Source: https://www.efile4biz.com/ACA-Reporting-Simplified-How-to-Meet-the-IRS-Requirements?utm_source=qbochat&utm_medium=display&utm_campaign=2020qbochat
Timestamp: 2020-08-12 05:41:45
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ACA Employer Reporting Requirements | 1094c & 1095c | efile4Biz
ACA Reporting Simplified - How to Meet IRS Requirements
The Basics of ACA Reporting
Despite close scrutiny by the new administration – and various attempts at “repeal and replace” --the Affordable Care Act (ACA) remains intact. Not only that, but the IRS has stepped up its enforcement efforts. This means affected employers – those with 50 or more full-time employees (FTEs) and self-insured employers, regardless of size – must satisfy the annual 1095 (and 1094 transmittal) tax reporting requirements, or risk IRS penalties.
The Tax Cuts and Jobs Act passed in late 2017 created much of the confusion surrounding the status of the ACA. The new tax law modified the individual mandate requiring individuals to have ACA-compliant health coverage (by removing the penalty for non-compliance). But this doesn’t go into effect until 2019 and, more important, the employer mandate still stands.
The IRS has enhanced its system for identifying non-compliant ALEs and continues to penalize employers who don’t report. First, the IRS sends out Letter 5699, stating that it believes an employer was an ALE but neglected to provide the proper ACA information. It asks the employer to confirm the name used when filing, the Employer Identification Number (EIN) and the date the ACA information returns were submitted to the IRS. From there, the IRS sends out Letter 226J to notify employers of any penalty assessments. To date, over 30,000 letters have been sent levying over $4 billion in fines.
For tax year 2019 (filed in calendar year 2020), the per-employee penalty for not offering coverage to eligible employees increased to $2,570. This is referred to as the sledgehammer penalty.
A second type of penalty may be imposed if an employer MEC, but the coverage wasn’t affordable or didn’t provide the ACA standard for minimum value. Referred to as the tack hammer penalty, this penalty increased to $3,860 per FTE for tax year 2019 (filed in calendar year 2020).
As in years past, it’s essential to offer appropriate healthcare coverage – and to report it through the proper 1095 forms – to avoid these costly penalties.
The ACA reporting requirements are enforced by two sections of the Internal Revenue Code. Together, they ensure that employers (and health insurance insurers) report health coverage information to the IRS and furnish statements to employees annually.
Section 6055 reporting requirements apply to health insurance carriers, small employers that sponsor self-funded health plans and other entities that provide minimum essential coverage.
Section 6056 reporting requirements are directed toward applicable large employers (ALEs) with 50 or more full-time employees or full-time equivalent employees (FTEs). Section 6056 also requires ALEs to share coverage details with employees so they can determine if they qualify for a premium tax credit.
Through mandatory information reporting, tax code sections 6055 and 6056 help ensure compliance with the ACA – particularly the Employer Shared Responsibility provision, which applies to ALEs. Basically, if you're an ALE and don't offer health insurance to your full-time employees that provides a minimum level and coverage and is legally affordable, you may be subject to financial penalties.
For purposes of reporting, minimum essential coverage, or MEC, refers to a legally definable level of coverage.
You may be penalized if you don't offer minimum essential health coverage to at least 95 percent of your full-time employees and their dependents, and at least one full-time employee receives a premium tax credit through the health insurance marketplace.
A second type of penalty may be triggered if you offer minimum essential coverage, as described above, but the coverage wasn't affordable or didn't provide minimum value.
Most broad-based medical plans meet the legal parameters for minimum value, where the plan pays for at least 60 percent of covered benefits. Regarding affordability, the premium for the lowest cost, self-only minimum value coverage should be less than 9.56 percent of an employee's gross household income. You can use three safe harbor tests to determine if the coverage you're providing is affordable: 1) Form W-2 Safe Harbor, 2) Rate of Pay Safe Harbor and 3) Federal Poverty Line Safe Harbor.
