IRS Final Rules on Health Coverage Information Reporting Include Combined Method

Practical Law Legal Update 4-560-0047 (Approx. 10 pages)

IRS Final Rules on Health Coverage Information Reporting Include Combined Method

by Practical Law Employee Benefits & Executive Compensation

Reporting Health Insurance Coverage Information (Section 6056)

Section 6056 requires large employers, defined as employers with at least 50 full-time employees (including full-time equivalent employees) on business days during the prior year, to:

Report information to the IRS regarding their compliance with the ACA's employer mandate (26 U.S.C. § 4980H) and the health coverage the employers have offered to employees (see Practice Notes, Employer Mandate under the ACA: Overview and Employer Mandate under the ACA: Determining Full-time Employees for Employer Penalties).
Provide statements to employees for use in determining whether, for each month of the year, they can claim a premium tax credit under the ACA (26 U.S.C. § 36B).

The final regulations address various aspects of filing these information returns and furnishing the employee statements.

Reporting Applies at Large Employer Member Level

Large employers subject to Section 6056 include members of an aggregated group (determined using the controlled group rules) that collectively constitute a large employer (see Practice Note, Controlled Group and Affiliated Service Group Rules). Although the determination of whether an employer is a large employer subject to Section 6056 occurs at the aggregate group level:

The Section 6056 filing and employee statement rules apply at the large employer member level.
Each member with full-time employees is responsible for filing reports and providing statements for its full-time employees.

This is consistent with the approach taken under the IRS' final regulations for the ACA's employer mandate (see Legal Update, Final Rules on Employer Mandate Include 2015 Transition Relief for Mid-sized Employers). The IRS rejected commenters' requests, in response to the Section 6056 proposed regulations, to permit a plan sponsor offering coverage to employees of more than one large employer member to report and provide statements on behalf of all employees eligible to participate in the plan.

Required Content

The final regulations generally require large employer members to report the same Section 6056 information as under the proposed regulations (for example, the employer's name, address and employer identification number). In response to commenters' requests, a large employer member may provide the name and telephone number of any contact person, including an employee or agent of the member who is acting on the member's behalf for Section 6056 reporting purposes.

As with the proposed regulations, the final regulations do not require reporting of the following four pieces of information:

The length of any permissible waiting period.
The employer's share of the total allowed costs of benefits under the plan.
The monthly premium for the lowest-cost option in each enrollment category under the plan (for example, self-only coverage). Only the lowest-cost option of self-only coverage is necessary.
The months during which an employee's dependents were covered under the plan.

Several pieces of information (for example, the total number of employees by month) will be reported using indicator codes. Under a change in the final regulations, large employer members must report, using an indicator code, any months during which no employees were either:

Providing services.
Being credited with hours of service for the large employer member.

Employers need not report whether they expect to be a large employer member in the following year.

Combined Reporting (Sections 6055 and 6056)

In response to the proposed regulations, commenters requested combined Section 6055 and 6056 reporting for employers with self-insured plans that must report under both sections. The final regulations allow large employer members to use a single combined form. As a result, a member that:

Sponsors a self-insured plan can report using a form that reflects information required under both Sections 6055 and 6056.
Provides insured coverage will complete only the part of the form reflecting information required under Section 6056.

According to the IRS, these forms will be available in draft form in the near future. A Section 6056 return will include filing of:

Form 1094-C (a transmittal form).
Form 1095-C (an employee statement that will permit combined reporting).

The final regulations also permit use of a substitute form to satisfy Section 6056, provided that the substitute form includes all the information required on Forms 1094-C and 1095-C.

Electronic Filing

The final regulations require electronic filing of Section 6056 information returns, except for members filing fewer than 250 returns under Section 6056 during the year. Each Section 6056 return for a full-time employee is counted as a separate return.

The regulations also permit employee statements to be provided electronically, if certain notice, consent and hardware and software requirements based on existing rules are satisfied. The process for providing these statements is similar to that in place for providing electronic copies of Forms W-2.

Due Dates for Section 6056 Returns

Annual Section 6056 returns must be filed with the IRS by February 28 (March 31, if filed electronically) of the year following the year to which the return relates. This is the same filing schedule that applies for Forms W-2 and 1099. Section 6056 employee statements must be provided annually to full-time employees by January 31 of the year following the year to which the statements relate.

Factoring transition relief, the first Section 6056:

Information returns (for 2015) will be due by March 1, 2016 (because February 28, 2016 is a Sunday), or March 31, 2016, if filed electronically.
Employee statements (for 2015) must be provided by February 1, 2016 (because January 31, 2016 is a Sunday).

