Affordable Care Act Reporting for Large Employers
Your employee’s story for 2014
Many employers already know that, as far as any ACA reporting requirements, they do not have to report anything to the IRS until 2015. However, their employees are a different story. Regardless of the employer requirements, employees will be required to report whether or not they have minimal essential coverage to the IRS for tax year 2014. Therefore, many employees will likely make inquiries to their insurance provider, human resources or accounting departments for these documents. For most people, filing taxes is a complicated and stressful task. This added requirement will only make the process more complicated and possibly cause frustration, miscommunication and confusion. Furthermore, any penalties that an employee incurs due to problems with ACA reporting could create employee relations issues. Proactive organizations should be prepared to handle these issues for the 2014 tax year.
Under regulations of the new Affordable Care Act (ACA), employers are now required to supply minimal essential medical coverage for their employees. Compliance with ACA regulations is essential to generate the necessary revenue to sustain the objectives of ACA. Therefore, within ACA regulation, Congress placed a series of checks and balances to police the legislation and monitor compliance. These checks and balances include new tax reporting obligations, also known as “ACA reporting.”
ACA reporting will affect employers and employees alike. ACA reporting is essential in verifying that everyone is participating and compliant with the new regulations.
However, many employers do not fully understand the ACA reporting requirements or the organizational issues this new obligation could potentially create. This is not surprising, as the regulations are new, complex and have been modified significantly over the past year.
It is understandable that employers, who are fulfilling the medical coverage obligation, may be under the impression that, as far as ACA goes, they are in compliance. Yet, the reporting obligations are another huge piece of the story that has received little attention.
For the employer, ACA reporting is meant to verify that they offered health insurance with minimal essential coverage to each of their employees and provide proof to the IRS that the employee either accepted or denied that coverage.
Starting in January 2015, as stated in Internal Revenue Code (IRC) Section 6056, large employers (those with 100 or more employees) will be required to provide form 1095-C to each of their employees and send a 1094-C transmittal to the IRS. For employers, this means more tax forms to be completed, printed and mailed at the end of the year.
The form 1095-C and IRS transmittal will require specific information on the employee’s insurance coverage (and their dependents, if applicable). The form will need to include data such as EIN’s, TIN’s, addresses, full-time status, length of employees’ full-time status, proof of minimal essential coverage offered, coverage dates and employees’ share of coverage premium costs. Additional information may be required by the IRS over time.
For employers and employees who do not comply with the ACA reporting regulations, penalties will be assessed and issued.
For individuals, reporting requirements begin in tax year 2014. For employers and insurance providers, transitional relief in Notice 2013-45 delayed their reporting requirements for a year. Therefore, employers and insurance providers are not required to file ACA reporting until tax year 2015. The 2015 tax season will be a “test run,” meaning as long as employers file in good faith they will not be penalized. To file in good faith requires that employers include social security numbers and file on time. Untimely filing penalties may be abated if a reasonable cause is made evident.
As a result, as long as they file in good faith, employers will not be assessed penalties until tax year 2016. Nonetheless, the IRS is encouraging employers to voluntarily report for 2014, as stated on Internal Revenue Bulletin 2013-31: “Real-world testing of reporting systems and plan designs through voluntary compliance for 2014 will contribute to a smoother transition to full implementation for 2015.”
Regardless of the delay in penalty assessment for ACA reporting for employers in 2014, employees will still be required to report and will be assessed penalties for tax year 2014. Therefore, it would be sensible for employers to provide their employees with the necessary information, form 1095-C, for their employees’ individual 2014 tax returns.
For many employers, at first glance, ACA reporting may appear like an additional tax season task for the accounting department. However, the 1095-C form and 1094-C transmittal needs to include more complex information than what the accounting department is accustomed. The employee’s medical benefit information and full-time status is usually housed in the human resources department.
Due to the varied data required for the ACA reporting, it is likely that most accounting departments are assuming human resources will be handling this issue, and vice versa. A recent Convey poll has demonstrated this organizational confusion.
Based on this poll, there is clear potential for internal miscommunication and finger-pointing between departments. Unless employers begin planning their ACA reporting strategy now, the end of the year could produce a domino effect of issues that will negatively affect their employees and their business.
- Determining which internal department will be the stakeholder for ACA reporting.
- Where will the data come from?
- Creating a solid organizational solution for next year’s ACA reporting as penalties will be soon assessed for the company in 2015.
- Selecting and educating an internal department that will handle employee relation issues for ACA reporting.
Understanding the obligations and who will be responsible for which pieces of the reporting to ensure employees have everything they need.
Some of the information needed to meet the ACA reporting requirements under IRC 6056 includes employees’ TIN’s, addresses, insurance coverage dates and insurance coverage premium costs. While accounting can provide some of this information, the majority of the benefits information is kept in Human Resources. Both departments will need to supply data to complete the reporting. One department will need to manage the task of compiling the necessary information, distributing the 1095s to employees and transmitting the information to the IRS. Accounting has the experience with information reporting, so initially, their department would seem like the obvious choice. However, medical insurance information is not accounting’s area of expertise and the details of health insurance coverage would be best handled by human resources. An alternate choice is to combine efforts and create an exclusive ACA reporting team with members from different departments.
Regardless of who manages the new ACA reporting, other questions will stem from this assignment: Who will supervise the company’s ACA reporting team? Will a new role need to be created? How will the team’s time spent on ACA reporting affect their other daily responsibilities? Will more staff need to be hired? What are the underlining costs of ACA reporting? What technologies exist to help and is outsourcing a viable option?
Transmitting the information needed for ACA reporting between departments (HR / Accounting) and ensuring that this information is correct and in compliance with ACA legislation to avoid penalties for employees.
Once a team has been assigned to manage the ACA reporting process, the next step will be to determine how the information will be compiled. It is very likely that the information will be originating from at least two different databases. These may exist within the business or may be a combination of data from the business and the insurance provider. The first important step will be to determine where the data needs to come from and ensure that it can be securely aggregated for reporting purposes. Moreover, accuracy is essential in tax information reporting. Therefore, ensuring that the employees’ information is secure and accurate will most certainly involve another department: Information Technology. The strategy on how all these parts will come together and collaborate will require thoughtful time and planning.
Challenge 3 – Creating a solid organizational solution for next year’s ACA reporting as penalties will be soon assessed for the company in 2016.
Implementing a pilot season in 2014 to preempt any EOY reporting hiccups.
While 2014 will be focused on the employee reporting, it is recommended that employers use this year as an opportunity to implement a tax reporting pilot season for ACA. Employers should keep in mind that new information reporting will likely bring about an increased margin for error. A pilot season will ensure that 2014 tax reporting will run as smooth as possible.
There are a couple reasons a pilot season in October and November would be helpful. One of these reasons is to avoid employee relation issues come January. A trial run would allow employers to catch any unforeseen hiccups in the new reporting process prior to providing their employees with the 1095-C forms. Additionally, since employers are not required to file for 2014, this is an excellent opportunity to use 2015 to rectify any reporting issues before penalties become a reality in 2016.
Challenge 4 – Selecting and educating an internal department that will handle employee relation issues for ACA reporting.
Instructing their employees on how to handle their tax return with the added ACA reporting requirement.
Employee relations will also be a significant issue during this transitional time into ACA reporting. ACA reporting is new to the business world as well as the individual. Employers must consider how the new reporting will affect their employees.
A department could be selected to help manage employee relations and handle with any issues that may arise during the tax season. In addition, a training session or educational seminar for employees could benefit not only the employee’s experience for their individual tax filing, but also smooth the road and answer some key questions for the departments managing the new ACA reporting.
Convey 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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