IRS Instructions Offer Clearer View of Information Reporting Rules

Practical Law Legal Update 3-579-7445 (Approx. 7 pages)

IRS Instructions Offer Clearer View of Information Reporting Rules

by Practical Law Employee Benefits & Executive Compensation

IRS FAQs Address Good Faith Compliance, Use of TPAs and More

According to the IRS FAQs, short-term penalty relief will be available for incomplete or incorrect Section 6056 information returns that are filed (or employee statements provided to employees) in 2016 for coverage offered, or not offered, in calendar year 2015. Under this relief, the IRS will not impose penalties under IRC Sections 6721 and 6722 on employers that can demonstrate that they made good faith efforts to comply with the information reporting requirements. This relief applies to returns and statements filed and furnished in 2016 to report offers of coverage in 2015 for incorrect or incomplete information reported on the return or statement. The relief does not apply to employers that either:

Cannot show a good faith effort to comply with the information reporting requirements.
Fail to timely file an information return or furnish a statement.

Also, employers may be eligible for penalty relief if the IRS determines that the standards for "reasonable cause" under IRC Section 6724 are satisfied.

The FAQs also address how penalties will apply for information returns filed and furnished in 2017 for coverage offered, or not offered, in 2016 and later years.

Similar administrative relief will be available to reporting entities with respect to Section 6055 reporting.

In another FAQ, the IRS indicated that employers may hire a third-party administrator (TPA) to file information returns and provide employee statements under Section 6056. However, these arrangements generally do not transfer an employer's potential liability under the employer mandate or information reporting provisions.

Instructions for Forms 1095-C and 1094-C

Covered Employers

The draft instructions for Forms 1095-C (information return) and 1094-C (transmittal form) are lengthy and provide detailed guidance for filers (generally, employers with 50 or more full-time employees, including full-time equivalent employees, during the prior calendar year) (see Practice Note, Employer Mandate under the ACA: Overview). A definitions section in the instructions sets out key terms relating to the employer mandate and other provisions. Employers must file Forms 1095-C and 1094-C with the IRS, and provide a copy of Form 1095-C to employees. Employers that sponsor a self-insured plan must complete:

Parts I (Employee and Applicable Large Employer Member (Employer)) and III (Covered Individuals) of Form 1095-C for any employee who enrolls in the plan, regardless of whether the employee is full-time for any month during the calendar year.
Part II (Employee Offer and Coverage) for an individual who is a full-time employee for any month of the year.
Part III must be completed for any individual who enrolled in the employer's plan (including full-time employees, non-full-time employees and employee family members). Part III must only be completed for individuals who enrolled in the plan's self-insured enrollment options (but not for enrollment options that are insured).

Filing Deadlines

Forms 1095-C and 1094-C information returns are not required for 2014. The first required filing of these forms will be in 2016, for the 2015 calendar year, though employers may voluntarily file these forms in 2015 for 2014. Employer mandate payments will not be assessed for 2014, regardless of whether an employer voluntarily submits information reporting for 2014.

Forms 1095-C and 1094-C information returns must be filed by February 28 (for paper filings), or March 31 (for electronic filings) of the year following the calendar year to which the return relates.

Authoritative Transmittal

A Form 1094-C must be attached to any Forms 1095-C filed by an employer. Each employer must file one 1094-C that reports aggregate employer-level data for all the employer's full-time employees, which is referred to as the "authoritative transmittal" (and denoted accordingly on Line 19 of the Form 1094-C). Only one authoritative transmittal may be filed for each employer.

The authoritative transmittal must be filed by each employer even when the employer has filed multiple Forms 1094-C. For example, if an employer files separate Forms 1094-C to transmit Forms 1095-C reflecting employees in each of its two divisions, one of the Forms 1094-C must be marked as the employer's authoritative transmittal and reflect aggregate employer data (reflecting the employees of both divisions).

Employee Statements

Employers also must provide a Form 1095-C to each of its full-time employees by January 31 of the year after the year to which the form relates.

Also, although filers may truncate individuals' social security numbers (SSNs) on Form 1095-C employee statements (that is, by showing only the last four digits of the SSN and replacing the first five digits with asterisks or Xs), truncation is not allowed on Forms 1095-C filed with the IRS.

Employee statements must be furnished to individuals on paper by mail, unless the individual affirmatively consents to receiving the statement electronically.

