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September, 2020

What You Need to Know About ACA Annual Reporting

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What You Need to Know About ACA Annual Reporting

On July 13, 2020, the IRS released the drafts for Forms 1094-C and 1095-C. While there are no changes to Form 1094-C reporting from 2019, there are changes to Form 1095-C. The IRS is planning to publish the final version of these forms in early 2021 for ALEs. This annual Affordable Care Act (ACA) reporting is required for applicable large employers (ALEs). An ALE has 50 or more full-time employees and full-time equivalent employees for the tax year 2020.

CHANGES TO FORM 1095-C for 2020 REPORTING

The individual coverage HRA (ICHRA) is a new type of health reimbursement account (HRA) introduced in 2020. The revisions may require employers to alter existing reporting systems, as they add a second page to Form 1095-C. While the IRS has not published instructions for Form 1095-C reporting in 2020, here are the changes to date:*

ADDED CODES TO FORM 1095-C

Codes (1L - 1S) have been added to Form 1095-C to help employees understand how their employers are determining affordability for ICHRA reporting. Here are the codes and what to report for each code:

1094-C Blog

*We will update this blog as new information is released by the IRS.

INDEPENDENT COVERAGE HRAs (ICHRAs)

ICHRAs were created in June 2019 by the IRS as a way for employers to contribute a set amount of tax-free dollars annually to eligible full-time employees. ALEs can use ICHRAs as a way to comply with ACA health coverage regulations. If ALEs use ICHRA accounts, they must meet the ACA affordability threshold, which means policy premiums cannot exceed 9.58 percent of an employee’s income.

LINE 17 ADDED (ICHRAs)

Line 17 has been added to include the employee’s primary residence’s ZIP code if the employee was offered coverage through an ICHRA. This will determine the cost of an accessible exchange-based plan for ALEs opting to use ICHRAs.

ANNUAL REPORTING OPTIONS

There are three options for annual reporting available to employers, based on how many eligible employees are receiving health insurance coverage:

General Reporting Method

This method requires the greatest amount of information collection. Employers must file a transmittal Form 1094-C for the company and a Form 1095-C for each employee with the IRS. Employees must also receive a copy of Form 1095-C. ALE Members with employees participating in a self-insured plan can satisfy reporting requirements by filling out Part III of the Form 1095-C.

Qualifying Offer Method

The Qualifying Offer Method requires less information collection. It is available for employers who offer a “qualifying offer” plan that provides minimum essential coverage and meets the minimum value requirement at a low rate. A qualifying offer plan is where the cost to the individual for employee-only coverage does not exceed 9.5% of the federal poverty level divided by 12. The employer must offer the plan to all members of the employee’s family to be eligible to use this reporting method.

An ALE using this method may provide a simplified statement of coverage to an employee that received a Qualifying Offer for all 12 months of a calendar year. This simplified statement may be used instead of providing a Form 1095-C filed with the IRS.

98% Offer Method

This third method requires the least amount of information collection. It’s available for employers offering affordable coverage and providing minimum value to at least 98% of the company’s full-time employees and their dependents.

The ALE member must certify to the IRS they met the above requirements. They are still required to file and provide Forms 1095-C for all full-time employees who were full-time for one or more months of the calendar year.

Employer Reporting Requirements

ALEs are subject to the employer shared responsibility mandate of the ACA. They must file a Form 1095-C for each employee who was a full-time employee or full-time equivalent employee for any month of the calendar year. A copy of Form 1095-C must be issued to each full-time employee by January 31st*. This is regardless of whether the ALE offers coverage or the employee enrolls in any health plans offered.

ALEs are required to file Forms 1094-C and 1095-C with the IRS annually no later than February 28th, or March 31st if filing electronically.

Refer to the Questions and Answers about Information Reporting by Employers on Form 1094-C and 1095-C page on the IRS website for more information.

*The IRS has yet to announce if they plan to extend the January 31st deadline in light of the COVID-19 pandemic.

AFFORDABLE CARE ACT REPORTING SUPPORT

If your broker or payroll provider does not provide ACA reporting support, it may be time to consider other options. Ideally, your broker or payroll provider will use a solution that provides the following functionality:

  • Automatic population of Forms 1094-C and 1095-C with existing HR and payroll data
  • Intelligent algorithms that automatically check for errors in your report information
  • Electronic filing of ACA information returns to the IRS on your behalf

If your broker or provider is not providing support for ACA reporting, it is critical to understand how to correctly fill out the forms. It is also essential to check your benefits data for any errors so reporting is accurate.

Have Questions about ACA Compliance & Reporting?

Our Employer Mandate Reporting provides an overview of the different ACA reporting methods to accurately provide information to the IRS. There’s also a handy list of FAQs to answer all your complex questions about all reports filed annually and providing health care to employees.

COMMON FAQ FOR FORMS 1094-C AND 1095-C

WHAT IS FORM 1094-C?

Form 1094-C: Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns is a form that ALEs submits to the IRS along with Form 1095-C. Employees do not receive a copy of the 1094-C.

WHAT IS FORM 1095-C?

Form 1095-C: Employer-Provided Health Insurance Offer and Coverage is a tax form that identifies what health coverage was or was not provided to full-time employees or full-time equivalent employees of ALEs. Employees receive a copy of this form from their employer. Employers file this form, so employees do not file for their tax returns but should keep a copy for their financial statements.

WHAT IS FORM 1095-B?

Form 1095-B provides details about an employee’s actual health insurance coverage and includes any dependents covered under an employee’s health care plan. It is provided to the employee by the insurance carrier, not the employer.

WHAT IS AN ICHRA?

An independent coverage health reimbursement account (ICHRA) addresses a new rule issued under President Trump’s Executive Order No. 13813. Following this Order, employers can reimburse employees for the cost of health insurance coverage purchased in the individual health insurance marketplace using ICHRAs. This final rule went into effect on August 19, 2019, and applies to plans starting in January 2020.

WHO IS CONSIDERED A FULL-TIME EMPLOYEE?

A full-time employee is an employee who works 30+ hours a week.

WHO IS CONSIDERED A FULL-TIME EQUIVALENT EMPLOYEE?

Full-time equivalent employees are two or more part-time employees who combined worked the hours of a full-time employee. For example, if two part-time employees work 15 hours in one week each, their combined hours worked for one week is 40 hours. Therefore, those two part-time employees would count as one full-time employee.

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