December 30, 2016, update: The IRS did provide some relief to employers for 2016 reporting. They moved the due date to provide 1095 forms to employees from Jan. 31, 2017, to March 2, 2017.
After years of debate, employers are coming to terms with the Affordable Care Act (ACA). But, the act is a work in progress, so changes are a given. For starters, the IRS extended the reporting deadlines for tax year 2015, but an extension is not expected to be granted for tax year 2016. Also, good faith efforts may no longer prevent fines for noncompliance.
Six years after being passed, the ACA remains one of the biggest challenges for employers to overcome. So, how do you navigate the complexities and minimize any negative financial impact? The answer lies in learning from past mistakes and preparing for what’s ahead.
Key ACA Changes for 2016 Reporting
The following are major changes affecting ACA reporting for employer health coverage offered in 2016:
- Applicable large employers (ALEs) will face penalties if they fail to provide minimum essential coverage to at least 95 percent of full-time (FT) or full-time equivalent (FTE) employees and their dependents. For 2015 tax year, the coverage rate was 70 percent.
- Fines for noncompliance with Section 4980h of the Employer Shared Responsibility (ESR) provision will apply to ALEs with more than 50 FT/FTE employees. For 2015, only ALEs with more than 100 FT/FTE employees were subject to fines under ESR.
- ALEs that did not deliver minimum essential coverage can exclude only 30 employees from their penalty calculation for 2016. The first 80 employees were excludable from the fine calculation for tax year 2015.
- Late and incorrect filings will be subject to penalties for 2016 – good faith efforts will not be considered. For 2015, filing penalties were waived for ALEs that demonstrated good faith compliance efforts.
- Form deadlines are not likely to be extended for 2016 reporting as they were last year. IRS Form 1095-C, Employer-Provided Health Insurance Offer and Coverage must be distributed to employees and covered individuals by Jan. 31, 2017. Forms 1095-C and 1094-C (transmittal form) are due to the IRS by Feb. 28, 2017, if filing on paper, and by March 31, 2017, if filing electronically.
Lessons Learned from 2015
A class action lawsuit filed in late 2015 accuses restaurant chain Dave & Busters of reducing work hours to escape providing employees with health insurance as mandated by the ACA. Although the outcome of the lawsuit is still undecided, the case exemplifies the importance of establishing proper ACA counsel and practices to avoid legal problems and remain compliant.
What Else Did Employers Learn?
- ACA project implementation timeline often goes beyond the filing deadline, despite employers’ sincere efforts to meet target dates.
- Constraints in some payroll and benefits solutions resulted in inadequate compliance tools and employers having to perform considerable manual work.
- Some third parties – such as brokers, plan administrators, and payroll providers – provided their clients with conflicting guidance regarding who should prepare the reporting forms and how they should be completed.
- Internal collaboration with those responsible for assembling ACA data is crucial, but it takes even more effort to coordinate with outside vendors.
Recommendations for 2016 Reporting
- Establish ACA project milestones and stick to them. For example, develop a timeline for when you will prepare, mail and file forms 1095-C and 1094-C and ensure you have the resources to meet the deadlines.
- Evaluate your reporting method for the previous tax year and decide whether it’s the best route this time around. For example, if you performed reporting in-house, which proved time-consuming and error-prone, you might consider outsourcing.
- Promote team effort. For example, HR, payroll and your chief financial officer and tax advisor should all be on the same page.
- Look out for exchange subsidy notices stating that FT/FTEs employee obtained subsidized coverage from the marketplace because you failed to provide them with proper coverage. To contest the notice, complete the Employer Appeal Request Form within 90 days.
- Review your ACA data at least monthly to determine whether at least 95 percent of FT/FTE employees are offered coverage every month. Note that ESR penalties are assessed monthly.
- Prepare a compliance checklist that includes steps for determining ALE status, consulting with your benefits broker, and gathering employee data for reporting. Keep the checklist up-to-date so it reflects regulatory changes.
For Employers Who Outsource Payroll
More and more payroll providers are adding ACA reporting to their service offerings. Level of service varies by provider. Typically, the provider delivers a platform that allows you to analyze, report and monitor ACA activities. If you plan to outsource ACA reporting, consider a vendor that offers seamless data integration and training. Materials for ACA training may include:
- Quick-start guides and compliance checklists.
- Comprehensive information packages on Employer Shared Responsibility.
- Reporting packages that explain key ACA terms, calculation methods, form codes, and other reporting functions.
Year Round ACA Compliance
The changes for 2016 ACA reporting emphasize the importance for employers to manage compliance throughout the year, and not just at reporting time. Regular communication with your payroll provider, benefits broker and employment attorney can establish the framework for a successful year-end and meeting all 2016 ACA filing deadlines in early 2017.