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ACA Reporting Simplified – How to Meet
the IRS Requirements

ACA Deadline has passed: E-file now to avoid penalties

Deadlines for the 2016 Tax Season have now passed, but to be compliant and avoid fines for intentional disregard of the ACA reporting regulations, you can still e-file your forms.

ACA Reporting Requirements for Employers

Signed into law in March 2010 and upheld by a Supreme Court decision in June 2012, the Patient Protection and Affordable Care Act -- also known as the Affordable Care Act -- represents the most comprehensive changes to the nation's health care system in decades. The health care law aims to provide coverage to millions of uninsured Americans through expanded public insurance, as well as federal and state-run health insurance exchanges, or marketplaces

The ACA Employer Shared Responsibility provision requires certain employers to file annual information returns with the IRS, as well as provide summary statements to employees. The primary purpose of the ACA reporting requirements is to communicate key details of health insurance coverage, including verification that the "minimum essential coverage" (MEC) is being met

In general, the reporting requirements apply to employers with 50 or more full-time employees, self-insured employers, regardless of size, and health insurance providers. Despite all the news about ACA over the last year, the IRS is still charged with enforcing existing regulations. To read the Treasury report Affordable Care Act: Assessment of Efforts to Implement the Employer Shared Responsibility Provision (April 7, 2017), click here.

IRS 6055 and 6056 Reporting Requirements

The ACA reporting requirements are enforced by two sections of the Internal Revenue Code. Together, they ensure that employers (and health insurance insurers) report health coverage information to the IRS and furnish statements to employees annually

Section 6055 reporting requirements apply to health insurance carriers, small employers that sponsor self-funded health plans and other entities that provide minimum essential coverage.

Section 6056 reporting requirements are directed toward applicable large employers (ALEs) with 50 or more full-time employees or full-time equivalent employees (FTEs). Section 6056 also requires ALEs to share coverage details with employees so they can determine if they qualify for a premium tax credit.

Through mandatory information reporting, tax code sections 6055 and 6056 help ensure compliance with the ACA – particularly the Employer Shared Responsibility provision, which applies to ALEs. Basically, if you're an ALE and don't offer health insurance to your full-time employees that provides a minimum level and coverage and is legally affordable, you may be subject to financial penalties.

Understanding Minimum Essential Coverage

For purposes of reporting, minimum essential coverage, or MEC, refers to a legally definable level of coverage.

You may be penalized if you don't offer minimum essential health coverage to at least 70 percent of your full-time employees and their dependents, and at least one full-time employee receives a premium tax credit through the health insurance marketplace. After 2015, this changes to 95 percent of your employees.

A second type of penalty may be triggered if you offer minimum essential coverage, as described above, but the coverage wasn't affordable or didn't provide minimum value.

Most broad-based medical plans meet the legal parameters for minimum value, where the plan pays for at least 60 percent of covered benefits. Regarding affordability, the premium for the lowest cost, self-only minimum value coverage should be less than 9.5 percent of an employee's gross household income. You can use three safe harbor tests to determine if the coverage you're providing is affordable: 1) Form W-2 Safe Harbor, 2) Rate of Pay Safe Harbor and 3) Federal Poverty Line Safe Harbor.

Minimum essential coverage includes:

  • Government-sponsored programs
    Medicare part A, most Medicaid programs, CHIP, most TRICARE, most VA programs, Peace Corps and DOD Non-appropriated Fund Programs
  • Employer-sponsored coverage
    In general, any plan that is a group health plan under ERISA, which includes both insured and self-insured health plans
  • Individual market coverage
    Includes qualified health plans enrolled in through the federally facilitated and state-based marketplaces and most health insurance purchased individually and directly from an insurance company
  • Grandfathered plans
    Generally, any plan that existed before the ACA became effective and hasn't changed
  • Miscellaneous MEC
    Other health benefits coverage recognized by the Department of Health and Human Services as minimum essential coverage

Minimum essential coverage does not include fixed indemnity coverage, life insurance or dental or vision coverage.

 

What Are the Affordable Care Act (ACA) Forms?

1095-B
Health Coverage

Self-insured employers who
have fewer than 50 FTEs and provide health plans


Insurance carrier issues for employers with employer-sponsored group health plans

Which months
the insured and his or her family were covered under the plan



Paper:
February 28*

Electronic:
March 31*

Insurance carrier submits for
employers with employer-sponsored group health plans

Yes, by
March 2

Insurance carrier submits for
employers with employer-sponsored group health plans

1094-B
Transmittal of
Health Coverage Information Returns

Summary transmittal
record of
1095-Bs


Paper:
February 28*

Electronic:
March 31*

N/A

1095-C
Employer-Provided Health Insurance Offer and Coverage

(ALEs) Insured and Self-Insured Employers with 50+ full-time employees

Whether or not the employer offered health coverage to employees

Paper:
February 28*

Electronic:
March 31*

Yes, by
March 2

1094-C
Transmittal of Employer-Provided Health Insurance
Offer and Coverage Information Returns Integrated with online accounting software

Summary transmittal record of 1095-Cs

Paper:
February 28*

Electronic:
March 31*

N/A

Businesses Affected by ACA Reporting

ACA reporting responsibilities depend on employer size and the type of insurance you maintain, whether insured or self-insured.

