Affordable Care Act Reporting Requirements for 2015 [Webinar Slides]

©2015 Sikich LLP. All rights reserved.
Affordable Care Act Reporting
Requirements for 2015
Karen S. Sanchez, CPA, QPA
Partner-in-Charge
Employee Benefits
Joy J. Duce, SPHR
Senior Managing Director
Human Resource Consulting Services

What We Will Cover Today
» Overview of ACA reporting requirements
» Employer Payment Arrangement changes
» Next steps
2

Reporting Requirements

What Do We Know Today?
» Healthcare reform is here to stay and is confusing for our clients.
» Guidance is coming out regularly, but there are still many unknowns
as forms for 2015 have not yet been released.
» Administrative burden will likely be very significant for many of
our clients.
4

Why is Employer Reporting Required?
In order to satisfy certain aspects of the Affordable Care Act (ACA), some
employers are subject to certain reporting requirements beginning in 2015.
» Individual Mandate: All individuals must obtain minimum essential
coverage or pay a penalty.
» Employee self reports for 2014
» Employer will report data for 2015 and beyond
» Employer Mandate: If an employer fails to provide minimum
essential coverage at an affordable rate, the employer may be subject
to penalties.
» Policing the Tax Credit: Some individuals may be eligible for a
premium tax credit/subsidy if they are not offered affordable coverage
through an employer plan. The IRS wants to ensure only those eligible
for a credit actually receive the credit.
5

Definitions to Know
» Affordable Cost Coverage
» If the lowest cost self-only health plan is 9.5 percent or less of
your full-time employee’s household income, the income is
considered affordable.
» Available Safe Harbors: An employee’s monthly contribution for
self-only coverage is affordable if it does not exceed:
» Specific to employee:
» Form W-2: 9.5 percent of his/her W-2 wages for that
calendar year
» Rate of pay: 9.5 percent of his/her monthly wages (hourly
rate of pay times 130 hours or monthly salaried pay)
» Same standard for all employees:
» Federal Poverty Line (FPL): 9.5 percent of the FPL for a
single individual (approximately $93 per month for 2014
and 2015) 6

Definitions to Know
» Minimum Essential Coverage (MEC)
» Employer-provided health coverage that meets certain levels.
The broker should be able to provide this information.
» Minimum Value Coverage (MV)
» Must cover 60 percent of the total allowed cost of benefits
that are expected to be incurred under the plan.
» The broker should be able to provide this information.
» HHS has a minimum value calculator to determine if MV is
satisfied.
7

Employer Mandate Penalties
For 2015, if an employer has 100 or more FTEs, penalties may exist if
the following conditions are not met:
1. Must offer minimum value insurance to 70 percent of full-time
employees (95 percent in 2016).
2. Insurance must be considered affordable and meet the minimum
coverage requirements.
Different excise taxes exist if both parts are not satisfied.
8

Employer Mandate Penalty Amount #1
If an employer fails to offer minimum value health coverage to 70
percent of full-time employees (95 percent for 2016)
and
One employee receives a subsidy (either a tax credit or cost-sharing
reduction through an exchange)
then
The employer may be liable for a penalty of $2,000 per year for the
number of full-time employees (less the first 80 for 2015 and 30 for
2016).
NOTE: The key is to “offer” benefits, but it does not matter if the
employee accepts the offer. In addition, coverage for dependent
children must also be offered.
9

Employer Mandate Penalty Amount #2
If an employer fails to offer affordable minimum value health coverage
to at least 70 percent (95 percent after 2015) of its full-time employees
then
The employer will be liable for a penalty of $3,000 per year for each
full-time employee who obtained insurance through an exchange and
received a subsidy.
Note: The employer is only liable for the greater of Penalty #1 or #2
discussed above. These penalties are determined on a monthly basis.
10

How Do Individuals Receive a Subsidy?
» An employee who obtains coverage through an exchange informs
the IRS of family income and their employer’s identifying
information.
» An employee claims the tax credit on Form 1040.
» The IRS receives data from the exchanges and Form 1040, and
assesses the excise tax by sending the employer a bill.
» The employer will have a limited time (two months) to contest the
assessment.
» Very important to retain sufficient records to be able to
respond to the assessment notices in a timely manner.
11

Who Must File?
» The IRS uses the term “Applicable Large Employer” (ALE) to define
those required to file.
» An ALE is an organization (including related entities) that employed
an average of at least 50 FTE, including full-time equivalent
employees, on business days during the preceding calendar
year.
» A special rule applies for 2015 for this determination. You may use
any consecutive six-month period during 2014, rather than being
required to use all 12 months of 2014.
» Any employer with at least 50 FTE must file for 2015.
NOTE: Any employer who issued at least 50 W-2 in 2014, may be
subject to the reporting rules and should review further to identify
requirements.
12

