The IRS has provided both new and updated Q&A guidance on the reporting requirements for applicable large employers under the federal tax code. As background, beginning in 2016, applicable large employers must file Forms 1094 and 1095 to provide information to the IRS and plan participants about health coverage provided in the prior year.
The forms are used by the IRS to enforce employer penalties according to the federal tax code, as well as individual mandate and tax credit eligibility rules. The latest guidance consists of an updated Q&A document covering basic reporting requirements and a new Q&A document addressing more specific issues that may arise while completing Forms 1094 and 1095.
Here are some highlights:
- Clarifications on who must report. The guidance clarifies that an applicable large employer with no full-time employees for any month of the year is not obligated to report unless the employer sponsors a self-insured health plan in which any employee, spouse, or dependent is actually enrolled. In that case, it must still file Forms 1094-C and 1095-C even if it has no full-time employees. The guidance also confirms that an applicable large employer must file and provide Form 1095-C to all full-time employees regardless of whether they were offered coverage during the year.
- Controlled groups. Examples show how reporting differs where an applicable large employer reports for separate divisions and where applicable large employers are part of a controlled group. In the former situation, employees working for multiple divisions must receive aggregated information on a single Form 1095-C. In the latter situation, employees will receive a separate Form 1095-C for full-time employment with each applicable large employer in the controlled group.
- Qualifying offer method of reporting. The updated Q&As now address reporting under the qualifying offer method, which allows applicable large employers to furnish a simplified employee statement to employees receiving qualifying offers for all 12 months of the year. The Q&As emphasize that use of simplified statements is not available for employees who actually enroll in an applicable large employer’s self-insured health plan.
Note: No mention is made of the qualifying offer method transition relief available in 2015, which allows an applicable large employer to use a different simplified statement provided that it makes qualifying offers to at least 95% of its full-time employees.
- Delivery to employees. The guidance confirms that a Form 1095-C may be delivered to employees in any manner permitted for delivery of Form W-2, including hand-delivery. However, unlike Form W-2, employers need not furnish a midyear Form 1095-C upon an employee’s request following termination of employment.
- New hires and terminating employees. When reporting offers of coverage on Part II of Form 1095-C, applicable large employers may indicate that an offer of coverage was made for a month only if the offer would have provided coverage for every day of the month. Therefore, applicable large employers should report on Form 1095-C that no coverage was offered in the month an employee was hired (unless an offer of coverage extended to every day of that month). Similarly, if a terminating employee’s coverage ends before the end of the month of termination, the applicable large employer must report that no coverage was offered for the month. (In each case, the applicable large employer may be able to avoid liability for employer penalties under the federal code, even though coverage was not offered for the full month.) In contrast, when reporting coverage information under Part III of Form 1095-C, an employee should be reported as having coverage if the employee is enrolled on any day of the month.
Note: The disparate treatment of partial months of coverage highlights the multiple purposes of Form 1095-C. Under the federal tax code, applicable large employers generally get credit for offering coverage for a month only if the offer applies to the full month — but an individual avoids the individual mandate penalty for a month by having coverage on any day of the month.
- Third-party reporting. The guidance verifies that applicable large employers may designate third parties to perform reporting on their behalf. The new Q&As confirm that a governmental applicable large employer may designate another governmental entity to accept reporting responsibility on its behalf; they also explain the allocation of responsibilities under various combinations of self-insured and fully insured coverage options.
- Reporting offers of COBRA coverage. New Q&As illustrate reporting under various COBRA scenarios. The guidance explains how sponsors of self-insured plans should report enrollment information for non-employee COBRA beneficiaries, such as former spouses. Qualified beneficiaries electing COBRA independently from the employee must receive separate forms, while those who have COBRA due to an employee’s election should be included on the same form that is provided to the employee. (As previously noted in the instructions to the final forms, reporting may be made on either Form 1095-B or 1095-C for individuals who were not employees at any time during the year.)
Several examples illustrate how an applicable large employer should complete Form 1095-C for full-time employees who receive a COBRA offer due to termination of employment or a reduction of hours. In general, a COBRA offer made due to termination of employment is reported as an offer of coverage only if the former employee enrolls in COBRA coverage and the employee’s cost of coverage reflects the COBRA premium for the lowest-cost, self-only coverage providing minimum value. In contrast, a COBRA offer made to an active employee due to a reduction of hours would be reported as an offer of coverage on Form 1095-C even if the employee declines COBRA coverage.
Note: Unfortunately, the example used to illustrate this final point does not extend more than 60 days after the loss of eligibility, so it is unclear whether the applicable large employer would still report that coverage is offered after the employee’s COBRA election period has ended.
With mandatory reporting starting in early 2016 (for 2015 coverage), understanding the complexities of the reporting requirements is critical. While some of the Q&As contained in this IRS guidance were previously addressed in the instructions to Forms 1094 and 1095, others provide helpful clarifications and new information. Employers subject to the reporting requirements should give careful attention to this and future guidance as the reporting deadline draws nearer.
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