Employer Reporting Errors

Issue Date: June 2016

Introduction

Now that the deadline under Sections 6055 and 6056 for issuing statements to employees/covered individuals has passed, employers may begin to identify errors in the statements issued. And once statements are filed with the IRS, the IRS may identify errors or information that does not match its records. In both cases, employers must take steps to rectify the errors or address inconsistencies (or demonstrate reasonable cause) to avoid potential penalties under Code §§6721 and 6722.

Background

For the first time in 2016, all applicable large employers (generally those with 50 or more full-time equivalents) are required to provide a Form 1095-C to any employees who were full-time for at least one month during 2015. And all employers, regardless of size, offering coverage under a self-funded plan during 2015 must provide either a Form 1095-B or a Form 1095-C to any individuals covered under the self-funded plan.

For 2016 only, the IRS extended the reporting deadlines. Reporting using Forms 1094 and 1095 is due to the IRS by May 31 (or June 30 if filing electronically), and a copy of the applicable Form 1095 must have been provided to full-time employees and covered individuals by March 31. Generally, the reporting timeframes will be identical to those required for Form W-2s.

Employers subject to employer reporting requirements who file the required Forms 1095 with errors may face penalties of up to $250 for each return, up to a maximum of $3,000,000 during a calendar year. Penalty amounts are reduced for those forms that are submitted and/or corrected within the first 30 days following the deadline.

For the first year of employer reporting, the IRS has indicated that it will not impose penalties for incorrect or incomplete filings on employers who can show a good faith effort to comply with the information-reporting requirements on a timely basis. However, no relief is provided if employers do not make a good faith effort to comply. For this reason, it is important that employers review the requirements for correcting any errors identified in order to demonstrate such a good faith effort.

Addressing Errors

Errors discovered by the Employer

Identified errors must be corrected as soon as possible after they are discovered. Penalties may apply if an employer fails to correct information returns or furnish corrected recipient statements. Such errors may be discovered by the employer or by form recipients (i.e., full-time employees or covered individuals) who report such errors to the employer.

Prior to filing with the IRS

The employer must issue a fully corrected 1095-C or 1095-B to the employee and write “CORRECTED” on the new form (rather than marking the CORRECTED checkbox).

After filing on paper with the IRS

  • 1094-C (Authoritative Transmittal only): The employer must file a standalone, fully completed Form 1094-C that includes the correct information and enter an “X” in the CORRECTED checkbox.
  • 1095-C and 1095-B: The employer must issue a fully corrected 1095 to the IRS and enter an “X” in the CORRECTED checkbox. The employer should also file a Form 1094 transmittal with the corrected 1095-C; however, the employer should not mark the “CORRECTED” checkbox on the Form 1094, and the Form 1094 should not be marked as an authoritative transmittal. The employer must furnish the employee or covered individual a copy of the corrected Form 1095.

After filing electronically with the IRS

Technical instructions for correcting errors in electronic filings can be found in Section 7 of Pub. 5165 (https://www.irs.gov/PUP/for_taxpros/software_developers/information_returns/Draft_Pub_5165_04_2015.pdf), but generally the corrections must also be handled electronically.

Errors discovered by the IRS

Transmission or submission rejection

If the entire filing is rejected by the IRS, appropriate corrections must be made and the entire file (Form 1094-C and all Form 1095-Cs) must be resubmitted. NOTE: When the filing has been submitted electronically, such rejection is generally due to a failure to format the content in accordance with the electronic filing process requirements. Specific information on the requirements may be found here – https://www.irs.gov/for-tax-pros/software-developers/information-returns/affordable-care-act-information-return-air-program.

Transmission or submission accepted, but with errors

In general, if the filing is accepted, but with errors, the employer is expected to make corrections. One of the most common errors that employers are running into is having incorrect or missing TINs (usually the Social Security Number or SSN). The instructions for Forms 1094-B/1095-B and 1094-C/1095-C indicate that employers are not required to issue corrected forms when a covered individual’s TIN is missing or incorrect if the employer has made a good faith effort to obtain the information in accordance with the standards for reasonable cause.