The IRS declined to provide alternate filing dates for employers with non-calendar-year plans.

Alternative Reporting Methods Available

The final regulations include alternative reporting methods, which can be used in place of the general reporting method. Under one of the alternative methods, for example, employers that provide a "qualifying offer" to full-time employees may take advantage of simplified reporting (as opposed to reporting monthly, employee-specific information). A qualifying offer is an offer of minimum essential coverage (MEC) providing minimum value that:

Provides employee-only coverage that costs no more than 9.5% of the federal poverty level for 2015.
Includes an offer of coverage to the employee's spouses and dependents.

For employees that receive a qualifying offer for the entire year, employees must:

Report only the names, addresses and taxpayer identification numbers of these employees, and the fact that they have received a full-year qualifying offer.
Provide employees either a copy of the simplified report or a statement indicating that the employee received a full-year qualifying offer.

Multiemployer Plans

The IRS acknowledged that the plan administrator of a multiemployer plan may have better access than a participating employer to certain information regarding eligible employees required as part of Section 6056 reporting. As a result, the following division of Section 6056 return preparation is permitted regarding full-time employees for whom a large employer member contributed to a multiemployer plan:

The multiemployer plan administrator prepares returns regarding full-time employees covered by the collective bargaining agreement who are eligible to participate in the plan.
The large employer member prepares returns regarding the remaining full-time employees (that is, those who are not eligible to participate in the plan).

Assistance from Third Parties

A large employer member generally may contract with a third party administrator (TPA) or other third party service provider to assist in filing returns and furnishing employee statements under Section 6056. However, these third party arrangements do not transfer a large employer member's potential liability:

For failing to report or furnish employee statements under Section 6056.
Under the ACA's employer mandate.

Penalties

Large employers that do not comply with the Section 6056 information return and employee statement rules are subject to penalties under Section 6721 (filing an incorrect information return) and Section 6722 (failure to furnish a correct payee statement). However, the IRS is providing short-term penalty relief for entities that can demonstrate good faith efforts to comply with the information reporting requirements. Under this relief, the IRS will not impose penalties under Sections 6721 and 6722:

For returns and statements filed and provided in 2016 to report offers of coverage in 2015.
But only regarding incorrect or incomplete information reported on the return or statement (for example, social security numbers).

To take advantage of this relief, an employer must:

Make a good faith effort to comply with the final regulations.
Timely file its information return or furnish a statement (though relief based on a showing of reasonable cause may also be available).

Reporting Minimum Essential Coverage Information (Section 6055)

Section 6055 requires employers that self-insure, insurers and others that provide individuals with MEC, including coverage under an employer-sponsored plan, to file annual returns reporting certain information to the IRS. A Section 6055 reporting entity must also furnish a written statement to each individual listed on the IRS return showing the information reported to the IRS for that person. The information reported under Section 6055 will be used by individuals and the IRS to verify the months, if any, for which the individuals were covered by MEC.

In response to comments to the proposed regulations, the final regulations include a number of clarifications.

Coverage Subject to Section 6055 Reporting

The final regulations address the scope of MEC subject to Section 6055. The IRS reiterates that health reimbursement arrangements are a form of supplemental coverage that is not subject to Section 6055 reporting. Also, reporting is not required for health savings accounts (see Practice Note, Defined Contribution Health Plans).

Section 6055 reporting also does not apply to:

On-site medical clinics, which are not MEC because they are excepted benefits.
Wellness programs that are an element of other MEC (for example, a wellness program that offers reduced premiums or cost-sharing under a group health plan) (see Practice Note, Wellness Programs).

Taxpayer Identification Numbers

Over commenters' objections, the final regulations retain the requirements that reporting entities provide:

Taxpayer identification numbers (TINs) for all covered entities.
A date of birth only if a TIN is not available after the entity makes a reasonable effort to obtain it.

The combination of an individual's name and TIN will allow the IRS to identify whether the individual has MEC. However, the final regulations provide that reporting of TINs is not required for individuals who are not enrolled in coverage. Also, reporting entities may use truncated TINs on Section 6055 statements.

The IRS also addressed the rules regarding what constitutes a reporting entity's reasonable efforts to obtain TINs. Under these rules, for example, a reporting entity that attempts, unsuccessfully, to obtain an individual's TIN in December 2014 must make a second solicitation by December 31, 2015.

Combined Reporting (Sections 6055 and 6056) and Corrected Returns

The proposed regulations did not allow combined reporting under Sections 6055 and 6056. However, in response to commenters' concerns, the final regulations provide that large employer members will file a combined return and statement for all Section 6055 and 6056 reporting. Employers that sponsor:

Self-insured plans will file Form 1095-C, completing both sections to report information required under Sections 6055 and 6056.
Insured coverage will complete only the section of Form 1095-C that reports information required under Section 6056.

