Under the Affordable Care Act (ACA), large employers — those with 50 or more full-time equivalent employees — must submit informational reports to the IRS that summarize details about the health care benefits they provided in 2015.
These forms need to be distributed to employees by Jan. 31, 2016. The challenge is collecting data, such as dependent Social Security numbers, health coverage statistics and related plan information, and providing it in order to complete the new forms.
“Clients are asking what reports they need to file in 2016 for 2015 coverage under the ACA,” says Kimberly Flett, CPA, QPA, QKA, senior director of Compensation and Benefits
at BDO. “Many of the clients we are hearing from now have an effective plan and handle on this, but are reaching out to professionals for guidance. It is the ones that we’re not hearing from that we should be concerned about.”
Smart Business spoke with Flett about these new filing requirements, including how to gather the data and prepare the forms.
What new reports need to be filed?
In 2014, the IRS relied on good faith when individual taxpayers verified that they had minimum essential health care coverage. This changes for the 2015 tax year.
Large employers must distribute Form 1095-C to employees in January, whether they are fully insured or self-funded. It lists the employee, spouse and dependents covered under the policy, as well as what months they were covered or not covered. Taxpayers will retain this information to demonstrate whether or not they compiled with the individual mandate.
The forms’ completion is straightforward but it can get complicated if there is a lot of turnover or employees who have a change of status, such as getting married, divorced or adding dependents.
Form 1094-C is the transmittal form that employers need to submit to the IRS by Feb. 28, 2016, or March 31 if you have more than 250 forms that are filed electronically.
Form 1095-B is issued by the insurance carrier and reports fully insured coverage for both small and large employers as well as small employers that are self-funded. Some employees may end up with two forms, but they both must be provided because each serves a different penalty with the IRS.
Additionally, Form 1095-A goes to the employees who purchased health care on the exchange. These forms were issued in 2014.
What’s the penalty for noncompliance?
The IRS is looking at charging at least $100 per form, if not issued.
How can companies compile the data that needs to be reported?
This is challenging, because employers may need to recapture information. But it’s important to realize that there are two pieces to these ACA filing requirements — data gathering and form preparation — and employers need a plan for each.
You’ll want to find out if your payroll company is handling any of these forms. Payroll companies already have a lot of employee data on hand, although they don’t have beneficiary names and Social Security numbers; it may make sense to outsource this information to them in advance.
Some software companies, accountants or other service professionals are providing solutions to help prepare the forms, but they may not be able to extract the data. In that case, you’ll need to determine how to get the information into the right format. For example, you can ask if your health carrier can prepare reports that could be interfaced with another vendor to bring over ancillary data like beneficiary information.
You also can turn to the vendor that sold you the health insurance for guidance. They may not be offering solutions themselves, but they can help bring parties together.
What else do employers need to know?
Large companies with multiple payrolls across various divisions and small employers who don’t work with a payroll company could run into bigger challenges getting these forms out to employees on time.
In addition, everybody’s system is so different at this point the solutions are very customized and pricing can be at a premium.
Don’t wait until the end of the year to do trial runs on producing these forms. And if you outsource the work, keep in mind that vendors are going to be bottlenecked close to the deadline. This could be a real headache, if you don’t form a plan now.
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