 To establish a good faith effort or reasonable cause, employers who already have an employee’s TIN by virtue of the employment relationship (e.g., from a W-4 submitted at the time of hire) should compare the information on Form 1095 with the information included on the W-2s to verify accuracy. For employers reporting on those covered under a self-funded plan, which may include non-employees such as dependents, the employer should take the following steps to demonstrate a good faith effort to solicit the covered individual’s TIN:

  1. Make an initial solicitation at the individual’s first enrollment or, if the individual is already enrolled on September 17, 2015, the next open enrollment season;
  2. If the first solicitation is unsuccessful, make a second solicitation at a reasonable time thereafter; and
  3. If the second solicitation is unsuccessful, make a third solicitation by December 31 of the year following the initial solicitation.

If an employer is still not successful after taking the steps outlined above, it may use a date of birth in lieu of a TIN for non-employees on the reporting forms.

If after going through this process the employer finds that the information received matches the information previously reported on the 1095 (or if no information was received, in which case the employer is permitted to use the date of birth and should verify that this information matches), the employer should document this review; but it doesn’t appear further action is necessary unless further notice is provided by the IRS (see more below). But if the employer reviews its W-2s or the information received from the covered individual in response to a solicitation and does discover errors on the 1095s, then the reporting instructions are clear: These errors should be corrected “as soon as possible” in order to avoid potential penalties.

 If the IRS is unable to reconcile the TIN/SSN information on Form 1095 with the information in its records, it may issue a Notice 972CG (“Notice of Proposed Civil Penalty”). If the employer receives this notice, it should compare the information on the notice with the information in its records and respond within 45 calendar days. If additional time is needed, an employer may submit a written request to the address listed on the notice before the end of the 45-day period. In the employer’s response, the employer will have the opportunity to establish reasonable cause as described herein.

 

Summary

Although the IRS has promised a bit more leniency and relief overall for this first year of employer reporting, there is no guarantee of penalty relief for a failure to correct errors that are identified by the employer or by the IRS. Employers should carefully review the steps outlined above to ensure that they are able to demonstrate a “good faith effort” toward accurate reporting.

Informal IRS instructions in regard to handling corrections may be found:

More detailed information in regard to missing or incorrect TINs may be found in Pub. 1586 (https://www.irs.gov/pub/irs-pdf/p1586.pdf) and in IRS Notice 2015-68 (https://www.irs.gov/pub/irs-drop/n-15-68.pdf).

 

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

Employer Exchange Subsidy Notices – Appeal or Not?

Issue Date: June 2016

Introduction

Employers are starting to receive notices from public Exchanges indicating that one or more employees are currently receiving a subsidy when purchasing individual health insurance coverage through a public Exchange, which could potentially trigger employer penalties under §4980H. If an employer receives such a notice for one of its employees, the employer has a right, but is not required, to appeal when they feel an employee should not be receiving a subsidy because the employer offers minimum value, affordable coverage.

Background

The Affordable Care Act (ACA) requires all public Exchanges (Marketplaces) to notify employers when an employee is receiving a subsidy (tax credits and cost-sharing reductions) for individual health insurance purchased through a public Exchange and provide an opportunity for employers to appeal. Final rules published in August 2013 set forth the requirements for an employer to appeal the finding that it is not offering coverage meeting §4980H requirements. The particulars of the process, however, are managed by each Exchange separately. So long as the requirements in the final rules are met, each state Exchange is allowed to set up its own process and procedures. Information about how to file an appeal is usually included in the notice, but it may be necessary to check with the applicable Exchange to find out exactly how to handle the appeals process.

Some states began sending these notices in 2015, but HHS announced that all federally facilitated Exchanges will begin sending notices in 2016.

Appeal Form and Process

The form being used by federally facilitated Exchanges as well as by 8 other states may be found here (approximately half of the states are currently using this form and process). The forms and processes for all other states may be found by visiting the state’s Exchange site. The process generally involves filing a paper appeal, providing documentation, and in some cases participating in a hearing.

