Affordable Care Act Reporting

Forms: 1095-C, 1094-C, 1095-B, 1094-B

Since its passage in 2010, The Affordable Care Act (ACA) has generated considerable attention. In general, the purpose of this legislation was to ensure that people have access to quality, affordable healthcare. This legislation will have a sweeping impact on organizations and individuals as everyone struggles to understand the requirements of the regulations and develop a plan of attack to deal with the increased reporting obligations.

While coverage requirements of the law is receiving the most attention, there is still very little understanding or awareness of some of the key components. Up to this point, both businesses and insurers have focused on validating that the coverage they offer is meeting Minimum Essential standards. However, one aspect of ACA legislation that has failed to get the appropriate attention is the required reporting. Without question, this will be one of the more important aspects of the ACA because it will touch every provider, employer and individual in the United States. The reporting provisions are fundamental to the legislation, and will mean hundreds of millions of new tax forms and filings that will have to be processed by corporations and health insurance providers. Proactive organizations will begin work this year to implement reporting strategies while the IRS is still offering amnesty from penalties, treating this year as a trial year for ACA filing requirements. Organizations that begin planning now will be in a better position to reduce or avoid penalties from incorrect filings in the future.

At Sovos Compliance, we firmly believe that proactive preparation is the only way to successfully deal with new reporting obligations. We have extensive experience supporting companies during implementation of new reporting requirements and therefore are able to provide clear guidance to our clients on how to establish a successful tax information reporting strategy.

Understanding ACA

One critical underpinning of the Affordable Care Act is the need to create a large pool of individuals with health insurance coverage. The pool of covered individuals is important as it generates the revenue necessary to provide the Minimum Essential Coverage the law requires for all health plan members. This is why the legislation included items like the individual mandate and large employer coverage requirements. Without these requirements (and the fees for non-compliance) the system cannot be sustained.

To police these new insurance coverage obligations, the ACA authors borrowed a tool from the 1099 reporting playbook by adding new tax information reporting requirements to ensure people are complying with the requirements. This is very similar to something we at Sovos Compliance have become very familiar with in Massachusetts: the 1099-HC reporting for their healthcare program (which ACA was modeled after). The new ACA 1095 forms are modeled after the 1099 HC and will present many of the same challenges. Without these forms and new reporting obligation, there is no feasible way to implement the penalties for non-compliance. Moreover, if the parties involved are not providing the correct information you can also be assured that the penalties and increased risk of audit will be significant.

One thing is clear: Thorough understanding of the situation and awareness of the potential business impact are absolutely critical if an organization hopes to experience a successful transition into compliance with ACA reporting. Partnering with an experienced third-party vendor could help your business avoid some of the hurdles of ACA reporting.

How does ACA affect Employers?

Understanding the different components of ACA is a challenging task and it has different implications depending on the organization and their role in providing insurance coverage.

Large employers, as part of ACA, are defined as those organizations with 50 or more full-time employees. Recently it was announced that, for this first phase of the ACA, reporting requirements would only apply to employers with 100 or more employees, giving employers with between 50 and 99 employees more time to prepare.

Under the ACA, large employers must offer minimum essential coverage for their full-time employees. There are also provisions relating to the affordability of such coverage with compliant plan premiums not exceeding 9.5% of the employee income. The ACA also includes rules for enrollment periods. As part of meeting this requirement, employers are also obligated to report whether they have offered coverage to their eligible employees per proposed IRC 6056 reporting guidelines.

Employers not appropriately offering or reporting coverage will be subject to significant fines and penalties. Moreover, failure to report complicates the issue for the employee’s tax individual filing: The employee could possibly be assessed for penalties or receive tax credits they are not entitled to, all because their employer failed to report properly. It goes without saying that failing to correctly file your 6056 reporting could create a real employee relations issue.

To further complicate the process, large employers that are self-insured (acting as the insurer) have an even larger obligation under ACA. They are also required to report per proposed IRC 6055 reporting guidelines. This coverage reporting is just as critical as it plays a very big role in enforcing the individual mandate. Like 6056 reporting, there are significant amounts of data that must be gathered and reported at year end. Getting this right early on will be a big factor in an organization’s ability to comply successfully.

How does ACA affect Insurers?

Insurers have ACA reporting obligations per proposed IRC 6055 reporting guidelines. This coverage reporting plays a big role in enforcing the individual mandate. Without this reporting, the IRS is unable to have the checks in place to ensure that all individuals and their dependents have appropriate coverage.

For those insurers that have millions of members, this requirement will be significant. ACA reporting obligations will potentially present issues for member services, as members will likely be looking to the insurer to provide the guidance and issue resolution on the new 1095 form.

Insurers should also consider if and how they are going to manage ACA reporting for their self-insured clients. Self-insured clients may ask for compliance services from their insurance providers, potentially making ACA reporting services a new expense as well as a source of additional revenue.

How do Marketplaces have to Report to the IRS?

Under the ACA, beginning in 2014, individuals and small businesses are allowed to purchase private health insurance through competitive marketplaces. Individuals are also allowed a premium tax credit to help offset the costs of the health insurance purchased through the marketplaces.The marketplaces determine an individual’s eligibility for this credit in advance, using information available at the time of enrollment. An individual who receives the credit must reconcile the amount received with the amount determined on the individual’s annual individual tax return. An individual can also decide not to receive the credit in advance and wait until filing their tax return to receive the premium tax credit.

Every month, marketplaces must report enrollment information to the Department of Health and Human Services, which in turn reports to the IRS. In addition, marketplaces must annually furnish a 1095 form to the individual.

How does ACA affect Individuals?

Individuals are required to have healthcare coverage under regulations of the ACA. They will rely on the 1095 forms that are provided to them from their employer and insurance provider to prove such coverage. Unfortunately, like many businesses, individuals are unaware of this and assume the new box on the W2 is all they will see. Many businesses will discover however, that the W2 has very little to do with the ACA reporting requirements and that the new 1095 forms will become the cornerstone for ACA year-end tax filing.

Additional issues need to be considered surrounding the gathering of dependent data and information for the responsible reporting parties. Education will likely need to occur as part of this process and is the key to a successful reporting strategy.

Sovos Compliance provides tax information reporting services and software to businesses to make IRS compliance clear and uncomplicated. U.S. federal tax advice contained in this web site is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this document. (iii) The taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

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