Worried about the Affordable Care Act, especially the reporting requirements for employers? Well you’re not alone as a large number of employers are searching for answers to these very questions.
While a number of employers are aware that the Department of the Treasury and Internal Revenue Service (IRS) issued final regulations on the reporting requirements for employers regarding the ACA’s employer mandate, many are still unaware how it will impact their organizations or what they need to report on. Add to this that new regulations and changes occur often and you have a recipe for uneasy employers, especially as we head into the home stretch for reporting. So here’s what you need to know as we head into the final month of summer.
Draft Forms Available, Not Final
In July the IRS officially released drafts of the Forms 1094/5-C and 1094/5-B for reporting purposes. These forms are not yet final as the IRS anticipates draft instructions related to the forms will be posted by August. Something tells me that date is a little premature as we are near the end of August, but only time will tell. The forms and instructions are expected to be finalized “later this year,” according to the IRS, but no specific date was given.
This leaves the door open for even more changes – especially in regard to filing instructions – making it difficult to finalize how the reports will be distributed to employers, employees and IRS alike.
To review, applicable large employers (ALEs) will use the Forms 1094/5-C to report on health coverage they offer to 50 or more full-time (or full-time equivalent) employees, while the self-insured and insurers alike will use Forms 1094/5-B for reporting purposes. To view the reporting requirements along with transitional relief and filings check out our blog ACA Reporting Requirements Become Clearer.
Affordability Change or Not?
All ALEs are subject to the employer mandate and must offer affordable insurance or pay fines associated with non-compliance.
Last month, the IRS released Revenue Procedure 2014-37, effectively increasing the threshold for determining whether an employer offered affordable coverage to its employees. The IRS guidance increased the affordability percentage from 9.5% to 9.56%, meaning the employer’s least expensive plan in 2015 cannot require any employee to pay more than 9.56% of an employee’s household income.
Repeat: household income.
Because determining household income is challenging for employers, the IRS released the safe harbor provisions method, allowing employers to determine affordability by assessing whether the premium exceeded 9.5% of the employee’s:
- W-2 income as reported in Box 1,
- Rate of Pay or
- A measure of the Federal Poverty Level.
However, employers may want to move forward with caution in regards to the 9.56% increase for determining affordability based on an employee’s W-2 income as the IRS regulations still reflect 9.5% when using safe harbor methods. As with a number of ACA changes, the IRS may have meant this to reflect when determining affordability using the safe harbor methods, but the change has not been made in official regulations.
The content of this blog is intended to keep interested parties informed of legal and industry developments for educational purposes only. It is not intended as legal opinion or tax advice and should not be regarded as a substitute for legal or tax advice.