Determining ALE Status Considerations
» Special rule for seasonal workers:
» An employer is not considered an ALE if they had 50 or more
employees during 120 or fewer days, during four or fewer
calendar months during the preceding year and the 50-employee
threshold was exceeded due to seasonal workers.
» In determining ALE status consider all related employers:
» For-Profit Entities use 414(b) (c ) (m) and (o)
» Not-for-Profit use 80 percent or more of control factors
13

Applicable Large Employer
Determination
1. Calculate the number of FTEs per month:
Total number of FTEs (30+ hours/week) + Total hours of service by
all part-time / 120 = Number of FTEs for Month
2. Average monthly FTEs for 12 months
(Transition rule for 2015 only; may choose any period of six
consecutive months in 2014 rather than entire calendar year to
determine ALE status for 2015)
3. If average monthly FTE for prior calendar year is greater than 50 then
employer is an ALE.
A calculator is also available to assist with this determination on this
website: https://www.healthcare.gov/shop-calculators-fte
14

Example ALE Determination for
2016 Using 2015 Data
15

What Must Be Filed?
There are four forms that may need to be filed by an ALE:
» 1095-C Employer-Provided Health Insurance Offer and Coverage:
Large employers will provide one to each enrollee. The form provides
information on the coverage provided and to whom and when the
coverage was offered.
» 1094-C Transmittal of Employer-Provided Health Insurance Offer
and Coverage Information Returns: Transmittal form employers will
file with IRS along with all the Forms 1095-C.
» 1095-B Health Coverage: Insurers and self-funded plans will provide
one to each enrollee. The form provides information on the coverage
provided.
» 1094-B Transmittal of Health Coverage Information Returns:
Transmittal form insurers and self-funded plans will file with the IRS
along with all the Forms 1095-B.
16

Transition Relief for Some Employers
When are employer mandate penalties effective?
“Transition Relief” announced February 10, 2014
» Employers with 50 to 99 FTEs – delayed until 1/1/16
» Employers with 100 FTEs or more – effective 1/1/15
» However, transition rules for 2015 may minimize need for
changes until 1/1/16.
NOTE: All ALEs must still file for 2015 even though employers with
fewer than 100 FTEs will not be subject to employer mandate
penalties. However, penalties for failure to file may still be assessed for
2015.
17

Which Forms to File?
Insured Health Plan Self-Insured Health Plan
Small employer
(Fewer than 50 FTEs)
Small employers do not
file. The insurer files
Form 1095-B.
File Form 1095-B.
Applicable Large
Employer (ALE)
(50 to 99 FTEs)
ALE control group
member files Form 1095-C
I and II (not Part III), even
though they may not be
subject to an employer
mandate in 2015. Insurer
then files Form1095-B.
File Form 1095-C Parts I,
II and III, even though they
may not be subject to an
employer mandate
in 2015.
ALE
(100 or more FTEs)
ALE control group
member files Form 1095-C
Parts I and II (not Part III).
Insurer files Form 1095-B.
ALE member files Form
1095-C Parts I, II and III.
18

What the Employees Receive
» Employer issues Form 1095-C to each employee who was full-time
during one or more months, and each part-time employee who was
enrolled in self-insured coverage during one or more months.
» Insurance company issues (for fully insured plans) Form 1095-B to
each employee covered by fully insured plan.
NOTE: In a fully insured plan, the employees will receive both the
1095-C from the employer and a 1095-B from the insurance company.
19

What the IRS Receives
» Employer files
» 1094-C transmittal form
» Copies of each employee’s form 1095-C
» Insurance Company files (for fully insured plans)
» 1094-B transmittal form
» Copies of each employee’s form 1095-B
20

Form 1095-C (Employee Statement)
21

1095-C Information Required
» All ALE (self-insured or fully insured)
» 1095-C Parts I & II: Information for each FTE
» Part I
» Name, SSN and address for each FTE
» Employer information
» Part II
» Offer of coverage code (line 14) must apply to all days in
the month not just one day
» Employee cost for lowest cost plan
» Safe Harbor codes (line 16)
» Part III
» Only filed by self-insured plans
22