Medicare part A or C, most Medicaid programs, CHIP, most TRICARE, certain benefits for Veterans and their families, Peace Corps and DOD Non-appropriated Fund Programs
In general, any plan that is a group health plan under ERISA, which includes both insured and self-insured health plans
Includes qualified health plans enrolled in through the federally facilitated and state-based marketplaces and most health insurance purchased individually and directly from an insurance company, also includes coverage under certain expatriate health plans offered to students and religious missionaries traveling internationally
Generally, any plan that existed before the ACA became effective and hasn't changed
Miscellaneous MEC
Other health benefits coverage recognized by the Department of Health and Human Services as minimum essential coverage
Self-insured employers who have fewer than 50 FTEs and provide health plans
Insurance carrier issues for employers with employer-sponsored group health plans
Which months the insured and his or her family were covered under the plan
Insurance carrier submits for
employers with employer-sponsored group health plans
1095-Bs
(ALEs) Insured and Self-Insured Employers with 50+ full-time employees
Whether or not the employer offered health coverage to employees
Transmittal of Employer-Provided Health Insurance
Offer and Coverage Information Returns Integrated with online accounting software
ACA reporting responsibilities depend on employer size and the type of insurance you maintain, whether insured or self-insured.
In general, the reporting requirements apply if you're an employer with 50 or more full-time employees or equivalents, a self-insured employer, regardless of size, or a health insurance provider. The IRS forms used to report this information are 1095-B and 1095-C, along with transmittal forms 1094-B and 1094-C.
For clarification, you're a self-insured -- or self-funded – employer if you pay for medical claims directly instead of paying premiums to an insurance provider.
Do you offer health coverage
health plan self-insured
Your Insurer files forms on your behalf and provides statements to your employees.
There are relatively few small businesses that must comply with ACA reporting requirements.
The ACA defines a small business as those with fewer than 50 full-time employees, or FTEs.
If you're a self-insured businesses, you'll need to fill out the 1095-B (and 1094-B transmittal form) to report the name, address and Social Security number (or date of birth) of covered individuals.
Small businesses that aren't self-insured don't need to file anything.
For the most part, the biggest impact with the ACA reporting requirements is with applicable large employers with 50 or more full-time or full-time equivalent employees.
Keep in mind an ALE may be a single entity or may consist of a group of related entities (such as parent and subsidiary, or other affiliated entities). If the combined number of full-time and full-time equivalent employees for the group is large enough to meet the definition of an ALE, then each employer in the group (called an ALE member) is part of an ALE – and subject to the Employer Shared Responsibility provision, even if it wouldn't be an ALE separately.
Calculating Full-Time and Full-Time Equivalent Employees (FTEs)
Since the definition of an applicable large employer includes full-time and full-time equivalent employees in a preceding calendar year, it's important to understand the distinctions.
Full-time employee: Averages at least 30 hours of service per week during the month (or 130 hours in a calendar month)
Full-time equivalent employee: Combination of employees, each of whom is not treated as a full-time employee, but that, together, count as a full-time employee
Don't forget to include former employees who meet these requirements during your measurement period
Note: Hours of services represent each hour an employee is paid or entitled to payment, including vacation, leave, holiday, illness, incapacity, layoff, jury duty, military duty and other leaves of absence.
Once you've calculated your FTEs, add that number to your total number of full-time employees on staff to determine whether or not you're an applicable large employer.
Keeping track of the number of full-time and full-time equivalent employees, as it pertains to the ALE classification, is critical. This classification is determined each calendar year and depends on the average size of your workforce in the prior year.
For hourly employees, count the actual hours worked. For non-hourly employees, count either: 1) the actual hours worked, 2) days worked equivalence – 8 hours for each day with at least one hour of service or 3) weeks worked equivalence – 40 hours for each week with at least one hour of service. Not included in the calculation are independent contractors, certain variable hour workers, seasonal employees working 120 days or less in a year, and COBRA and retired enrollees.
Calculating employee hours for ACA reporting is a huge undertaking. For this reason, you may want to explore dedicated time-tracking software, or choose to outsource this responsibility to a payroll vendor or benefits administrator.
Mandatory 1095 Reporting Forms
Form 1095-B Filing Instructions for Smaller, Self-Insured Businesses
Self-insured businesses with fewer than 50 full-time employees must complete Form 1095-B (and the 1094-B transmittal form if not e-filing).
