Sheets New Variable Hour Employee Excluded Days Included Days (Calendar Week) Hours Credited 1 3 (unpaid Jury Duty) 4 12 2 7 30 3 7 (FMLA unpaid) 0 4 7 (unpaid leave) 0Included Days Week Excluded Days (Calendar Week) Hours Credited Total for example 10 18 42 1 3 (unpaid Jury Duty) 4 12 2 7 30 3 7 (FMLA unpaid) 0 4 7 (unpaid leave) 0 Total for example 10 18 42 Ongoing Standard Measurement Group Copyright 2014 Five Points Benefits. All rights reserved.

Questions?

Penalties for Reporting Failures Like Form W-2 penalties Failure to file timely and correct returns = $250 each return Failure to file timely and correct statements = $250 each return

Penalty Example ALE didn t file the IRS return and statements timely or correctly: 400 employees: $500 x s 400 statements = $200,000 Max penalty for failure to file $3 million

Good Faith Relief for 2015 Short term penalty relief is available for 2015 if you make a good faith effort This relief is provided only for incorrect or incomplete information reported on the return or statement, including social security numbers, TINs or dates of birth No relief is provided for reporting entities that do not make a good faith effort to comply with these regulations or that fail to timely file an information return or statement

Common-Law Employee Staffing Firm or PEO Members: Common-Law Employee Definition Treas. Reg. Section 31.3401(c)-1(b)/IRS Pub 15-A, Employers Supplemental Tax Guide Does not include Leased employee as defined in Code Section 414(n)(2) Consider Questions from Form SS-8 Very important to work with your legal counsel to make the proper classification determination of employment! Copyright 2014 Five Points ICT, Inc. All rights reserved.

Common-Law Employee If individuals are deemed ALE Common-Law Employees To avoid penalties, applicable ALEs must: Offer full-time employees MV, affordable coverage to avoid penalties File forms 1094-C and 1095-C with IRS and send Employee Written Statements Special Rule Reporting Fee paid to staffing company must be higher for employees enrolled in health coverage than those not enrolled

Who Is Responsible?

IRS Reporting Checklist Can you track actual hours? Finalize Safe Harbors like Look-Back, etc. Are you collecting Offers of Coverage? Identify your data sources How are you going to provide 1095-Cs to employees through mail or electronically? Finalize workflow processes Complete 1095-C codes for Jan - now!

What s Next? The Cadillac Tax

What is the Cadillac Tax? The Cadillac Tax is a 40% nondeductible excise tax on high-cost health coverage, which is scheduled to be assessed on a calendar-year basis beginning in 2018. No employers are exempt regardless of size or industry

How is the Cadillac Tax Calculated? The Cadillac Tax is calculated on a per employee basis using one of the following equations. Self-Only Coverage: (Total Cost of Self-Only Coverage -$10,200) x 40% = Cadillac Tax Coverage Other Than Self-Only: (Total Cost of Coverage other than Self-Only - $27,500) x 40% = Cadillac Tax

What s Included in Threshold? Group health plans (including Government and Retiree Plans) Health Flexible Spending Accounts (FSAs) Health Reimbursement Accounts (HRAs) Health Savings Accounts (HSAs)(pre-tax contributions) On-site medical clinics providing more than de minimis care Certain wellness programs, and executive Physical Programs Pre-tax coverage for a specified disease or illness Pre-tax Gap, hospital indemnity or fixed indemnity insurance

Cadillac Penalty @5% Annual Increases Single Coverage 2016 2017 2018 Single (BCBS Silver) Health Plan $6,381 $7,035 FSA $2,600 $2,800 Pre-tax Vol Benefits $1,000 $1,055 Total $9,981 $10,890 Threshold Excess N/A N/A $690 Employer Owes N/A N/A $276 Per Number Employees 400 405 410 Total Excise Tax N/A N/A $113,160

Who Calculates & Reports the Cadillac Tax? Employers are responsible for calculating the excise tax on an employee's applicable employer-sponsored coverage, as well as the share attributable to each coverage provider. There is also a notification requirement, under which an employer must report the taxable excess benefit attributed to each coverage provider both to that coverage provider and to the IRS.

Cadillac Tax Penalties If an employer fails to accurately calculate the excess benefit attributable to each coverage provider, and as a result the coverage provider pays too little tax, the coverage provider will not pay any penalty. It must simply pay the amount of the additional tax. However, the employer who miscalculated the tax will have to pay a penalty equal to 100% of the additional tax that must be paid by coverage provider. The employer will also pay interest on the underpayment from the due date until the date of payment of the penalty.

Cadillac Tax Repeal? U.S. Sens. Dean Heller (R-Nev.) and Martin Heinrich (D-N.M.) introduced legislation seeking to repeal the Affordable Care Act s excise tax on high-cost group plans. Rep. Joe Courtney (D- Conn.) has introduced similar legislation in the House. The Problem The Cadillac Tax is currently projected to generate $87 Billion in tax revenue by 2025. This future revenue stream is needed to offset other subsidies and expenditures provided under the ACA. In order to repeal the Cadillac Tax, Congress must find a way to address this issue.

Cadillac Tax Considerations Assist employers with the identification of benefits subject to the Cadillac Tax. Determine total costs of an employer s benefits for purposes of the Cadillac Tax. One-on-One enrollment to guide employees into benefit selections based on pre-tax and after-tax deductions that reduce exposure to the Cadillac Tax. Enable employers to maximize the tax deductibility of their health plan options without creating a Cadillac Tax liability.

How We Can Help One-on-one consultations Portfolio of ACA apps ACA consulting services Access to legal resources Ongoing education & training

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