1095-C Line 14 Code Series 1
(Offer of Coverage Codes)
Code Description
1A Minimum Value (MV) offered at less than 9.5
percent of federal poverty level (FPL) ($93.18/mo)
1B Offer to EE only
1C Offer to EE + Dependent (not spouse)
1D Offer to EE + Spouse (non-dependent)
1E MV offered to EE, at least Minimum Essential
Coverage (MEC) offered to spouse and
dependents
1F MEC that is not MV offered to employee
1G Self-funded offered to part-time EE
1H No offer of coverage to full-time employee
1I No offer to employee but employer using qualifying
offer relief 23

1095-C Line 16 Code Series 2
(Safe Harbor Codes)
Code Description
2A Not employed any day that month
2B Part-time or termination month when not covered
all month
2C Enrolled in coverage (use over any other code if
applicable)
2D EE in non-assessment period (e.g. waiting period)
2E Multi-employer plan interim relief
2F W-2 Safe Harbor
2G FPL Safe Harbor
2H Rate of pay Safe Harbor
2I Non-calendar year plan employer transition relief
24

1095-C Self-Funded Plans
» Must complete Form 1095-C Part III
» Additional related information required for all covered individuals
(employee, spouses and dependents):
» Name
» SSN or DOB if SSN not available (must attempt to obtain SSN)
» If individual had coverage in any employer-sponsored Minimum
Essential coverage for each calendar month (Y or N)
» If covered one day of the month, then considered to have
coverage for that month.
25

1094-C (Page 1) Transmittal
26

1094-C Information Required
» All ALE (self-insured or fully insured)
» Part I: Basic employer information and in the case of a
governmental employer that designates another governmental
entity as the filing entity, identifying information for that entity.
» Part II: Line 21states employer’s status if a member of a
controlled group/affiliated service group (list other members in
the controlled group on page 3 of Form 1094-C). Likely will be
no for governmental entities.
27

1094-C (Page 2)
28

Information Required 1094-C (Page 2)
Column Description
a Did the employer offer minimum essential coverage to 70 percent
of FTEs determined separately by month for all twelve months?
“Yes” means not subject to $2,000 excise tax for that month
b Number of FTEs*
c Total number of employees*
d Is employer part of a controlled group?
e Transition relief code: A for 50-99 FTE relief or B for all other
100+ transition relief
*See next slide for how to determine
29

Information Required 1094-C (Page 2)
Column Description
b Number of FTEs*
(If the employer marked “98 percent offer method” then this
column does not need to be completed)
c Total number of employees*
*In determining these counts select one of four dates each
month to count and be consistent.
• 1st day of the month
• Last day of the month
• 1st day of 1st payroll period starting during the month
• Last day of 1st payroll period starting during the month,
but only if that day is in the same month that payroll
started
30

Penalties for Failure to Comply
with Reporting Requirements
Forms 1094-C and 1095-C help the IRS enforce the ACA employer
mandate. For employers with more than 100 FTEs, the following
penalties could apply for 2015:
» Failure to file 1094-C and 1095-C: $100 for each delinquent or
incorrect return; maximum penalty per year of $1,500,000
» Failure to provide informational statement to employee: $100 for
each missing statement; maximum penalty per year of $1,500,000
NOTE: The IRS may not assess penalties in 2015 if an employer can
demonstrate good faith to comply.
31

When is Reporting Due?
» Same timing as W-2 reporting for 2015
» Employer Reporting
» Must be filed no later than February 29, 2016 (or March 1,
2016 due to the 29th falling on a Sunday)
» No later than March 31, 2016 if filing electronically
» Employee Reporting
» Due by January 31, 2016 (or February 1, 2016 due to the
31st falling on a Sunday)
32

Electronic Filing
» Electronic filing is required for all large employers filing at least 250 returns
(each employee is a separate return)
» All are encouraged to file electronically (those with fewer than 250 returns
may elect to file in paper form)
» Employee copies
» Electronic filing is permitted only if recipient affirmatively consents to
receive the statement in electronic format
» Consent may be obtained on paper or electronically (i.e. via email)
» An employee who gives consent on paper must confirm the consent
electronically
» Two ways to provide electronically
» Via email
» Inform individual how to access on employer’s website
» Sikich will have filing solution to create economies for employer
33

Healthcare Reform’s Impact on
Payroll/HR/Benefits
34

The Payroll Perspective
» Each system is different and has varying capabilities.
» Clients need to think about what they need their system to do going
forward.
» They are advised to work with their current payroll system to make
changes for tracking and reporting.
» Clients should already be engaged in a process to deal with
administrative burdens.
35