To report the necessary information to the IRS and furnish a form to employees, you'll need to complete:
Part 1: Responsible Individual – Includes name and address of primary person insured, Social Security number and code for Origin of the Policy (A. Small Business Health Options Program (SHOP), B. Employer-sponsored coverage, C. Government-sponsored program, D. Individual market insurance, E. Multi-employer plan, F. Other designated minimum essential coverage)
Part 2: Employer Sponsored Coverage -- Not applicable for self-insured employers; can be left blank
Part 4: Covered Individuals – Includes Social Security number (or date of birth, if not available) for each covered individual, as well as coverage offered each month
1094-B Transmittal Form at a Glance
The 1094-B transmittal form represents the total 1095-B filings submitted. Acting as a cover sheet, it is a brief form that includes:
Total number of 1095-Bs being submitted with this cover sheet
Form 1095-C Filing Instructions for Insured and Self-Insured ALEs
To satisfy the reporting requirements, fully insured and self-insured applicable large employers must complete Form 1095-C (and the 1094-C transmittal form).
If you offer health insurance, you'll complete Parts I and II of the 1095-C. Self-insured employers will complete Parts I, II and III. Every employee of an ALE who is eligible for insurance should receive a 1095-C. That means even eligible employees who decline to participate in an employer's health plan still receive a 1095-C.
To report the necessary information to the IRS and furnish a form to employees, you'll need to capture a number of details, as follows:
Part 1: Employee and Applicable Large Employer Member (Employer) – Includes identifying information for the employee, such as name, address and Social Security number (SSN) – and identifying information for the employer, such as name, address and Employer Identification Number (EIN).
Part 2: Employee Offer and Coverage – This section is all about the offer of coverage. In the three lines here, you'll enter information about the health coverage offered by month (if any), the cost of the cheapest monthly premium the employee could have paid for self-only coverage, and the months you met an affordability safe harbor or made other relief available to the employee.
Part 3: Covered Individuals – If you're self-insured, this section is about the coverage that was actually supplied, which includes information about covered individuals' enrollment in the plan. This includes Social Security numbers or, if these numbers aren't available, date of birth. (This information isn't completed by insured employers because it's captured separately by the health insurance providers themselves, through the 1095-B.)
All ALEs need to submit this form (Parts I, Ill, and IV) even if they do not offer insurance and are not selfinsured and they still have to provide a copy of the 1095-C to their employees.
The "Offer of Coverage" on Line 14 – which involves eleven codes, 1A through 1K -- describes whether or not minimum essential coverage was offered to an employee, spouse and/or any dependents. This is all about the offer and not necessarily the actual coverage. If one code applies for the entire 12 months, you only need to enter it once in the "All 12 Months" column.
For example, if the employee was offered coverage for themselves and spouse but enrolled in employee only, Line 14 must indicate that the employee was offered family coverage.
On Line 15, you're reporting the employee share of the lowest cost monthly premium for self-only minimum value coverage. This helps the IRS determine if affordable coverage was made available to the employee. You'll only fill out this section if you entered code 1B, 1C, 1D, 1E, 1J or 1K on Line 14. Include cents with this figure and don't round numbers. If you entered 1A on Line 14, nothing needs to be entered on Line 15 because this code indicates you offered essential coverage providing minimum value to the employee, spouse and/or dependents. This may not be the amount the employee is actually paying. See Notice 2015-87.
Line 16 – which involves nine codes again, 2A-2I – clarifies issues such as whether an individual was employed during the month, whether the employee was eligible and/or enrolled in coverage, if any affordability safe harbors applied when an employee declined coverage and if the employee was in a waiting period or other limited non-assessment period for which you'd be liable for a penalty. In a nutshell, you're giving the IRS a reason why you shouldn't be penalized under the Employer Shared Responsibility provision. Again, you only fill this out if a code applies to the employee for any particular month. This line is optional but it is in your (employer) best interest to provide this information to avoid penalties.
1094-C Transmittal Form at a Glance
The 1094-C transmittal form represents the total 1095-C filings submitted with this transmittal. Acting as a cover sheet, it includes:
Information about whether your organization offered coverage to at least 95% of your full-time employees and their dependents
Whether you're eligible for certain transition relief (including certifications)
Managing the Annual ACA Reporting Process
Important Deadlines and Penalties to Avoid
1095 forms have different deadlines for paper and e-filing than 1099s and W-2s. This means:
Paper filing of 1095s
(and 1094 transmittals) to IRS
Form 1095 copies to recipients/employees
E-filing of 1095s
Note: Electronic filing is required if the employer files at least 250 forms.
