On September 5, 2013, the Internal Revenue Service (“IRS”) released two proposed rules to implement important reporting requirements under the Patient Protection and Affordable Care Act (“ACA”), which will help determine penalties under the Employer Mandate and should be of great importance to hospitality employers.
One rule would require information reporting by insurers, self-insuring employers, and other parties that provide health coverage (“minimum essential coverage”). The other rule would require employers that are subject to the employer mandate to report information to the IRS and employees regarding the minimum essential coverage they offer their full-time employees. There will be public hearings to discuss the rules on November 18 (for the proposed rule on large employer reporting) and 19 (for the proposed rule on minimum essential coverage reporting). Affected entities also have an opportunity to comment, with comments due for both rules on November 8, 2013.
Under the individual mandate, individuals who are not exempt must have minimum essential coverage starting in 2014. The groups of people who are exempt from this requirement include those who cannot afford coverage, members of certain religious groups, and incarcerated individuals. Individuals who are not exempt and do not obtain minimum essential coverage must pay a penalty. Beginning in 2015, the employer mandate requires large employers to offer their full-time employees and their dependents minimum essential coverage or pay a penalty. If large employers do not offer minimum essential coverage to at least 95 percent of their full-time employees, then they must pay a penalty of $2,000 per full-time employee if an employee goes to an Exchange and receives a premium tax credit or cost-sharing subsidy. If the employer does offer coverage to at least 95 percent of full-time employees, but the plan is not affordable or does not provide minimum value, then the penalty is $3,000 multiplied by every employee that gets subsidized coverage at an Exchange. To help the IRS determine compliance with these mandates on a monthly basis, ACA added sections 6055 and 6056 to the Internal Revenue Code. Section 6055 requires reporting by certain entities that provide minimum essential coverage, such as insurers and self-insuring employers, while section 6056 requires reporting by large employers that are subject to the employer mandate. The proposed rules implement these reporting requirements.
Section 6055: Reporting by Entities that Provide Minimum Essential Coverage
The first proposed rule addresses reporting required under section 6055 of the Internal Revenue Code. This reporting is needed to determine compliance with the individual mandate and will also help determine individuals’ eligibility for premium tax credits because of a lack of minimum essential coverage. This rule would require certain entities that provide minimum essential coverage to report certain information to both the IRS and individuals. Most relevant to RHA members, employers with self-funded plans are among the entities that must report under the proposed rule. It is important to note that employer aggregation rules do not apply for these purposes. Therefore, each employer must report for its employees, and it is irrelevant whether an employer is part of an aggregated group (that is, it shares a common owner with other employers).
Reporting Information to the IRS
Information returns to the IRS must include:
• For employer-provided coverage, the name, address, and employer identification number of the employer maintaining the plan and whether coverage was enrolled in through the Small Business Health Options Program;
• The name of each individual enrolled in minimum essential coverage;
• The name and address of the primary insured or other related person who submits the application for coverage;
• The taxpayer identification number and months of coverage for each individual who is covered under the policy or program; and
• Other information specified in forms, instructions, or published guidance.
Reporting entities that make reasonable efforts to collect taxpayer identification numbers but still fail to receive them will not be penalized. Such entities can instead report date of birth if a taxpayer identification number is not available. Since an individual who has coverage on any day in a month is treated as having minimum essential coverage for the entire month, the proposed rule does not require reporting of specific coverage dates. Instead, the proposed rule requires reporting of the months during which an individual has minimum essential coverage. The reporting may be made on Form 1095-B, another form designated by the IRS, or a substitute form. Information returns must be submitted with a transmittal form, Form 1094-B. These forms will be available at a later date.
Reporting Information to Individuals
A reporting entity must furnish statements to covered individuals.
Such a statement must include:
• The policy number;
• The name, address, and a contact number for the reporting entity; and
• The information required to be reported to the IRS (discussed above).
The proposed rule allows electronic delivery of statements to individuals, but only if the recipient consents. The proposed rule also permits furnishing only one statement per address.
Information returns to the IRS are due by February 28 (or March 31 if filed electronically) following the calendar year in which the entity provided minimum essential coverage. Statements to individuals are due by January 31 following the year of coverage. These due dates apply for both fiscal year plans and calendar year plans. Reporting entities need to begin reporting and furnishing statements to individuals in 2016 for coverage provided in 2015.
Section 6056: Reporting by Large Employers
The second proposed rule addresses reporting required under section 6056 of the Internal Revenue Code. This reporting is needed to determine compliance with the employer mandate and will also help identify individuals who are ineligible for premium tax credits because they received an offer of coverage from their employers. This rule would require large employers that are subject to the employer mandate to report certain information to both the IRS and employees. Again, employer aggregation rules do not apply; each employer within a controlled group would have to report.
