In the ACA realm, change is the only constant, so don’t take this to the bank. We’re telling you what we see for the first time, on a first reading of the draft 2016 Forms and Instructions that the IRS has released since July 7. “Applicable Large Employers,” their contractors and consultants will use these Forms in early 2017 to report to the IRS coverage offers (and self-insured coverage) extended during 2016. We apologize for the unusual length of this article, but reading it all yourself would take far longer. Believe us.
As for 2015 coverage reporting, each ALE Member will file this to summarize data about its accompanying Forms 1095-C. There’s only one substantive difference for 2016 coverage reporting – Line 22, Box “B,” “Qualifying Offer Method Transition Relief,” which was available only for 2015 coverage, is gone, and Box “B” is now “Reserved.”
In part III, “Section 4980H” was inserted before “Full-Time Employee Count for ALE Member.” We infer that many 2015 filers were unaware of the important differences between the § 4980H term “full-time” and the term as defined in their policies and plans. See also page 9 of the Instructions.
Just beneath the Form’s title, the IRS has added this instruction to the recipient employee: “Do not attach to your tax return. Keep for your records.” Sounds like the IRS was deluged this filing season.
The Line 15 title, “Employee Share of Lowest Cost Monthly Premium, for Self-Only Minimum Value Coverage,” was abbreviated. It’s now, “Employee Required Contribution (see instructions).” Part III references to “SSN” now say “”SSN or other TIN.”
The Instructions for Recipient note that the 9.5% affordability figure is inflation-adjusted. See also page 13 – 9.56% for plans beginning in 2015 and 9.66% for plans beginning in 2016. There are short explanations of three, Form 1095-C, Line 14, Series 1 Code changes. Code 1I, “Qualifying Offer Transition Relief,” is gone, replaced by “Reserved,” as on Form 1094-C, Line 22. New Code 1J reports, “Minimum essential coverage providing minimum value offered to you; minimum essential coverage conditionally offered to your spouse; and minimum essential coverage NOT offered to your dependent(s).” New Code 1K indicates, “Minimum essential coverage providing minimum value offered to you; minimum essential coverage conditionally offered to your spouse; and minimum essential coverage offered to your dependent(s).”
2016 Instructions for Forms 1094-C and 1095-C
Do government forms ever get shorter from year to year? Seventeen pages of 2015 instructions have expanded to 19, and the font is no bigger.
The revisions recited above appear on page 1, under the heading “What’s New.” Immediately thereafter, the IRS advises close attention to the disappearance in 2016, for calendar year plans, of transitional relief that was offered only for 2015. And, there’s a link to the IRS page that details technical aspects of filing through the IRS AIR system – https://www.irs.gov/for-tax-pros/software-developers/information-returns/affordable-care-act-information-return-air-program.
On page 1 and throughout, references to filing by “employers” have been changed to speak of filing by “ALE Members.” The “Who Must File” section expanded to emphasize that each EIN within a controlled group must file if the group as a whole is an Applicable Large Employer, based, most commonly, on the prior year’s employment data. That’s nothing new, but maybe some missed that point in 2015.
The explanation of self-insurer reporting on page 2 is longer than last year, and perhaps clearer, but not substantively new.
Specific Instructions for Form 1094-C
The first substantial re-write begins on page 2, providing much-needed clarification of when and how an ALE Member may file multiple Forms 1094-C. Here it is.
A Form 1094-C must be filed when an ALE Member files one or more Forms 1095-C. An ALE Member may choose to file multiple Forms 1094-C, each accompanied by Forms 1095-C for a portion of its employees, provided that a Form 1095-C is filed for each employee for whom the ALE Member is required to file. If an ALE Member files more than one Form 1094-C, one (and only one) Form 1094-C filed by the ALE Member must be identified on line 19, Part I as the Authoritative Transmittal, and, on the Authoritative Transmittal, the ALE Member must report certain aggregate data for all full-time employees and all employees, as applicable, of the ALE Member.
Example 1. Employer A, an ALE Member, files a single Form 1094-C, attaching Forms 1095-C for each of its 100 full-time employees. This Form 1094-C should be identified as the Authoritative Transmittal on line 19, and the remainder of the form completed as indicated in the instructions for line 19, later.
Example 2. Employer B, an ALE Member, files two Forms 1094-C, one for each of its two operating divisions, Division X and Division Y. (Division X and Division Y are units of the same ALE Member, and thus both report under the same EIN; they are not members of an Aggregated ALE Group.) Attached to one Form 1094-C are Forms 1095-C for the 200 full-time employees of Division X, and attached to the other Form 1094-C are Forms 1095-C for the 1,000 full-time employees of Division Y. One of these Forms 1094-C should be identified as the Authoritative Transmittal on line 19, and should include aggregate employer-level data for all 1,200 full-time employees of Employer B as well as the total number of employees of Employer B, as applicable, as required in Parts II, III, and IV of Form 1094-C. The other Form 1094-C should not be identified as the Authoritative Transmittal on line 19, should report on line 18 only the number of Forms 1095-C that are attached to that Form 1094-C, and should leave the remaining sections of the form blank as indicated in the instructions for line 19, later.
