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Monday, December 5, 2016

AFFORDABLE CARE ACT—STILL ALIVE AND KICKING

AFFORDABLE CARE ACT—STILL ALIVE AND KICKING

UPDATED ON NOVEMBER 21, 2016

PLANS MUST STILL COMPLY WITH ACA REPORTING RULES FOR 2016

The Affordable Care Act’s “employer shared responsibility provisions” require that certain employers (called applicable large employers or ALEs) must either offer “minimum essential coverage” that is “affordable” and that provides “minimum value” to full-time employees (and their dependents) or potentially be prepared to remit an employer-shared responsibility payment to the Internal Revenue Service(“IRS”).  These employer shared responsibility provisions are sometimes referred to as “the employer mandate” or “the pay or play provisions.”  Many employers fall below the ALE threshold number of employees and, therefore aren’t subject to the employer shared responsibility provisions.  However, those multi-employer health and welfare plans or ALEs that fall under these complicated shared responsibility provisions must file reports with the IRS on a timely and accurate basis to prove they are in compliance with current Affordable Care Act regulations.  https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act. The IRS has hinted that they will not be as lenient with non-compliance this year.

It feels like the initial year of reporting under the Affordable Care Act (ACA) has barely ended for multi-employer health care plan sponsors and large employers, riddled with data errors, misclassified plan participants, extended IRS filing deadlines and a fair amount of confusion. And while that is an accurate description, reporting for 2016 is peeking out from around the corner!  Regardless of the outcome of the Presidential election, the Internal Revenue Service still expects large employers and multiemployer plan sponsors to prove that they offered timely and affordable health care coverage that meets minimum value standards under the Affordable Care Act to every full-time employee.  At no time during the past two weeks have we seen any IRS announcements saying that employers and plan sponsors can delay ACA reporting or refuse to hold up their “end of the bargain.”  As of November 21, 2016, Notice 2016-70 UPDATED the due dates for the ACA reporting rules. https://www.irs.gov/pub/irs-drop/n-16-70.pdf.

While the ACA reporting procedures and forms for 2016 are much the same as last year, the following elements represent some differences and reporting details that plan sponsors should focus on before 2016 IRS filings are completed and submitted: 

1.         The Rules Require that More Employees be Covered.

One of the most significant changes for Applicable Large Employers (“ALEs”) specifies that employers and plan sponsors must now offer coverage to, instead of 70% as in 2015, to 95% or more of their full-time employees in order to comply with the ACA.  Furthermore, many employers and plan sponsors were considered to be ALEs with 50 or more full-time employees at some point in 2016, so the relief that allowed employers or plan sponsors with less than 100 full-time employees to be exempt from ACA reporting requirements expired.

However, the relief extended in 2015 to employers who, under collective bargaining agreements, are required to contribute to multiemployer union health and welfare funds does carry forward to 2016.  Therefore, a union plan’s contributing employers may still use special relief codes that pertain exclusively to union health and welfare funds when reporting on union plan participants (enter code 1H on line 14 for any month for which an employer enters code 2E on line 16 of Form 1095-C). 

2.         Forms Have Changed Somewhat.

Two new codes were added for reporting on Forms 1094 and 1095.  Codes 1J and 1K — for use in reporting conditional offers of coverage made by an ALE to an employee’s spouse by way of Form 1095-C (most multiemployer plans will not be subject to these new codes). Two other codes (1I and Line 16’s 2I) were eliminated due to the lost transition relief described above.  The reporting forms’ instructions were also updated for 2016 with more relevant examples.

The IRS also stressed that each ALE is required to report complete information for all twelve (12) months for any employee who was full time for at least one month.  In the case of an employee that was hired mid-year, this would mean that the IRS is expecting to see data completed in Part II of Form 1095-C for the months in 2016 prior to the employee’s hire month, even if that means that a “no offer of coverage” code is used (normally code 1H is used).

Worth noting are the form instructions, which were revised for 2016 to include more examples that employers may find useful. https://www.irs.gov/pub/irs-pdf/i109495c.pdf.

3.         The Transmittal of Information to the IRS is Important!

Employers or plan sponsors who file 250 or more information returns must continue to transmit reporting data to the IRS electronically by using the AIR system. The 250-or-more requirement applies separately to each type of form filed and for both original and corrected returns. The updated form instructions include how to receive a waiver from the electronic filing requirement.