Questions Clients are Asking
» Am I considered a “large” or “small” employer under the ACA?
» How will my system handle:
» Tracking of hire dates (multiple hire dates, rehires)
» Documentation of employment status
» Reporting of hours worked
» Full-time equivalents
» Seasonal, variable hour and temporary employees
» Managing hours worked
» Tracking of measurement periods
and stability periods
» Automatic enrollment
36

Administrative Concerns
from Clients
» How will I determine measurement periods, administrative periods
and stability periods?
» How will I track hours to determine eligibility for part-time/variable
employees?
» Who within my organization will be responsible for handling the
additional administrative responsibilities?
» Tracking hours/reporting requirements
» Enrollments
» Questions
» 1094-C and 1095-C forms
» What are my outsourcing options?
37

Employer Payment
Arrangements

IRS Changes Rules for Taxability of Employer-Provided
Medical Expenses for Certain Arrangements
» In Notices 2015-17 and 2013-54, the IRS provides guidance on the
application of the market reform provisions of the Affordable Care Act
(ACA) to certain group health plans.
» In the past, employers have utilized a variety of methods to provide tax-
free medical benefits to their employees.
» The IRS’ recent guidance impacts some of the payment arrangements
beginning January 1, 2014.
» One important change is that payments for health insurance
outside of group health plans generally are no longer permissible.
Employers will no longer be able to directly pay or reimburse
employees’ premiums for individual health insurance policies that
provide major medical coverage on a tax-free basis. The employer
may be subject to excise taxes even if the payments are made on
an after-tax basis. (Note that dental and vision coverage are not
covered by this guidance).
39

Impact on Various Health Plans
Employer Group Health Plans
» Insurance premiums paid by the employer under group health plans
continue to be excludible from an employee’s income. Group health
plans have been subject to additional mandates.
» Employee contributions paid to the employer for group health plans
continue to be tax-free if made pursuant to the requirements of a
Section 125 plan.
» IRS Notice 2013-54 does not impact the taxability of these
payment arrangements.
40

HRAs (Health Reimbursement Arrangements)
» An HRA is an arrangement funded solely by an employer and
provides for payment of qualifying medical care expenses (under
Code Sec. 213(d)) incurred by the employee or his/her spouse,
dependents and children under 27 years old, up to a maximum
dollar amount for a coverage period. This reimbursement is
excludable from the employee's income.
» In IRS Notice 2013-54, the IRS clarified that an HRA is considered a
group health plan and therefore must meet group health plan
requirements such as no annual limits on medical expenses. HRAs
by definition limit benefits up to a certain dollar amount, and these
arrangements would clearly violate the new rules. The IRS Notice
created an exception for HRAs that are integrated with group
health plans and retiree-only HRAs.
41

HRAs (continued)
» If HRAs meet the rules for being considered integrated with an HRA
as outlined in the Notice, employers may continue providing tax-free
reimbursements of qualifying medical expenses.
» On or after January 1, 2014, if an HRA does not meet the new
requirements, any payments made to employees will become
taxable. If the employer does not sponsor a group health plan
then a stand-alone HRA will no longer be permissible. HRA
arrangements should be reviewed to ensure they meet the new
requirements. The guidance also indicates that an HRA may not
provide for reimbursements of an individual insurance policy and
integration with an individual health insurance plan will not satisfy
the new requirements.
42

Employer Payment Plans
» Under pre-2014 rules, an "employer payment plan" allowed for an
employer to make tax-free reimbursements to employees for
individual health insurance policy premiums and other qualifying
medical expenses under Code Sec. 106.
» Effective January 1, 2014, employers can no longer make
payments to employees for individual insurance premiums or other
out-of-pocket health costs outside of a group health plan. If such
payments are made, even on an after-tax basis, the employer could
be subject to excise taxes of $100/day per affected individual until
corrected.
» Notice 2015-17 provides transition relief for employers not subject to
ACA until June 30, 2015.
43

Health Flexible Spending Arrangement (Health FSA)
» A health flexible spending arrangement (Health FSA) is designed to reimburse
employees for medical care expenses (under Code Sec. 213(d), other than
premiums) incurred by the employee or the employee's spouse, dependents and
children under 27 years old.
» Previously, the IRS provided regulations permitting an employee to pay for individual
health insurance premiums on a pre-tax basis through a Section 125 plan. The
employer was required to obtain substantiation of the employee’s payment of the
premium before making a pre-tax reimbursement. This reimbursement was not
included in the Health FSA component of the plan, although it could be provided by
the plan in a separate provision.
» Effective January 1, 2014, tax-free reimbursements of individual health insurance
premiums are no longer an allowable benefit under a Section 125 Plan. In addition, in
order for a Health FSA to be considered exempt from certain market reforms, the
employer must make available a group health plan that meets the Affordable Care Act
requirements. The guidance also places certain restrictions on the amount of
employer matching contributions that may be provided.
44