Note. Each ALE Member must file its own Forms 1094-C and 1095-C under its own separate EIN, even if the ALE Member is part of an Aggregated ALE Group. No Authoritative Transmittal should be filed for an Aggregated ALE Group.
Example 3. Assume that Employer A from Example 1 is a member of the same Aggregated ALE Group as Employer B from Example 2. Accordingly, Employer A and Employer B are separate ALE Members filing under separate EINs. Forms 1094-C should be filed in the same manner indicated in Examples 1 and 2. Employer A should include only information about employees of Employer A in its Authoritative Transmittal, and Employer B should include only information about employees of Employer B in its Authoritative Transmittal. No Authoritative Transmittal should be filed for the Aggregated ALE Group reporting combined data for employees of both Employer A and Employer B.
Similar rules apply for a Governmental Unit that has delegated its reporting responsibilities for some of its employees to another Governmental Unit—see Designated Governmental Entity (DGE) in the Definitions section of these instructions for more information. In the case of a Governmental Unit that has delegated its reporting responsibilities for some of its employees, the Governmental Unit must ensure that among the multiple Forms 1094-C filed by or on behalf of the Governmental Unit transmitting Forms 1095-C for the Governmental Unit’s employees, one of the filed Forms 1094-C is designated as the Authoritative Transmittal and reports aggregate employer-level data for the Governmental Unit, as required in Parts II, III, and IV of Form 1094-C.
Example. County is an Aggregated ALE Group made up of ALE Members School District, Police District, and County General Office. School District designates the state to report on behalf of the teachers and reports for itself for its remaining full-time employees. In this case, either the School District or the state must file an Authoritative Transmittal reporting aggregate employer-level data for the School District.
Page 3 does the same to explain when one employee may be reportable by multiple ALE Members.
[A] full-time employee who works for more than one ALE Member that is a member of the same Aggregated ALE Group must receive a separate Form 1095-C from each ALE Member. For any calendar month in which a full-time employee works for more than one ALE Member of an Aggregated ALE Group, only one ALE Member is treated as the employer of that employee for reporting purposes (generally, the ALE Member for whom the employee worked the greatest number of hours of service), and only that ALE Member reports for that employee for that calendar month. The other ALE Member is not required to report for that employee for that calendar month, unless the other ALE Member is otherwise required to file Form 1095-C for that employee because the individual was a full-time employee of that ALE Member for a different month of the same calendar year. In that case, the individual may be treated as not employed for that calendar month. If under these rules, an ALE Member is not required to report for an employee for any month in the calendar year, the ALE Member is not required to report for that full-time employee for that calendar year. For a description of the rules related to determining which ALE Member in an Aggregated ALE Group is treated as the employer for a month in this situation, see the definition of Employee.
Example. Employer A and Employer B are separate ALE Members that belong to the same Aggregated ALE Group. Both Employer A and Employer B offer coverage through the AB health plan, which is an insured plan. In January and February, Employee has 130 hours of service for Employer A and no hours of service for Employer B. In March, Employee has 100 hours of service for Employer A and 30 hours of service for Employer B. In April through December, Employee has 130 hours of service for Employer B and no hours of service for Employer A. Employer A is the employer of Employee for filing purposes for January, February, and March. Employer A should file Form 1095-C for Employee reporting offers of coverage using the appropriate code on line 14 for January, February, and March, should complete lines 15 and 16 per the instructions, and should include Employee in the count of total employees and full-time employees reported for those months on Form 1094-C. For the months April through December, on Form 1095-C, Employer A should enter code 1H (no offer of coverage) on line 14, leave line 15 blank, and enter code 2A (not an employee) on line 16 (since Employee is treated as an employee of Employer B and not as an employee of Employer A in those months), and should exclude Employee from the count of total employees and full-time employees reported for those months on Form 1094-C.
It’s hard to read, but we’re glad it’s there. Also on page 3, the IRS notes that the paper filing date will be February 28, 2017 and the e-filing date will be March 31, 2017. This year, extensions will be available only by request, and page 3 includes instructions about where to get and how to use Form 8809 for that purpose.
Page 4 discusses e-filing rules at greater length than last year and notes the penalty increase from $250 to $260 per Form. See also page 6. But it’s not all gloom and doom.
If you are required to file electronically but fail to do so, and you do not have an approved waiver, you may be subject to a penalty of $260 per return for failure to file electronically unless you establish reasonable cause. However, you can file up to 250 returns on paper; those returns will not be subject to a penalty for failure to file electronically. The penalty applies separately to original returns and corrected returns.
The correction “how to” chart on page 5 adds the requirement to correct a Form 1094-C Authoritative Transmittal if the original filing incorrectly reported the other members of the ALE Group.
Page 6 notes that Forms 1095-C are to be delivered to the employee recipients by January 31, not February 1, as last year.
Page 7 clarifies that Code 1A, “Qualifying Offer Method,” properly entered on Line 14 of Form 1095-C relieves the ALE Member from any obligation to fill the related box on Line 15 or on Line 16.
