Beginning in early 2016, certain employers must report information to the IRS about health insurance (or lack thereof) offered to employees in 2015. The Affordable Care Act (ACA) requires Applicable Large Employers (ALEs) to report to the IRS whether they offer their full-time employees affordable, minimum value health insurance. ALEs must also provide similar information to all full-time employees. Employers should begin collecting data and reviewing the forms now to prepare for the reporting season, which is fast approaching. This article is Part One in a two-part series about the new IRS reporting requirements. Part One provides a general overview of why the IRS needs this information; which employers must fill out the forms; the reporting deadlines; and potential penalties. Next month in Part Two, we will address what information employers should be collecting and other tips on completing and distributing Forms 1094-C and 1095-C.
Purpose of Forms 1094-C and 1095-C
Form 1094-C contains information about the employer. It contains information about the employer such as the number of full-time employees, total employees, and other members in the controlled group (if any). This information is used to determine whether employers owe a payment under the Employer Shared Responsibility (Pay vs. Play) rule.
Form 1094-C contains information about each full-time employee. One Form 1095-C must be completed for each full-time employee and includes specific information about the coverage offered to that full-time employee. Form 1095-C is used to determine whether individuals are eligible for a premium tax credit through a state or federal exchange, and to determine whether the employer owes a payment under the Employer Shared Responsibility (Pay vs. Play) rule.
Which Employers Must Report
All ALEs—i.e., employers with 50 or more full-time employees, including full-time equivalents (FTEs) in the preceding calendar year—are required to file Forms 1094-C and 1095-C. ALEs also include members of a controlled group that collectively has 50 or more full-time employees, including FTEs. A controlled group is a group of separate legal entities with common ownership (as defined by the IRS). An entity that has common ownership with other entities should contact us to help determine whether it is a member of a controlled group.
All ALEs must complete Forms 1094-C and 1095-C. This includes employers with grandfathered plans, government entities, and nonprofits. Even employers who do not offer any coverage must fill out Forms 1094-C and 1095-C.
Determining Applicable Large Employer Status
In order to determine whether an employer is an ALE, employers need to determine how many full-time employees and FTEs were employed in the preceding calendar year. For example, the number of employees in 2014 determines the employer’s size and ALE status for the entire 2015 calendar year. Below is a step-by-step guide on how to determine the size of an employer.
Determining Employer Size:
Calculate the number of full-time employees for each month during the preceding calendar year. A full-time employee is an employee who works at least 30 hours a week or 130 hours per month (regardless of any employer handbook definition).
Calculate the number of FTEs for each month during the preceding calendar year. Determine the total aggregate hours of service in a month for all employees who are not full-time. However, do not include more than 120 hours of service in one month for one employee. Divide the total number of hours by 120. The result is the number of FTEs for that month. Repeat for each calendar month in the preceding calendar year.
Add the number of full-time employees and FTEs together for each month in the preceding calendar year.
Add up the monthly totals from step 3 and divide by 12. This is the average number of full-time employees for the preceding calendar year, which dictates the employer’s size for the current calendar year.
In general, all employees (e.g., full-time, part-time, seasonal, temporary) and all hours worked are included in the employer size determination. However, there is an exception for certain seasonal employees in limited circumstances.
When to File and Distribute to Employees
The due dates for filing the forms with the IRS and distributing the forms to employees are similar to the timing for filing and distributing W-2s. As with W-2s, if the deadline falls on a weekend, it automatically moves to the next business day. The employer must give a copy of Form 1095-C to each full-time employee by January 31 each year. Employers must submit Forms 1094-C and 1095-C to the IRS by February 28 if submitting paper forms and by March 31 if submitting the forms electronically. Employers that wish to file electronically should begin familiarizing themselves with the new electronic filing process now.
The timing for distributing forms to employees and submitting forms to the IRS does not change if an employer’s benefit plan year does not coincide with the calendar year. All employers must report about the previous calendar year and submit the forms on or by the deadlines discussed above.
An employer that fails to comply with the IRS reporting requirements is subject to penalties for each failure to file a form and each failure to give an employee a copy of the Form 1095-C (i.e. the employer could be liable for one penalty per full-time employee). The penalty for each failure to report to the IRS and/or to distribute to employees is generally $100 per form (not to exceed $1.5 million). However, for 2016, the IRS stated that penalties will generally not be assessed against employers that make a good faith effort to comply with the rules and requirements. Filing the forms late does not meet the good faith effort standard and employers that file late will be assessed a penalty. Employers should document their good faith efforts to comply with these new reporting rules and requirements.
In order to correctly fill out the forms, employers need to be familiar with the Employer Shared Responsibility (Pay vs. Play) terminology. Part Two of this series, which will be published in December, will include Employer Shared Responsibility terms and definitions, tips on filling out the forms, and information employers should be collecting.
For more information on this article, or if you have questions regarding your responsibilities as an employer, please contact Attorney Caitlin Gadel at email@example.com, 952-921-4619, or any attorney at Peters, Revnew, Kappenman & Anderson, P.A.
Special thanks to Law Clerk Richard Sharp for his contributions to this article.