This blog was last updated on June 27, 2021
Tax reporting for large employers under the Affordable Care Act (ACA) enforces Internal Revenue Code (IRC) 4980H, the employer mandate of the health care law. According to Bloomberg BNA, Stephen Tackney, IRS deputy associate chief counsel of employee benefits, says that many are wondering why so much reporting is necessary.
“We still get questions why all this information is required,” Tackney said at the American Bar Association Section of Taxation conference on May 10. “It’s not just for administration of 4980H, it is also for 36B, which is very important.”
26 US Code Section 36B refers to the taxpayers’ eligibility for a premium tax credit (PTC), which taxpayers could receive through a health care exchange.
Reporting complexities due to promotions, transfers
Tackney went on to say that employers will have complex reporting, as they will need to file tax information for each employee annually regarding their health plan offerings. While Tackney predicted that this won’t be too complicated with employees who have held the same position for a while, filing becomes more tasking for workers that have been promoted from an insured group to a self-insured group.
As a result, employers have to decide which category to file these employees under to produce a single form. If two forms are filed, the second will override the first, possibly conveying that the employer is not meeting its coverage obligations.
“If you give me one that says what their offer of coverage was January to June and you give me another one that says July to December, the second one that comes in is going to bump the first and we’re going to assume you didn’t offer them anything for the other six months, and you’re not going to want that to happen,” Tackney said.
There can also be problems with employees who move between subsidiaries of a company, as the employee will be listed on the annual filings for each subsidiary.
Options for employers to avoid errors
IRS Commissioner John Koskinen has, in the past, said that enforcing the ACA is essential and no resources will be spared to achieve this goal. Despite sizeable cuts to the agency’s budget, this is one task the IRS is giving much attention to.
For this reason, it is essential that employers accurately address the new tax compliance demands. Tackney noted that they can take advantage of alternate reporting mechanisms, which can account for situations, such as an employee becoming full-time for only one month. One of those alternatives is providing reduced information to the IRS and employees. However, employers still have to show that they offered minimum value coverage.
ACA reporting will involve many new forms and present challenges for both employers and individuals. Tackney said that the IRS is willing to listen to suggestions for simplifying the process.
The need for preparation
Although the IRS is expected to provide the transition relief, Tackney mentioned that employers need to be sure they understand their ACA reporting obligations. There are many third-party solutions that provide tax compliance services related to the new health care law. Additionally, some insurance companies may decide to provide similar services for their self-insured clients.
Not only do employers need to understand their new responsibilities, but they also need to ensure their employees are up to speed. Tackney noted that, for this reason, it is crucial that employers include instructions with the forms they send to their full-time workers.
Check out our education section for more about ACA reporting requirements for large employers.