In general, the reporting requirements apply if you're an employer with 50 or more full-time employees, a self-insured employer, regardless of size, or a health insurance provider. The IRS forms used to report this information are 1095-B and 1095-C, along with transmittal forms 1094-B and 1094-C.

For clarification, you're a self-insured -- or self-funded – employer if you pay for medical claims directly instead of paying premiums to an insurance provider.

ACA Reporting Requirements

Do
you have
50 or more
full-time equivelent employees (FTEs)

Do you offer health coverage

Do you offer health coverage

Is your
health plan self-insured

Is your
health plan self-insured

YOU DO NOT NEED TO FILE.
No reporting required.
YOU DO NOT NEED TO FILE.
Your Insurer files forms on your behalf and provides statements to your employees.
YOU NEED TO FILE.

Form 1095-B
(Parts I, III & IV) and Form 1094-B

A copy of
1095-B must be provided to employees.

YOU NEED TO FILE.

Form 1095-C
(Parts I & II) and Form 1094-C

A copy of
1095-C must be provided to employees.

YOU NEED TO FILE.

Form 1095-C
(Parts I, II & III) and Form 1094-C

A copy of
1095-C must be provided to employees.

YOU NEED TO FILE.

Form 1095-C
(Parts I, III & IV) and Form 1094-C

A copy of
1095-C must be provided to employees.

ACA Reporting for Smaller, Self-Insured Employers

There are relatively few small businesses that must comply with ACA reporting requirements.
The ACA defines a small business as those with fewer than 50 full-time employees.

If you're a self-insured businesses, you'll need to fill out the 1095-B (and 1094-B transmittal form) to report the name, address and Social Security number (or date of birth) of covered individuals.

Small businesses that aren't self-insured don't need to file anything.

ACA Reporting for Applicable Large Employers (ALEs)

For the most part, the biggest impact with the ACA reporting requirements is with applicable large employers with 50 or more full-time or full-time equivalent employees.

Keep in mind an ALE may be a single entity or may consist of a group of related entities (such as parent and subsidiary, or other affiliated entities). If the combined number of full-time and full-time equivalent employees for the group is large enough to meet the definition of an ALE, then each employer in the group (called an ALE member) is part of an ALE – and subject to the Employer Shared Responsibility provision, even if it wouldn't be an ALE separately.

Calculating Full-Time and Full-Time Equivalent Employees (FTEs)

Since the definition of an applicable large employer includes full-time and full-time equivalent employees in a preceding calendar year, it's important to understand the distinctions.

  • Full-time employee: Averages at least 30 hours of service per week during the month (or 130 hours in a calendar month)
  • Full-time equivalent employee: Combination of employees, each of whom is not treated as a full-time employee, but that, together, count as a full-time employee

Note: Hours of services represent each hour an employee is paid or entitled to payment, including vacation, leave, holiday, illness, incapacity, layoff, jury duty, military duty and other leaves of absence.

To determine the number of full-time equivalent employees for a month:

3 steps to determine the number of
full-time equivalent employees (FTEs)
for a month:

1

Calculate the total part-time service hours in a month.
(up to 120 hours per employee)

2

Divide the total by 120

3

if this results in a fraction, round down to the next whole number.

example:
7 employees X 20 hours/week= 140 hrs/wk 140 x 4 wks/month=560
if 7 employees work 20 hours/week, the employer would have 4 FTEs.
560 hours ÷ 120 = 4.66
4.66 rounded down = 4 FTEs

Once you've calculated your FTEs, add that number to your total number of full-time employees on staff to determine whether or not you're an applicable large employer.

Compliance insight

Keeping track of the number of full-time and full-time equivalent employees, as it pertains to the ALE classification, is critical. This classification is determined each calendar year and depends on the average size of your workforce in the prior year.

For hourly employees, count the actual hours worked. For non-hourly employees, count either: 1) the actual hours worked, 2) days worked equivalence – 8 hours for each day with at least one hour of service or 3) weeks worked equivalence – 40 hours for each week with at least one hour of service. Not included in the calculation are independent contractors, certain variable hour workers, seasonal employees working 120 days or less in a year, and COBRA and retired enrollees.

Calculating employee hours for ACA reporting is a huge undertaking. For this reason, you may want to explore dedicated time-tracking software, like [TrackSmart], or choose to outsource this responsibility to a payroll vendor or benefits administrator.

