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It is known that 2015 represents a significant year for the employer mandate and key ACA compliance components should already be in place. However, with the new year come new obligations to prepare for that should not be ignored.
Maintain through 2015
Affordability and Minimum Value Coverage
Employers should continue to work closely with their broker/advisors to ensure that their employer-sponsored coverage meets the affordability and the minimum value tests of the ACA. As the IRS can assess penalties on a monthly basis, it’s imperative to meet the ACA requirements every month of the year.
2015 is also the year that employers with variable-hour employees should have a plan in place for tracking their employees’ hours in order to determine if they are required to offer benefits. This step is particularly vital to determine when to offer coverage for any variable-hour staff and will be important for reporting coverage to the IRS for all employees by the deadline of February 28, 2016 (or March 31, 2016 if filed electronically.) A reliable time and attendance system is crucial in an employers efforts to accurately capture hours worked.
Coming in 2016
Section 6055 & 6056 Recordkeeping Requirements
If there is some good news to pass on, it is that the reporting requirements required under the ACA were delayed to the 2015 tax year in order to correspond with the delay with the employer pay-or-play mandate. Under Section 6055, the ACA requires health insurance issuers and sponsors of self-insured health plans that provide individuals with “minimum essential coverage” to file an annual return with the IRS. The report must contain information for each individual that is provided coverage and a statement must be provided to individuals as well. This will be done using IRS forms 1094-B and 1095-B.
Additionally, the ACA dictates in Section 6056 that employers and/or health insurers report information to the IRS on employer-sponsored health coverage. “Applicable large employers” or ALEs (generally, employers with at least 50 full-time or full-time equivalent employees subject to the employer mandate) must provide information to the IRS about the type of health coverage that was offered to full-time employees under Section 6056 for 2015. This also applies to medium-sized ALEs (employers that employed on average 50-99 full-time or full-time equivalent employees in 2014,) that qualify for the one year delay from the pay or play rules. The Section 6056 reporting will be done using IRS forms 1094-C and 1095-C. Self-insured ALEs can report the required information under both Sections 6055 and 6056 on a single combined form 1095-C.
In order to complete this element of compliance, a team approach often works best. HR needs to work with Finance, payroll providers, HRIS or time and attendance systems and possibly utilize vendors/TPAs or tax professionals in order to adequately prepare these health care reports that will need to be submitted annually to the IRS and employees after year end. It can be a big undertaking in order to prepare the data needed for this first year so proper tracking and coordination of resources will be essential. Remember that failure to file can mean stiff penalties: Under Code 6721, failure to file timely and correct information returns, the penalty is $100 for each return that is incorrect or not filed, up to a maximum of $1.5 million per year. Code 6722, failure to timely furnish a correct statement to full-time employees, the penalty is $100 per statement for whom information must be reported, up to a maximum of $1.5 million per year. If an employer makes a good faith effort to file a correct return for 2015, penalties are not expected to be assessed. However, as in any type of audit situation, solid employer supporting documentation can be critical.
On the Horizon: Possible ACA Impacts
The future of the ACA and what it may eventually become continues to be the subject of much speculation and debate with both State and Federal legislation. And with the Republicans taking control of the Senate along with increased control of the House, there seems to be even more opportunity for what has become an often heated topic between party lines. There are a few recent developments that are set to play out in 2015 that could change some elements of the ACA moving forward.
King v. Burwell
In March, the Supreme Court is set to hear the case of King v. Burwell. The central issue to this case is if the IRS has the ability to issue ACA tax credits to consumers that purchased health insurance through the federal exchange because their state declined to establish and manage one of their own. The language in the ACA specifically mentions subsidies being available for the purchase of insurance through an “exchange established by the State” so the challenge by litigants is that the ACA does not specifically allow for subsidies to be offered to consumers in those states that did not establish their own exchange. If the Supreme Court rules against the Administration, tax credits will not be available to millions of consumers in those states where there is not a state-established exchange. This could result in insurance being unaffordable for consumers in those states and unappealing for insurers to offer. The other possible implication is that a decision against the ACA would mean that employers that had employees only in states with no established exchange could not be held to the employer mandate since none of its employees would be eligible for a federal subsidy for exchange coverage. A decision on this case is expected before July 2015.
Forty Hours is Full-Time
Most believe that a full repeal of the ACA is not likely. Yet smaller changes are already being introduced with bills like the “Forty Hours is Full-Time” legislation that recently passed the House. Changing the ACA definition of full-time employee from 30 to 40 hours per week is the latest bill to get some traction with Republicans and is favored by employers as well. However, if the Senate also passes this bill, it is expected that President Obama will likely veto. While the ACA still seems to be in a state of constant flux, one thing you can always count on is that your Propel Client team will be there supporting your organization every step of the way. Propel has the tools and resources available to assist clients through what has developed into a very complex compliance process for employers and individuals alike.
This document should not be construed as, nor is it intended to provide, legal advice. You should contact your tax advisor or an attorney who specializes in this practice area, to address questions regarding specific issues.