Summary
» Employers should review their payment practices surrounding all
medical payments to ensure they meet the new requirements. If an
employer wants to continue paying for medical expenses, but does
not want to sponsor a group health plan, the employer may be
subject to significant penalties.
» In Notice 2015-17, the IRS temporarily suspended issuing
penalties for these types of arrangements through June 30,
2015.
» The above is a brief overview of a limited number of the provisions
provided in IRS Notice 2013-54. Additional provisions may impact
your plans and all provisions should be reviewed in detail.
45

Next Steps

2015 Next Steps
» Determine which forms must be filed for 2015 (based on average
number of employees per month in 2014).
» If an employer has more than 50 FTEs per month, gather data to
prepare the filings.
» Inquire of each vendor what data will be provided
» Evaluate options to aggregate data
» Secure software filing solution to submit forms to IRS and to
employees
» Review employer mandate rules to determine if subject to any
penalties.
» Retain documentation for all aspects of compliance with ACA.
» Review payment practice for any types of health payments to ensure
none are paid outside of a qualifying plan to avoid penalties.
» Start early!
47

How can Sikich Assist?
» Determination of filing requirement and potential penalties for 2015.
» Design and testing of internal systems to collect and monitor payroll
data that will be needed for IRS compliance, including working with
payroll vendors.
» Test interim data summer/fall
» Assistance with building compliance file to respond to IRS notices
and audits.
» Preparation of IRS filings and employee notices.
» Responses to IRS excise tax assessments.
» Planning for 2016 to determine if to continue offering coverage or
pay penalties.
48

Sikich Services Prepare for 2016
Plan for 2016 issues prior to open enrollment:
» Manage workforce size eligible for coverage
» Expand utilization of employees working less than 30 hours?
» Utilize contractors?
» Hire more seasonal employees?
» Evaluate coverage options
» Exchanges vs. providing own policy?
» Review welfare plan compliance
» Ensure 5500 filed if more than 100 participants
» Ensure plan document is in place; first request during DOL audits
which are increasing in frequency
» DOL assesses penalties for failure to have proper plan
document and Summary Plan Descriptions. Insurance policy
documents are often not sufficient.
49

Cadillac Tax in 2018
» If a plan provides benefits in excess of a certain level, a 40 percent
excise tax will be imposed on the actuarial value of those benefits.
» Benefits offered under Collective Bargaining Agreements (CBA)
should be evaluated as part of renewal of CBA as many provide
benefits in excess of these levels. Once the CBA is established, it
will be challenging to reduce benefits even if the employer is subject
to taxes.
» Tax will ultimately be paid by the employer even though benefits
may be required by union contracts.
» IRS released some guidance in February 2015 in Notice 2015-16.
The Notice included a request for comments on a variety of issues
and the IRS will be releasing additional guidance in this area to
clarify how the calculation should be done.
50

Additional Resources
» Sikich’s website has a paged with ACA resources (link provided
below):
» Guide to reporting requirements
» Links to IRS resources including FAQ
» A recording of this webinar will be added
» http://www.sikich.com/insights-resources/thought-
leadership/ebooks/affordable-care-act-reporting-requirements
Please complete survey responses to assist us in planning for
meeting our client’s ACA filing needs.
51

Thank you for attending!
We are available to assist you through the process:
Determine your filing requirements
Plan who will provide data
Secure software filing system
Test data before end of year
Please complete the survey to assist us in planning for the upcoming
filing deadline.
52

Contact Information
Sikich LLP
1415 W. Diehl Road, Suite 400
Naperville, IL 60563
This document is not written tax advice directed at the particular facts and circumstances of any person. Nothing herein shall be construed as imposing a limitation on any
person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this document may be considered to contain written tax advice, any
written advice contained in, forwarded with, or attached to this document is not intended to be used, and cannot be used, by any person for the purpose of avoiding penalties that
may be imposed under the Internal Revenue Code.
Karen S. Sanchez, CPA, QPA
Partner-in-Charge
Employee Benefits
P: (630) 566-8519
E: ksanchez@sikich.com
Joy J. Duce, SPHR
Senior Managing Director
Human Resource Consulting Services
P: (630) 566-8454
E: jduce@sikich.com

Affordable Care Act Reporting Requirements for 2015 [Webinar Slides]

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