Page 9 clarifies that employers sponsoring non-calendar year plans may have early 2016 months of 2015-only transition relief, because those months were part of the 2015-2016 plan year. This includes the 50-99 “smaller large employer” relief and the 70% offer transitional relief that applied only for 2015. Page 9 also notes that an employee who terminates during a 2016 stability period, having been measured full-time in the associated, prior measurement period, must be reported on Form 1094-C as a full-time employee, regardless of his or her average hours of service during 2016.
Specific Instructions for Form 1095-C
Page 10 notes that the ALE Member contact listed on Line 10 need not be the contact listed on Line 8 of Form 1094-C. Also, filers are admonished never to leave Line 14 blank, even for months before and after employment.
Page 11 is almost entirely new text, explaining in helpful detail how to code on Line 14 COBRA coverage offers and retiree coverage offers. Here’s the Example provided:
During the applicable open enrollment period for its health plan, Employer makes an offer of minimum essential coverage providing minimum value to Employee and to Employee’s spouse and dependents. Employee elects to enroll in employee-only coverage starting January 1. On June 1, Employee experiences a reduction in hours that results in loss of eligibility for coverage under the plan. As of June 1, Employer terminates Employee’s existing coverage and makes an offer of COBRA continuation coverage to Employee, but does not make an offer to Employee’s spouse and dependents. Employer should enter code 1E (Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) and spouse) on line 14 for months January – May, and should enter code 1B (Minimum essential coverage providing minimum value offered to employee only) on line 14 for months June – December.
Page 12 (see also page 17) reiterates that new Line 14 codes 1J and 1K are conditional offer variants of codes 1D and 1E, respectively, and defers Line 15 employee cost guidance to the “Employee Required Contribution” section of the Definitions on page 15.
On page 13, and in the “Tip” on page 17, the IRS continues its Delphic guidance about how Line 16, Code 2E applies when an employer seeks § 4980H credit for coverage offers made to its common law employees by their Form W-2 employer, e.g., a temp staffing firm. Suppose that an employer seeking such credit sponsors a self-insured plan. The 2016 Instructions read, “For this [Part III] purpose, employer-sponsored self-insured coverage does not include coverage under a multi-employer plan.” Our initial guess is that the IRS means to say so only for purposes of reporting covered individuals in Part III. We remain concerned about the lack of published IRS guidance regarding whether an employer will be assumed to participate in a MEWA if it enters Code 2E on Line 16 in order to claim credit for coverage offers made by a temp staffing firm.
Page 14 adds a link to the IRS page on § 4980H employer aggregation rules.
Page 15 adds this definition of “Employee Required Contribution” for Form 1095-C, Line 15 affordability determinations.
Employee Required Contribution. The Employee Required Contribution is the employee’s share of the monthly cost for the lowest-cost self-only minimum essential coverage providing minimum value that is offered to the employee by the ALE Member. The employee share is the portion of the monthly cost that would be paid by the employee for self-only coverage, whether paid through salary reduction or otherwise
For purposes of determining the amount of the employee’s share of the monthly cost, an ALE Member may divide the total cost to the employee for the plan year by the number of months in the plan year. This monthly amount of the employee’s share of the cost would then be reported for any months of that plan year that fall within the 2016 calendar year. For example, if the plan year begins January 1, the ALE Member may determine the amount to report for each month by taking the total annual employee cost for all 12 months and dividing by 12. If the plan year begins April 1, the ALE Member may determine the amount to report for January through March, 2016, by taking the total annual employee cost for the plan year ending March 31, 2016, and dividing by 12 (and reporting that amount for January, February, and March 2016). Then the ALE Member may determine the monthly amount for April through December, 2016 by taking the total annual employee cost for the plan year ending March 31, 2017, and dividing by 12 (and reporting that amount for April through December 2016).
The Employee Required Contribution may not be the amount the employee paid for coverage. For additional rules on determining the amount of the Employee Required Contribution, including for cases in which an ALE Member makes available certain HRA contributions, cafeteria plan contributions, wellness program incentives, and opt-out payments, see Regulations sections1.5000A-3(e)(3)(ii) and 1.36B-2(c)(3)(v)(A). Also see Notice 2015-87.
Also on page 15 begins a longer explanation of what “Full-Time Employee” means, apparently to correct common employer filing errors for 2015. We noted this part especially:
Under the look-back measurement method, an employee is a full-time employee for each month of the stability period selected by the ALE Member if the employee was employed an average of least 30 hours of service per week with the ALE Member during the measurement period preceding that stability period. (The look-back measurement method for identifying full-time employees is available only for purposes of determining and computing liability under section 4980H, and not for purposes of determining if the employer is an Applicable Large Employer.)
Pages 18-19 describe in great detail the trailing effects for 2016 reporting of 2015-only transitional relief by employers with non-calendar year plans.
We close with this good news: As in 2105, the IRS estimates that you will need just four hours to complete and file your Form 1094-C and just twelve minutes to complete and file each Form 1095-C. If there’s an appropriate emoji here, suggest it, please.