Affordable Care Act Tax Filings for Small and Large Employers

Compliance with new ACA rulings begins with the 2014 tax filings. Individuals will be required to disclose coverage status on federal tax returns. Since your business and employees will be affected by this mandatory reporting, you need to know something about it.

Effective January 1, 2014, the PPACA directed U.S. citizens and foreign nationals residing in this country legally to secure health insurance. Qualifying plans must offer 10 essential health benefits with no limit on annual or lifetime healthcare costs. All persons required to file tax returns must certify whether each household member had health insurance coverage by month.

Each person within the household may have had coverage and an individual’s coverage status may vary during the course of the year. As long as an individual had coverage for one day of the month, they are considered covered for that month. For any month that an individual did not have coverage and was not exempt, that individual is subject to penalties.

If you or your employees did not have coverage during the year, the minimum penalty is $95 per person (discounted to $47.50 for those under 18) and up to $285 per family. Penalties increase as a function of income with the maximum reaching the national average premium for a bronze plan ($2,448 per individual per year or $12,240 for a family with five or more members). Penalties for 2015 and 2016 will be even higher.

Starting this month, health insurance providers may distribute statements that document coverage for all individuals in a household. When available, these statements provide proof of insurance for covered individuals and supply information necessary to comply with federal reporting requirements. Three forms are available:

• IRS Form 1095-A will be issued to individuals who procured insurance through Healthcare.gov or a state marketplace.
• IRS Form 1095-B will be issued by insurance carriers or large employers who self-insure to individuals who are covered under employer-sponsored policies issued by the carrier or large employer.
• IRS Form 1095-C will be issued by large employers who sponsor health insurance policies to all employees covered under the policy.

The insurance exchanges are issuing Form 1095-A in 2015. But health insurance carriers and employers are not required to provide this information until 2016 for the 2015 tax year, so your business and your employees may not receive formal documentation to help prepare your 2014 returns. In such cases, you may use a copy of your health insurance policy and payment history as proof of insurance.

Organizations with less than 50 full-time employees are not required to provide health insurance or issue reports on their employees’ coverage. If you offer coverage through a group plan, the insurance carrier will supply this information. If your employees procure their own coverage, either their carrier or their insurance exchange will attend to reporting. However, if you self-insure, your business will be subject to the same reporting requirements as larger employers (described below).

Tax credits may be available if you have less than 25 full-time-equivalent (FTE) employees and you paid at least 50% of your employees’ healthcare insurance premiums. These credits are only available if you purchased coverage through a Small Business Health Options Program (SHOP) exchange. Credits are applied as follows:

• For 1-10 FTEs with wages averaging $25,000 or less, you receive a business credit up to 50% of premium amounts you pay. The credit phases out up to average employee wages of $50,000.
• For 11-24 FTEs, the amount of credit phases out as a function of the number of employees and average wage, with no credit available beyond the $50,000 average wage cap.Your tax professional can help you determine the correct amount.

Organizations of 50 or more full-time employees must provide qualified health insurance at rates that are affordable for each employee. Coverage is treated as affordable if the employee’s share of the premium is less than or equal to 9.5% of the reported W-2 wages. Tax penalties apply to organizations that fall short of these requirements.

In January 2016 for the 2015 tax year, employers with 100+ full-time employees must supply detailed information about the insurance coverage they offer. In 2016 this requirement applies to employers with 50 or more full-time employees. Each of their employees must receive a Form 1095-C that reports:

• The employer’s name, address, employer identification number, and contact information
• The employee’s name, address, and social security number as well as identifying information (e.g., social security number, date of birth) for covered household members
• The offers of coverage made by month, including availability for household members
• The employee’s share of the lowest cost premium by month

Tracking and reporting will likely entail development of new information systems and the associated administrative procedures. While reporting requirements do not go into effect until 2016, we’re working with affected clients this calendar year to prepare them for full compliance.

If your organization employs 50 or more full-time-equivalent employees or self-insures, contact your tax professional as soon as possible. While you have a one-year grace period before you face reporting requirements, you may need time to collect and track all of the information for your employees and their dependents by month. It may be difficult to pull it all together if you wait until year-end!

If your organization is not subject to reporting requirements, be prepared to field questions from your employees, especially if you participate in an employer-sponsored group health plan.

They may be confused by their Form 1095 – or by the absence of one! Be prepared to direct them to the appropriate resource – i.e., their insurance exchange or independent insurance carrier—to supply proof of insurance. And of course, you might suggest that they consult with their tax professional regarding this year’s filings.