Should Employers Appeal? Maybe…

Small Employers (less than 50 FTEs)
Small employers have no penalty exposure under §4980H. The only reason such an employer may want to appeal would be to prevent an employee from incorrectly receiving a subsidy through a public Exchange that may have to be paid back at the end of the year via personal tax return (employee relations). However, perhaps it would be easier simply to have a conversation directly with the employee rather than working through the appeal process.

Applicable Large Employers (50 or more FTEs)
Just because the employer receives a notice it does not mean the employer will actually owe a penalty payment under §4980H. Such penalties/payments are assessed by the IRS after reconciliation of the employer reporting. And if according to such reporting the IRS sends a payment notice, the employer will at that time have a chance to appeal with the IRS.

For part-time employees, the employer is not under any obligation to offer any type of coverage under §4980H, so going through the appeal process probably isn’t necessary. As mentioned above for small employers, the only reason an employer may want to appeal a notice provided for a part-time employee would be to prevent an employee from incorrectly receiving a subsidy through a public Exchange that may have to be paid back at the end of the year via personal tax return (employee relations).

 For full-time employees,

  • If the employee was not offered minimum value, affordable coverage, there is nothing to appeal; rather, it serves as an indication that the employer will likely owe a penalty under §4980H for at least some months of the year.
  • If the employee was offered minimum value, affordable coverage, the employer really has two options:
    1. Appeal as outlined in the notice and provide proof that the coverage offered provides minimum value and is affordable; or
    2. Reconcile this with the IRS early the following year when the employer reporting is submitted via Forms 1094-C and 1095-C.

Bottom line, the employer does not have to appeal to avoid a penalty under §4980H. Rather, penalties will not apply until after the employer reporting (via Forms 1094-C and 1095-C) is reconciled. There is some speculation that perhaps it is better to appeal with the Exchange rather than waiting to appeal later with the IRS because the appeal process with the Exchange may be more streamlined and provide for a longer appeal window, especially since the IRS has yet to release any specific guidance as to its appeal process.

Summary

This is a fairly new process, so the best approach for employers is unclear at this point. It may make sense to clear things up sooner rather than later by filing an appeal to avoid hassling with the IRS, and also to prevent the individual from receiving a subsidy for which they are actually ineligible. The appeals process doesn’t appear to be very difficult and may only need to be done for a handful of employees. But it’s possible that it could all be cleared up more quickly by simply communicating to the employee that they may be receiving the subsidy in error. So is it worthwhile to appeal, or potentially even pay a vendor to handle it on the employer’s behalf?  Maybe…or maybe not…. We will know more after this first year of employer reporting and have a better understanding of the reconciliation process with the IRS. But regardless of whether an employer decides to appeal through a public Exchange prior to reporting to the IRS via Forms 1094-C and 1095-C, ultimately any penalties that may apply will be reconciled with the IRS.

 

 

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

Form 1095 – Employee Communications

 Issue Date: January 2016

Many employers want to provide some type of communication along with, or before, the distribution of Form 1095s to relevant employees. Although any employee communication must be tailored to meet the employer’s specific circumstances, some general concepts are addressed here that can be adjusted as appropriate to help employees understand why Form 1095s are being provided, what type of information they provide, and how they are to be used.

Background

Reporting of plan and coverage information using Forms 1094 and 1095 is required to provide the IRS with the information necessary to administer and regulate the following:

  • Individual Mandate – Individuals are required to be enrolled in minimum essential coverage (a “MEC” plan) for all months during the year to avoid potential penalties under the individual mandate unless they meet a specified exemption.
  • Employer Mandate – Applicable large employers (ALEs), those with 50 or more full-time equivalents (FTEs), are required to offer full-time employees and their dependent children minimum value, affordable coverage to avoid potential penalties under Section 4980H (aka the “employer mandate”).
  • Individual eligibility for a tax credit/subsidy through a public Exchange or Marketplace – Individuals who choose to enroll through a public Exchange or Marketplace may qualify for a tax credit/subsidy to help pay for such coverage if the individual is not enrolled in a MEC plan or is not eligible for employer-sponsored affordable, minimum value coverage and meets certain household income requirements.