Form 1095-B Filing Instructions for Smaller, Self-Insured Businesses

Self-insured businesses with fewer than 50 full-time employees must complete Form 1095-B (and the 1094-B transmittal form).

To report the necessary information to the IRS and furnish a form to employees, you'll need to complete:

  • Part 1: Responsible Individual – Includes name and address of primary person insured, Social Security number and code for Origin of the Policy (A. Small Business Health Options Program (SHOP), B. Employer-sponsored coverage, C. Government-sponsored program, D. Individual market insurance, E. Multi-employer plan, F. Other designated minimum essential coverage)
  • Part 2: Employer Sponsored Coverage -- Not applicable for self-insured employers; can be left blank
  • Part 3: Issuer or Other Coverage Provider – Includes name and address of coverage provider (in this case, the employer), Employer Identification Number (EIN), address and phone number
  • Part 4: Covered Individuals – Includes Social Security number (or date of birth, if not available) for each covered individual, as well as coverage each month

1094-B Transmittal Form at a Glance

1094-B

The 1094-B transmittal form represents the total 1095-B filings submitted for the season. Acting as a cover sheet, it is a brief form that includes:

  • Identifying information for your organization, such as name, address and Employer Identification Number (EIN)
  • Total number of 1095-Bs issued to employees

Form 1095-C Filing Instructions for Insured and Self-Insured ALEs

To satisfy the reporting requirements, fully insured and self-insured applicable large employers must complete Form 1095-C (and the 1094-C transmittal form).

1095-C

If you're a fully insured employer, you'll complete Parts I and II of the 1095-C. Self-insured employers will complete Parts I, II and III. Every employee of an ALE who is eligible for insurance should receive a 1095-C. That means eligible employees who decline to participate in an employer's health plan still receive a 1095-C.

To report the necessary information to the IRS and furnish a form to employees, you'll need to capture a number of details, as follows:

  • Part 1: Employee and Applicable Large Employer Member (Employer) – Includes identifying information for the employee, such as name, address and Social Security number (SSN) – and identifying information for the employer, such as name, address and Employer Identification Number (EIN).
  • Part 2: Employee Offer and Coverage – This section is all about the offer of coverage. In the three lines here, you'll enter information about the health coverage offered by month (if any), the cost of the cheapest monthly premium the employee could have paid for self-only coverage, and the months you met an affordability safe harbor or made other relief available to the employee.
  • Part 3: Covered Individuals -- If you're self-insured, this section is about the coverage that was actually supplied, which includes information about covered individuals' enrollment in the plan. This includes Social Security numbers or, if these numbers aren't available, date of birth. (This information isn't completed by insured employers because it's captured separately by the health insurance providers themselves, through the 1095-B.)

Lines 14-16 on the 1095-C

The bulk of the work in completing the 1095-C is with Lines 14-16 in Part 2.

The "Offer of Coverage" on Line 14 -- which involves nine codes, 1A through 1I -- describes whether or not minimum essential coverage was offered to an employee, spouse and/or any dependents. This is all about the offer and not necessarily the actual coverage. If one code applies for the entire 12 months, you only need to enter it once in the "All 12 Months" column.

On Line 15, you're reporting the employee share of the lowest cost monthly premium for self-only minimum value coverage. This helps the IRS determine if affordable coverage was made available to the employee. You'll only fill out this section if you entered code 1B, 1C, 1D or 1E on Line 14. Include cents with this figure and don't round numbers. If you entered 1A on Line 14, nothing needs to be entered on Line 15 because this code indicates you offered essential coverage providing minimum value to the employee, spouse and/or dependents.

Line 16 -- which involves nine codes again, 2A-2I – clarifies issues such as whether an individual was employed during the month, whether the employee was eligible and/or enrolled in coverage, if any affordability safe harbors applied when an employee declined coverage and if the employee was in a waiting period or other limited non-assessment period for which you'd be liable for a penalty. In a nutshell, you're giving the IRS a reason why you shouldn't be penalized under the Employer Shared Responsibility provision. Again, you only fill this out if a code applies to the employee for any particular month.

1094-C Transmittal Form at a Glance

The 1094-C transmittal form represents the total 1095-C filings submitted for the season. Acting as a cover sheet, it includes:

  • Identifying information for your organization, such as name, address and Employer Identification Number (EIN)
  • Information about whether your organization offered coverage to at least 95% of your full-time employees and their dependents
  • Total number of 1095-Cs issued to employees
  • Information about members of the aggregated applicable large employer group, if any
  • Full-time employee counts by month
  • Total employee counts by month
  • Whether you're eligible for certain transition relief (including certifications)

Important Deadlines and Penalties to Avoid

1095 forms have different deadlines for paper and e-filing than 1099s and W-2s. This means:



March 2

Form 1095 copies to recipients/employees

February 28

Paper filing of 1095s
(and 1094 transmittals) to IRS

March 31

E-filing of 1095s
(and 1094 transmittals) to IRS


Note: Electronic filing is required if the employer files at least 250 forms.

