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IRS Releases Draft of 2016 Instructions for ACA Reporting Forms

Author: Jody Rodney/Thursday, August 18, 2016/Categories: Compliance Corner

On August 1, 2016, the Internal Revenue Service (IRS) published its draft of 2016 Instructions for Forms 1094-C and 1095-C. In addition to some noteworthy new items, many topics from the 2015 instructions were clarified. The draft 2016 Forms 1094-C and 1095-C were previously released on July 7, 2016. For additional information on the new forms, see IRS Releases Draft 2016 Affordable Care Act Reporting Forms.

Background

Internal Revenue Code (IRC) Section 6056 under the Affordable Care Act (ACA) requires Applicable Large Employers (ALEs) to report to the IRS whether they offer their full-time employees and their employees' qualified dependents the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan. An ALE is an employer that employed (any combination of workers within a controlled group) an average of at least 50 full-time employees (including full-time equivalent employees) during the preceding calendar year. Employees are considered full-time in any month that they are credited with at least 30 hours of service per week, on average, or 130 hours of service in the month.

Form 1094-C is the transmittal report which accompanies and summarizes information from Forms 1095-C. Form 1095-C is filed for each employee who was full-time for one or more months during the calendar year and includes details of any health care coverage offered to the employee, reported on a monthly basis. For self-insured plans, Form 1095-C must also be provided to any individuals who enrolled in qualified coverage, which may include non-full-time employees and any covered spouses and dependents. (One Form 1095-C may be furnished to the employee; i.e., it is not necessary to provide a form to each covered spouse/dependent.) Forms 1095-C must be furnished to employees by January 31, 2017 for coverage offered in 2016, and must be filed with the IRS by February 28, 2017 if filed on paper and by March 31, 2017 if filed electronically. Electronic filing is required for parties filing 250 or more forms.

Highlights from the 2016 Instructions for Forms 1094-C and 1095-C

  • While not all of the transition relief that was available for 2015 is still in effect for 2016, the following is available for non-calendar year plans, for any calendar months in 2016 that are part of the 2015 plan year.
    • 4980H Transition Relief for employers with 50-99 or 100+ full-time employees including full-time equivalents (Form 1094-C, Line 22, Box C and Lines 23-35 column (e))
    • 4980H(a) Transition Relief if offer is made to at least 70% of full-time employees (Form 1094-C, Lines 23-35, column (a))
    • 4980H(a) Transition Relief for certain arrangements that do not offer health care coverage for dependents (Form 1094-C, Lines 23-35, column (a))
    • Qualifying Offer Transition Relief for 2015 no longer applies and therefore Box B on Line 22 in Part II has been changed to “Reserved”
  • Reminds employers that one authoritative Form 1094-C is required for each ALE member (i.e., each employer with a separate Federal Employer Identification Number (FEIN)). An Authoritative Form 1094-C should NOT be filed for an aggregated group (i.e., multiple FEINs of related organizations).
  • If an ALE member name and/or EIN is incorrect on the authoritative Form 1094-C in Part IV "Other Members of Aggregated ALE Group," a correction must be filed. Non-authoritative Forms 1094-C do not require corrections.
  • Clarifies that the full-time employee count in Part III, column (b) should be based on the Section 4980H definition of full-time employee either under the monthly measurement method or the look-back measurement method, and no other definition of the term full-time employee may be used for other purposes.
  • “Plan Start Month” is optional for 2016, but will be required for 2017 reporting.
  • Introduces two new Line 14 offer of coverage Codes: 1J and 1K. These codes are used when an employer offers coverage to a spouse that is conditioned upon one or more reasonable, objective conditions (for example, an offer to cover an employee’s spouse only if the spouse is not eligible for coverage under Medicare or a group health plan sponsored by another employer).
  • Multiemployer interim rule relief and reporting remains in effect for tax year 2016 reporting, for ALEs with multiemployer (e.g., union-sponsored) plans. This may change for 2017 reporting.
  • Emphasizes that there is a difference in the definition of limited non-assessment period for purposes of reporting whether the employer offered coverage to at least 95% of its full-time employees on Form 1094-C and the Line 16 Code(2D) on Form 1095-C. Satisfying the 95% threshold shields the employer from Section 4980H(a) assessments; whereas Code 2D on Line 16 of Form 1095-C limits the exposure to the lesser assessment, if applicable, under Section 4980H(b).
  • Employees who are offered COBRA continuation coverage due to a reduction in hours should be reported on Line 14 as an offer of coverage, but only for any individual who actually receives an offer of COBRA continuation coverage. Clarifies that employers using Code 1A, Qualifying Offer, in Part I on Line 14 may enter a code on Line 16, but are not required to, as Code 1A on Line 14 already denotes that the applicable affordability safe harbor has been met.
  • Defines "Employee Required Contribution" (Form 1095-C, Line 15) as the employee's share of the monthly cost for the lowest-cost, self-only minimum essential coverage that provides minimum value that is offered to the employee. To determine this amount, there are additional rules for cases where the ALE makes available certain HRA contributions, cafeteria plan contributions, wellness program incentives, and opt-out payments. For example, the value of any opt-out payments available may need to be added to the monthly cost of coverage. Regulation Sections 1.5000A-3(e)(3)(ii) and 1.36B-2(c)(3)(v)(A) and IRS Notice 2015-87 provide additional information.