If you employ 50 or more full-time employees, you may be subject to the Shared Responsibility payment and reporting rules under the Affordable Care Act (ACA).
Employer Pay or Play Rules
Applicable Large Employers (ALEs) are subject to the Employer Shared Responsibility rules, known as the Employer Mandate. An employer is generally an ALE for a calendar year if it averaged 50 or more full-time and full-time equivalent employees during the prior year. Sole-proprietors, partners, 2% plus S corporation shareholders, real estate agents, direct sellers, and independent contractors are not employees for these purposes. However, independent contractors who meet the common law definition of an employee are counted.
A full-time employee averages at least 30 hours of service per week, or has 130 hours or more of service during the month. A full-time equivalent employee (FTE) is a combination of part-time employees. The FTE count is determined by adding the number of hours of service of employees who are not full-time employees (but not more than 120 hours per employee) for the month, and then dividing by 120.
Shared Responsibility Payments
If you do not offer health care coverage to your full-time employees, the Shared Responsibility assessment will be $166.67 for any month, i.e., 1/12 of $2,000 (to be adjusted for inflation), times the number of your full-time employees during any month, reduced by an 80-person threshold, and any calendar months of 2016 that fall within your 2015 plan year. (After the 2015 plan year, the threshold is reduced to 30.)
- Example.Employer has a calendar year plan and determines that it has a total of 125 full-time and FTE employees during 2014. Thus Employer is an ALE for 2015. Employer determines that it has 85 full-time employees for each month in 2015 that must be offered health insurance coverage, but Employer does not offer any. The Shared Responsibility payment to be assessed for 2015 is $10,000 (85 full-time employees less the 80-person threshold, resulting in 5 multiplied by $2,000.)
If you do offer health care coverage to your employees, but it is not affordable or does not provide minimum value, the Shared Responsibility assessment will be the product of: (a) the number of the full-time employees receiving a premium tax credit or cost-sharing subsidy certification for the purchase of health insurance through a state or federal health exchange for the month, times (b) an amount equal to 1/12 of $3,000 for any month (i.e., $250 per month). However, the amount of any Shared Responsibility assessments that you may owe under this calculation is capped at the amount of the Shared Responsibility assessments you would have owed had you failed to offer any health care coverage at all, as described above.
Employers will not be required to include the payment on any tax return that they file. Before any assessment is made, the IRS will initially contact an employer by sending a notification stating that they may be responsible for this penalty. This notification is not a notice-and-demand letter. The IRS will not notify the employer of any assessments until after the employees’ individual income tax returns are due for that year. An opportunity to respond to this assessment notification will be given in a manner similar to other penalties.
Pay or Play Decision
If an ALE decides to “play” by offering coverage rather than pay Shared Responsibility assessments, there are two routes it can go. It can offer low-cost coverage to at least 70% (95% after 2015) of its full-time employees (and their dependents), which will mean no liability for failing to offer coverage, but some risk of shared responsibility liability for not offering affordable coverage or coverage providing minimum value to all of its full-time employees. Or it can pay more for insurance coverage, and offer coverage that meets affordability and minimum value standards to all of its full-time employees (and their dependents), in which case it will be insulated from Shared Responsibility liability altogether.
This year, for the first time, ALEs (and small employers that offer self-insured group health coverage) are subject to the requirement under the ACA to report certain information about the health coverage they offered (or did not offer) to their employees during 2015 or face stiff penalties. ALEs must report health coverage information on Forms 1095-C, Employer-Provided Health Insurance Offer and Coverage, and 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. (Small employers that offer self-insured must report health coverage information on Forms 1095-B, Health Coverage, and 1094-B, Transmittal of Health Coverage Information Returns.)
Purpose of Filing
The IRS will use the information provided on Form 1095-C (or Form 1094-C) to determine whether the employer offered health coverage that meets the requirements of the ACA. An employer that does not must generally make the Shared Responsibility payments. Forms 1095-B and 1094-B are transmittal documents that relay health coverage information to the IRS and to employees.
Form 1095-C must also be issued to each full-time employee. Employees, as individuals, are required to obtain affordable health coverage either through an employer or a Health Insurance Exchange or other sponsor. Those who do not may be subject to the individual shared responsibility payment. Individuals who do not receive an offer of affordable minimum coverage from their employer and who obtain coverage through an Exchange may be eligible for a premium tax credit to offset the cost of coverage. Therefore, the information on Form 1095-C is a vital tool the IRS uses to determine which individuals qualify for the premium tax credit.
Applicable large employers—those who had 50 or more full-time equivalent employees on average during a consecutive six-month period during 2014—must provide the following information on Form 1095-C:
- Identifying information for employer and employee such as name, address, Social Security Number, Employer Identification Number (Part I);
- The months for which health coverage was offered (Part II, Line 14);
- The employee’s share of the monthly premium for lowest-cost self-only minimum value coverage (Part II, Line 15);
- The months, if any, for which the employer met the requirements for relief from the employer shared responsibility requirements; and
- The months for which the employee was enrolled in coverage (Part III—to be completed only by employers that offer coverage through employer-sponsored self-insured health plans).
Form 1094-C will function like a Form W-3. On it, ALEs must report:
- Whether coverage was offered to 70% (95% after 2015) of the organization’s full-time employees,
- The total number of Forms 1095-C that the organization issued,
- The number of full-time employees and total number of employees by month,
- If applicable, information about members of the aggregated ALE group, and
- Whether the organization qualifies for transition relief.
You should be aware that these reporting requirements may be much more complex if the employer is a member of an aggregated ALE group (i.e. same owner for multiple companies) or if the coverage is provided through a multiemployer plan.
Forms 1094-C and 1095-C are considered timely filed if they are properly addressed and mailed on or before the due date, which for the 2015 year falls on February 29, 2016 (for paper filers) or March 31, 2016, for employers filing electronically.
The employer has an earlier deadline for furnishing a copy of the Form 1095-C to each of its full-time employees. The deadline is generally January 31 of the year following the year to which the Form 1095-C relates. In other words, for 2015 the first Forms 1095-C must be provided to individuals by February 1, 2016. (January 31, 2016, is a Sunday.) An employer is required to obtain affirmative consent from the employee to furnish a statement electronically. Otherwise the statement must be provided on paper.
The amount of information that ALEs must collect and organize throughout 2015 may be substantial. While some employers may already have created a system to track this data in house or may have engaged a payroll or other provider to accumulate and file this information, others may still need to establish a data collection method. This should be done immediately, so as to avoid issues in early 2016.
Please call us if we can assist you in complying with these requirements.