Reporting Information to the IRS
Generally, employers subject to this requirement will file a separate return for each full-time employee and transmit these to the IRS. Employers may be able to use a simpler method for certain groups of employees. Under this general method, information to be provided to the IRS includes:
• The name, address, and employer identification number of the employer;
• The name and telephone number of the employer’s contact person;
• The calendar year for which the information is reported;
• A certification as to whether the employer offered to its full-time employees and their dependents the opportunity to enroll in minimum essential coverage, by calendar month;
• The number of full-time employees for each month during the calendar year;
• For each full-time employee, the months during the calendar year for which coverage under the plan was available;
• For each full-time employee, the employee’s share of the lowest-cost monthly premium for self-only coverage that was of minimum value, by calendar month;
• The name, address, and taxpayer identification number of each full-time employee during the calendar year and the months, if any, during which the employee was covered; and
• Other information as may be required by the form or instructions.
The IRS also expects to request certain pieces of information through the use of “indicator codes” on the reporting forms, such as the following items:
• Whether the coverage offered to employees and their dependents meets minimum value standards;
• Whether the employee had the opportunity to enroll his or her spouse in the coverage;
• The total number of employees, by calendar month;
• Whether an employee’s effective date of coverage was affected by a waiting period;
• If the employer was not conducting business during any particular month;
• If the employer expects that it will not be a large employer subject to the employer mandate (that is, an employer with 50 or more full-time employees and equivalents) the following year; and
• Whether the employer is a member of an aggregated group (and if so, the name and employer identification number of each employer member of the aggregated group).
If an employer is a contributor to a multiemployer plan, then the employer must provide two additional pieces of information through these indicator codes. First, it must indicate whether a full-time employee is treated as eligible to participate in a multiemployer plan due to the employer’s contributions to the multiemployer plan. Second, if the administrator of a multiemployer plan is reporting on behalf of the employer with respect to full-time employees who are eligible for coverage under the multiemployer plan, then the employer must provide the name, address, and identification number of the administrator.
With respect to each full-time employee for each calendar month, the proposed rule also requires the following items to be reported using codes:
• Whether minimum essential coverage was offered to (1) just the employee; (2) just the employee and dependents; (3) just the employee and spouse; or (4) the employee and the employee’s spouse and dependents;
• Whether coverage was not offered to an employee and whether an exception applies (for example, the employee was in a waiting period, the employee was not a full-time employee, or the employee was not employed during that month);
• Whether coverage was offered to an employee who was not a full-time employee; and
• Whether the employer met one of the affordability safe harbors with respect to the employee. The proposed rule indicates that the Department of the Treasury and the IRS wish to minimize the cost and administrative burden of the reporting requirements.
Therefore, the proposed rule does not require reporting of the following information:
• The length of any waiting period;
• The employer’s share of the total allowed costs of benefits provided under the plan;
• The monthly premium for the lowest-cost option in each of the enrollment categories (for example, self-only coverage or family coverage) under the plan; and
• The months, if any, during which any of the employee’s dependents were covered under the plan (instead, this information will be reported on the section 6055 information return associated with that employee’s coverage).
The proposed rule requires electronic filing of section 6056 information returns except for an employer filing fewer than 250 returns during the calendar year.
Reporting Information to Employees
Generally, the information described above that must be reported to the IRS must also be furnished to each full-time employee. The Department of the Treasury and the IRS are considering ways to simplify the method of reporting information to employees – for example, by using codes on the annual Form W-2, which is already furnished to employees on the same schedule. Statements to employees may be furnished electronically if certain notice, consent, and hardware or software requirements are met.
These reports have the same due dates as the section 6055 reports. Therefore, these reports must be filed with the IRS annually by February 28 (or March 31 if filed electronically) of the year immediately following the calendar year relating to the return. The first such returns (for 2015) are due March 1, 2016 or March 31, 2016, if filed electronically. Statements to full-time employees must be furnished annually by January 31 of the year immediately following the calendar year to which the statements relate. The first such employee statements (for 2015) are due February 1, 2016.
Impact on Hospitality Employers
The proposed rules require reporting of a fair amount of information. However, the Department of the Treasury and the IRS have indicated that they would like to minimize the cost and administrative burden of complying with these reporting requirements. The proposed rules suggest some simplified approaches for combining the reporting requirements of sections 6055 and 6056, and possibly combining them with Form W-2 filing requirements. Affected hospitality employers should review the rules closely and offer their input – either at the public hearings or via comment – to ensure that the final rules adopt simplified reporting methods for employers and minimize employer burden.