Alternative Reporting Methods

Employers may sometimes provide sufficient coverage so that:

The employer will not likely be subject to employer mandate payments because its employees are generally ineligible for a premium tax credit.
Preparing full Section 6056 reporting under the general reporting method would be unnecessary.

As a result, the IRS allows employers to use alternative reporting methods instead of the general method, which must be reflected on Form 1094-C (see Practice Note, Information Reporting of Health Insurance Coverage by Large Employers (Section 6056): Alternative Reporting Methods). The instructions provide detailed guidance on how employers will reflect use of the alternative reporting methods, which include the:

Qualifying offer method.
Qualifying offer method transition relief (95% standard).
98% offer method.

The instructions also address how employers will reflect use of certain employer mandate transition relief (see Practice Note, Employer Mandate Transition Relief under the ACA).

Indicator Codes for Form 1095-C

The draft instructions for Form 1095-C include shorthand "indicator codes" to reflect:

The types of offers of coverage made to employees (Code Series 1), which could include:
- MEC providing minimum value offered to the employee only; and
- MEC providing minimum value offered to an employee and at least MEC offered to dependents and a spouse.
Employer mandate safe harbors and other relief available to employers (Code Series 2), including to indicate employees in a "limited non-assessment period" during which an employer is not subject to certain employer mandate payments (see Practice Note, Employer Mandate under the ACA: Overview: Non-assessment Periods and Two Types of Employer Mandate Payments).

Instructions for Forms 1094-B and 1095-B

The instructions for Forms 1095-B (information return) and 1094-B (transmittal form) provide specific, line-by-line guidance for the reporting of minimum essential coverage (which may include, for example, coverage under an employer-sponsored group health plan). Health insurers will file Form 1095-B for most insured employer coverage.

Forms 1095-B and 1094-B need not be filed for 2014. The first required filing of these forms will be in 2016, for the 2015 calendar year (though reporting entities may voluntarily file in 2015 for 2014).

Regarding the method of filing Forms 1095-B and 1094-B information returns:

Filers of 250 or more returns must file Forms 1095-B and 1094-B electronically.
Filers of less than 250 returns may file electronically or on paper.

Statements to Individuals

Form 1095-B statements to individuals must be provided by January 31 of the year after the calendar year that the coverage is provided. Form 1095-B individual statements may truncate an individual's SSN, though truncation is not allowed on forms filed with the IRS.

Forms 1095-B provided to individuals must be furnished on paper by mail, unless the recipient affirmatively consents to receive the statement electronically. Individuals may provide this consent on paper or electronically (by e-mail, for example). However, if consent is provided on paper, the individual must confirm the consent electronically.

Instructions for Form 1095-A

Form 1095-A is used by the health insurance exchanges (also referred to in the instructions as "marketplaces") to report information to the IRS on individuals who enroll in a qualified health plan. Form 1095-A also contains information for use by individuals in completing IRS Form 8962 (Premium Tax Credit (PTC)), including to:

Claim the PTC.
Reconcile the credit with advance payments of the credit.

Forms 1095-A must be filed with the IRS and provided to individuals by January 31, 2015, for calendar year 2014 coverage.

Form 1095-A includes information to identify the specific exchange and exchange policy, information about the individual and members of the individual's household, coverage dates, premium amounts and advance credit payments per month. Form 1095-A also provides for reporting corrected information.

According to the draft instructions, an exchange must submit Forms 1095-A to the IRS electronically. When an exchange furnishes Form 1095-A to an individual it must do so on paper by mail, unless the individual affirmatively consents to receiving the statement electronically.

Practical Impact

The draft instructions, which were much anticipated following the IRS' issuance in July of the draft information reporting forms, supply significant detail regarding the mechanics of Sections 6056 and 6055 reporting. To complete the forms, employers and insurers will need to have worked through fundamental aspects of the employer mandate and related ACA provisions (for example, whether an employer is a large employer subject to the mandate, who is a full-time employee, what employer mandate safe harbors and other relief are available (including limited non-assessment periods) and whether the employer is offering minimum essential coverage). For analysis of these employer mandate concepts and related provisions, including information reporting, see Practical Law's Employer Mandate Toolkit).

IRS Instructions Offer Clearer View of Information Reporting Rules | Practical Law