Insurers and multiemployer plan sponsors will report under Section 6055 on Form 1095-B.

Regarding corrected returns, the final regulations clarify that Section 6055 reporting entities that do not timely file corrected returns and provide corrected employee statements when information changes due to changed circumstances are subject to penalties for filing returns that are incomplete or incorrect.

Electronic Filing

The proposed regulations:

Provided that a Section 6055 reporting entity must file electronically if it is required to file at least 250 returns of any type.
Aggregated all returns filed for a calendar year in determining if the 250-return threshold was met, including:
- information returns (for example, Forms W-2 and 1099);
- income tax returns; and
- employment and excise tax returns.

In response to commenters' requests, the IRS adopted a "no aggregation" approach under which the 250 return threshold is applied separately to each type of required return. As a result, Forms 1095-B and 1095-C must be filed electronically only if the reporting entity must file at least 250 of the specific form (transmittal forms are not treated as a separate return for this purpose).

Statements Provided to Individuals

The proposed regulations required reporting entities to furnish a statement to covered individuals providing certain information (for example, the policy number). In the final regulations, the IRS declined to provide an exception to this requirement for individuals who die during the year, citing the need to ensure that:

MEC is properly reflected on a decedent's final income tax return.
An individual's estate is not liable for an individual mandate payment.

Regarding the timing of these statements, the final regulations include rules allowing reporting entities to apply for a 30-day extension to furnish statements, if a showing of good cause is provided. Also, reporting entities may furnish Forms 1095-B or 1095-C with Form W-2 in one mailing.

Although reporting entities must send statements to an individual's last known address, the final regulations permit reporting entities to satisfy the statement requirement by making a first-class mailing to the recipient's:

Last known permanent address.
Temporary address, if no permanent address is known.

This rule applies even if the statement is returned.

Providing Statements Electronically

Reporting entities may simultaneously request employees' consent to electronically receive Section 6055 statements with consents regarding other statements. For example, a simultaneous request might apply to Forms W-2 and 1095, though each form must be specifically referenced in the request.

The statement must include a contact number for the person required to file the return, and the final regulations clarify that the statement must only provide the phone number of a person designated as the reporting entity’s contact person. Also, reporting entities may use a substitute statement under Section 6055, provided that it satisfies the final regulations' requirements.

An employer that uses combined Sections 6056 and 6055 reporting may also report the information required under those sections to employees in a single statement.

Due Date for Statements

Reporting entities must furnish employee statements by January 31 of the year following the year in which MEC is provided. The final regulations include rules under which entities that show good cause can apply for an extension of up to 30 days to furnish statements. Also, entities may furnish Forms 1095-B or C with Form W-2 in the same mailing.

Penalties

The IRS will not enforce penalties for failing to comply with Section 6055 during 2014, meaning:

Coverage in 2014.
Information returns and statements furnished to individuals in 2015.

The IRS is providing short-term penalty relief for entities that can demonstrate good faith efforts to comply with the information reporting requirements. Under this relief, the IRS will not impose penalties under Section 6721 (filing an incorrect information return) and Section 6722 (failure to furnish a correct payee statement):

For returns and statements filed and provided in 2016 to report 2015 coverage.
But only as to incorrect or incomplete information in the return or statement (for example, TINs or dates of birth).

To take advantage of this relief, a reporting entity must:

Make a good faith effort to comply with the final regulations.
Timely file its information return or furnish a statement (though relief based on a showing of reasonable cause may be also be available).

Effective Date

The final regulations apply for calendar years beginning after December 31, 2014. Reporting entities will not be subject to penalties for noncompliance:

For failing to comply with the Section 6055 reporting rules for 2014 coverage, including furnishing statements to covered individuals in 2015 regarding 2014.
If they first report in 2016 for 2015, including furnishing statements to covered individuals.

Practical Impact

The proposed versions of the information reporting regulations did not provide for combined reporting under Sections 6056 and 6055, and employers that sponsor self-insured plans (which must report under both sections) will welcome the addition of a single, combined form under the final regulations. The expanded use of identifier codes under the final regulations should also help to simplify compliance, and the IRS indicated that additional codes will be available on the Section 6056 return for employers to indicate that they are taking advantage of transition relief available under the final regulations implementing the ACA's employer mandate (see Legal Update, Final Rules on Employer Mandate Include 2015 Transition Relief for Mid-sized Employers).

IRS Final Rules on Health Coverage Information Reporting Include Combined Method | Practical Law