The IRS has promised that its responses to employers who transmit data electronically will be quicker with the 2016 submissions. Specifically, this commitment to response improvements will assist employers who previously filed Form 1095-C and struggled with understanding exactly which covered individual(s) were improperly reported after getting a broad response from the IRS for taxpayer identification number (TIN) errors.  Employers often became frustrated when required to audit all of the information reported on the Form 1095-C to find the errors flagged. More specific responses from the IRS will ease this frustration in 2017. 

4.         Be Mindful of the Deadlines!

Employers and plan sponsors that are ALEs should be very mindful that the original reporting dates for the 2016 reporting year have not been extended.  Forms 1095-B and 1095-C are due to employees (postmarked, if mailed) by Jan. 31, 2017. Forms 1094-B and 1094-C are due to the IRS if filing on paper by Feb. 28, 2017. If filing electronically, the forms are due to the IRS by March 31, 2017.  The IRS is currently denying that extensions will be forthcoming.  Notice 2016-70 extended the due date for furnishing to individuals the 2016 Form 1095-B, Health Coverage, and the 2016 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, from January 31, 2017, to March 2, 2017. https://www.irs.gov/pub/irs-drop/n-16-70.

Many consultants bet on the fact that the deadlines will be extended, just like last year (and they were correct). However, we continually recommend that employers be fully prepared to comply with the 2016 reporting deadlines outlined above (note the extension).  It is extremely cumbersome for most ALEs, especially multiemployer health and welfare fund sponsors, to gather and organize all the data needed to generate, test and transmit the forms in such a short window of time. We therefore warn clients to keep these deadlines in mind, including the newest extensions, when an ACA reporting strategy is devised, with focus on including communications to third-party technology and forms’ transmission services in the reporting timeline.  

5.         Lastly, 972-CG Notices are not Always a Plan’s Kryptonite!

In addition to gearing up for the 2016 reporting deliverables, employers and plan sponsors also need to be prepared for the dreaded IRS “Proposed Penalty” notices (Notice 972-CG) regarding participant information already sent to the IRS. These notices are expected to hit sometime in November, 2016 and should alert filers who are subject to penalties under Internal Revenue Code (“IRC”) sections 6721 and 6722. https://www.irs.gov/irm/part20/irm_20-001-007r-cont01.html.  

Furthermore, employers and plan sponsors should remember that if the IRS finds that an employer or plan sponsor failed to properly fulfill its shared responsibility duties under the ACA and offered health care coverage that is unaffordable or does not provide minimum value, it will require that an employer-shared responsibility payment be made to the Internal Revenue Service (“IRS”) in the form of a hefty monthly penalty. https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act#Liability.

But penalties are not a foregone conclusion just because a 972-CG Notice shows up!  ALEs can prove that they acted responsibly and reasonably relied on the information filed with the IRS to avoid the penalties under IRC Section 6721.  Notice 2016-70 also extends transition relief from penalties under IRC sections 6721 and 6722 to reporting entities that can show that they have made good-faith efforts to comply with the information-reporting requirements under sections 6055.   https://www.irs.gov/pub/irs-drop/n-16-70.pdf.

This relief only applies to missing and inaccurate taxpayer identification numbers and dates of birth, as well as other information required on the return or statement. No relief is provided in the case of reporting entities that do not make a good-faith effort to comply with the regulations or that fail to file an information return or furnish a statement by the due dates (as extended under the rules described above). Employers and plan sponsors must demonstrate, by way of a formal response (an appeal), how they acted in a responsible manner when attempting to collect and report participant information. Consequently, for certain employers and plan sponsors with participants that work for more than one employer or are hard to keep track of, the 2015 ACA filings could cause more headaches in the short term.

With only one year of ACA reporting in the IRS “vault,” the seemingly compressed deadlines, (now extended by Notice 2016-70) and the promise by the IRS of closer audits on information reported for 2016, it appears that the patience of plan sponsors and large employers will be tested for at least one more year. Because of the complexity of these reporting rules under the ACA and the possibility of stricter imposition of fines for non-compliance or errors in reporting for the 2016 tax year even with the most recent extensions, operational compliance within benefits departments and plan administrators’ strategies cannot be ignored, or even worse, defied. 


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With offices in Toledo and Lima, OH Allotta Farley Co., L.P.A. serves clients throughout northwest OH with various legal matters. Areas of service include Allen County, Ashland County, Auglaize County, Crawford County, Defiance County, Erie County, Fulton County, Hancock County, Hardin County, Henry County, Huron County, Lucas County, Marion County, Mercer County, Morrow County, Ottawa County, Paulding County, Putnam County, Richland County, Sandusky County, Seneca County, Van Wert County, Williams County, Wood County, Wyandot County.

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