You must comply with ACA reporting requirements, or risk steep penalties. Penalties can apply for:
Filed/furnished no more than 30 days late $50/form
Combined calendar year maximum $556,500
($194,500 for small businesses)
Filed/furnished 31+ days late, up to August 1 $110/form
Combined calendar year maximum $1,669,500
Filed/furnished after August 1 $270/form
Combined calendar year maximum $3,339,000
Intentional Disregard to file/furnish $550/form
Combined calendar year maximum No maximum fine
Capturing and Tracking Necessary Data
The information gathering process will be challenging for many businesses. To capture all the data required for 1095 reporting, you'll need to pull from four major sources or internal departments: HR, payroll, benefits and time-tracking systems. This will require careful coordination, sharing and monitoring to complete the forms accurately and on time.
The key items you'll need to track:
Coverage on a monthly basis for employees, spouses and dependents
Strict security is also necessary. Because the employee's name and health insurer appears on the same form, the data is considered protected health information (PHI). Using a solution that is SOC-certified and HIPAA-compliant, like efile4Biz.com, can provide an added layer of protection with this type of data.
A few essential Dos and Don'ts will ensure a smooth filing process:
DO notify employees they will be receiving a 1095-C and may need information from it to complete their previous year tax filing.
DON'T file more than one 1094-C authoritative transmittal. (You may file multiple 1094-C forms but only one authoritative transmittal)
DO file corrected returns as soon as possible after an error is discovered.
DO file Form 8809, either by paper or electronically if necessary, for a 30-day extension for filing with the IRS. No signature or explanation is necessary for this extension.
DON'T file more than one 1095-C per employee. If an organization has different divisions with different benefits – and an employee moves between divisions during the year – you'll need to consolidate data onto one 1095-C.
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HIPAA Privacy and Security Information
It is important to keep HIPAA compliance in mind when filing healthcare coverage ACA forms, 1095-B and 1095-C. These forms may contain protected health information (PHI), meaning an employer's medical plan is a covered entity subject to HIPAA privacy, security and breach notification rules.
Use Caution When Collecting Sensitive Data
When gathering information for Forms 1095-B and 1095-C, it is probable that you will require Social Security numbers (SSNs) for employees, as well as spouses and dependents covered under the plan.
Collecting SSNs for employees may be a common occurrence, but now you face the added responsibility of obtaining SSNs for spouses and dependents with the ACA reporting requirement, thereby increasing the risk of data privacy and security breaches.
To take the necessary precautions when handling sensitive data, here are some useful tips:
Is the data collected subject to HIPAA?
Determine whether the information gathered for ACA reporting is protected health information (PHI) under HIPAA, or if it falls under any HIPAA exception.
Ensure PHI precaution measures are in place
If data gathered is PHI, certain measures need to be taken under the HIPAA privacy and security rules. All employees should be trained on PHI policies and procedures, with a designated privacy officer implementing practices, including appropriate administrative, technical and physical safeguards to protect the privacy of PHI. All unauthorized use or disclosure of PHI should be reported.
Verify vendors are HIPAA-certified
Third-party vendors are approved by the IRS and can assist in the ACA reporting process. It is important to ensure that the vendor, even as a "business associate" under HIPAA, is HIPAA-certified and contractually bound to maintain and implement the appropriate privacy and security practices.
E-filing for Secure, Streamlined Filing
Need help meeting the demands of these ACA reporting requirements? Choose efile4Biz.com for quick, efficient and secure e-filing for ACA forms (in addition to 1099s and W-2s). There's no software to download and no forms to purchase, so you enjoy streamlined, one-step processing.
E-file support - Simply enter or import applicable employee information and efile4Biz.com will electronically file forms 1095-B and 1095-C (and transmittals 1094-B and 1094-C) with the IRS - as well as print and mail employee copies.
Print and mail - For health insurance providers, payroll service providers and employers seeking high-volume processing of ACA forms, efile4Biz.com offers comprehensive print-and-mail services out of a secure, SOC- and HIPAA-certified facility.