ACA News: Making sense of IRS tax forms and reporting requirements
September 11, 2015
Here’s some information that will help you help your clients understand their reporting responsibilities when it comes to the mandate to offer health care coverage.
The Affordable Care Act (ACA or health care reform law) requires employers with at least 50 full-time workers (called Applicable Large Employers or ALEs) to offer their employees health care coverage (minimum essential coverage or MEC). Those who don’t comply may face penalties.
Employer Mandate Reporting
Each year by the end of January, these employers must send a statement – tax form 1095-C – to all employees eligible for coverage, whether enrolled or not. They must also send 1095-C forms to the Internal Revenue Service (IRS). The purpose is to show the IRS that they offered affordable coverage to their employees, who was covered, and for how many months out of the year.
This form became mandatory with the 2015 tax year. And reporting is required in 2016 for the 2015 coverage year. Employers who provide self-funded (ASO or Administrative Services Only) coverage are required to complete Parts I, II and III of form 1095-C. Employers with fully insured plans must fill out Part I and II of form 1095-C.
More about this can be found in Section 6056 of the IRS Code.
What about smaller companies?
A business that is made up of several smaller organizations each having less than 50 employees may still be required to file if there is common ownership or control. Section 414 of the IRS code gives some examples of this.
Companies that don’t meet the definition of an ALE, as explained in Section 4980H of the IRS Code, are not required to do this reporting. This is true whether they buy coverage directly or through an association.
So who must do the reporting?
Section 6055 of the IRS Code says a person who provides MEC to an individual must report that to the IRS. In this case, a person is generally, but not always, an insurance company or a self-funded health plan sponsor (usually an employer). This means the insurance company or the employer must provide certain information to the individual with coverage and to the IRS.
The form required in this case is the 1095-B. In the case of a self-insured plan, it uses Form 1095-C, as described above. Its purpose is to show the individual has coverage and is not subject to penalty. This form reports the type of coverage, dependents covered, and the period of time covered. The individual uses this form to verify coverage at tax time. And if the form shows any break in coverage for the tax year, the person may owe a tax penalty.
Why the IRS needs all these forms
The ACA requires all Americans to have health care coverage or face a penalty. The IRS helps enforce this part of the law. To do so, it requires the 1095-C and related forms as proof of coverage. The IRS can also use these forms to track who does or doesn’t have coverage, what companies are or aren’t offering coverage to workers, and levy penalties accordingly.
If your clients have questions about their taxes, they should consult a tax consultant.