Avoiding Penalties

You must comply with ACA reporting requirements, or risk steep penalties. Penalties can apply for:

  • Failure to file
  • Failure to furnish recipient statements
  • Failure to file on time
  • Failure to file electronically when required to do so (if filing 250 or more forms)

Beginning January 1, 2016, the IRS penalty for failing to file or furnish ACA forms more than doubles from $100 to $250, with a maximum of $3 million.

During a one-year transition period, according to the IRS, you won't incur a penalty if you make a good-faith effort to comply but accidentally file incorrect or incomplete information. This relief exists only for filing incorrect information, however, and not for failure to file outright.

Capturing and Tracking Necessary Data

The information gathering process will be challenging for many businesses. To capture all the data required for 1095 reporting, you'll need to pull from four major sources or internal departments: HR, payroll, benefits and time-tracking systems. This will require careful coordination, sharing and monitoring to complete the forms accurately and on time.

The key items you'll need to track:

  • Full-time employees
  • Full-time equivalent employees
  • Coverage on a monthly basis for employees, spouses and dependents
Strict security is also necessary. Because the employee's name and health insurer appears on the same form, the data is considered protected health information (PHI). Using a solution that is SOC-certified and HIPAA-compliant, like eFile4Biz.com, can provide an added layer of protection with this type of data.

A few essential Dos and Don'ts will ensure a smooth filing process:

  • DO notify employees they will be receiving a 1095-C and may need information from it to complete their previous year tax filing.
  • DON'T file more than one 1094-C authoritative transmittal.
  • DO file corrected returns as soon as possible after an error is discovered.
  • DO file Form 8809, if necessary, for a 30-day extension for filing with the IRS. No signature or explanation is necessary for this extension. A 30-day extension for providing forms to employees, however, is only available by sending a signed letter to the IRS with the reason for the delay.
  • DON'T file more than one 1095-C per employee. If an organization has different divisions with different benefits – and an employee moves between divisions during the year – you'll need to consolidate data onto one 1095-C.

Benefits of Filing Online

Features Paper
Forms
Desktop
Software
Online
E-file
Per-form pricing
Import Payer, recipient and form data
Summary and Totals reporting to validate filings
Live Chat support
Email support
Includes delivery of recipient copies
ACA reporting
1099 reporting
W-2 reporting
Integrated with online accounting software

It is important to keep HIPAA compliance in mind when filing healthcare coverage ACA forms, 1095-B and 1095-C. These forms may contain protected health information (PHI), meaning an employer's medical plan is a covered entity subject to HIPAA privacy, security and breach notification rules.

Use Caution When Collecting Sensitive Data

When gathering information for Forms 1095-B and 1095-C, it is probable that you will require Social Security numbers (SSNs) for employees, as well as spouses and dependents covered under the plan.

Collecting SSNs for employees may be a common occurrence, but now you face the added responsibility of obtaining SSNs for spouses and dependents with the ACA reporting requirement, thereby increasing the risk of data privacy and security breaches.

To take the necessary precautions when handling sensitive data, here are some useful tips:

Is the data collected subject to HIPAA?

Determine whether the information gathered for ACA reporting is protected health information (PHI) under HIPAA, or if it falls under any HIPAA exception.

Ensure PHI precaution measures are in place

If data gathered is PHI, certain measures need to be taken under the HIPAA privacy and security rules. All employees should be trained on PHI policies and procedures, with a designated privacy officer implementing practices, including appropriate administrative, technical and physical safeguards to protect the privacy of PHI. All unauthorized use or disclosure of PHI should be reported.

Verify vendors are HIPAA-certified

Third-party vendors are approved by the IRS and can assist in the ACA reporting process. It is important to ensure that the vendor, even as a "business associate" under HIPAA, is HIPAA-certified and contractually bound to maintain and implement the appropriate privacy and security practices.

E-filing for Secure, Streamlined Filing

Need help meeting the demands of these ACA reporting requirements? Choose eFile4Biz.com for quick, efficient and secure e-filing for ACA forms (in addition to 1099s and W-2s). There's no software to download and no forms to purchase, so you enjoy streamlined, one-step processing.

Take advantage of:

E-file support - Simply enter or import applicable employee information and eFile4Biz.com will electronically file forms 1095-B and 1095-C (and transmittals 1094-B and 1094-C) with the IRS - as well as print and mail employee copies.

Print and mail - For health insurance providers, payroll service providers and employers seeking high-volume processing of ACA forms, eFile4Biz.com offers comprehensive print-and-mail services out of a secure, SOC- and HIPAA-certified facility.

Start using eFile4Biz today
Free to try. You only pay when you're ready to file.