All providers of an MEC plan (e.g. insurance carrier or employer sponsoring a self-funded plan) are required to report on any individuals covered under such plan.

In addition, all ALEs are required to report offer of coverage information for any employees who were full-time for any month during the year.

Form 1094 and all associated Form 1095s must be reported to the IRS, and a copy of Form 1095 (or an alternative statement) must be provided to all full-time employees and any covered individuals.

Important Information to Address in Employee Communications

  • Affordable Care Act (ACA) Requirements
    • Individuals are required to be enrolled in minimum essential coverage (an “MEC” plan) for all months during the year to avoid potential penalties under the individual mandate unless they meet a specified exemption. Individuals will need to indicate whether or not they were enrolled in MEC for all 12 months when filing their personal tax returns.
    • Individuals who are enrolled in individual coverage through a public Exchange or Marketplace may not qualify for a tax credit/subsidy if they are enrolled in an MEC plan or are eligible for affordable, minimum value employer-sponsored coverage. For individuals who were provided with such a tax credit/subsidy, but were ineligible for any part of the year, any applicable reconciliation will be handled on the personal tax return. 
  • Form Descriptions
    • For small employers (less than 50 FTEs) offering a fully-insured MEC plan:
      • Anyone actually enrolled in the employer’s medical plan will receive a Form 1095-B from the insurance carrier indicating any months of coverage for the employee and any covered dependents.
    • For small employers (less than 50 FTEs) offering a self-funded MEC plan:
      • Anyone actually enrolled in the employer’s medical plan will receive a Form 1095-B from the employer (or third-party vendor hired by the employer to provide the forms) indicating any months of coverage for the employee and any covered dependents.
    • For ALEs (50 or more FTEs) offering a fully-insured MEC plan:
      • All full-time employees, whether they enroll in the plan or not, will receive a Form 1095-C from the employer (or third-party vendor hired by the employer to provide the forms) indicating whether or not the employee was offered a plan that met both minimum value and affordability requirements.
      • In addition, anyone actually enrolled in the employer’s medical plan will receive a Form 1095-B from the insurance carrier indicating any months of coverage for the employee and any covered dependents.Note – employees who are both full-time and enrolled in the employer’s medical plan will receive both Form 1095-B from the insurance company and Form 1095-C from the employer.
    • For ALEs (50 or more FTEs) offering a self-funded MEC plan:
      • All full-time employees, as well as anyone actually enrolled in the employer’s medical plan, will receive a Form 1095-C from the employer (or third-party vendor hired by the employer to provide the forms) indicating (a) whether or not the employee was offered a plan that met both minimum value and affordability requirements; and (b) any months of coverage for the employee and any covered dependents.
  • Using 2015 Information When Filing Personal Taxes
    Individuals will use Form 1095-B and/or C as documentation that they were enrolled in minimum essential coverage (MEC) to comply with the individual mandate and whether or not the individual was eligible for a tax subsidy if enrolled through a public Exchange.

    • Information regarding coverage and subsidy eligibility is needed to complete an individual’s personal tax return, but the Form 1095 does not need to be submitted with the personal tax return. Copies of 1095s will be provided to the IRS by the employer (or third-party vendor) or insurance carrier as applicable.
    • Individuals should keep copies of 1095s on file to verify offer and coverage information in case an audit is conducted in the future.

 Also note that due to the extension of the reporting deadlines for 2016, employees may not receive a Form 1095 prior to filing their personal tax returns. Since Form 1095 is not actually required for an individual to file their personal tax return, this shouldn’t delay the filing of personal tax returns.

If Form 1095 is not available at the time the individual is preparing the personal tax return, the individual may request the information from the insurance carrier or employer. The IRS indicated in Notice 2016-4 that for the 2015 tax year, individuals who do not receive a Form 1095 prior to filing their tax returns may rely on other sources of information (e.g. from the employer or insurance carrier) for these purposes and will not be required to file an amended return if they subsequently receive a Form 1095 containing different information.

 Summary

Employers may be able to avoid some of the confusion and proactively answer employee questions by providing some type of employee communication in regard to the Form 1095s that will be provided to individuals for the first time early in 2016. The information provided here is meant to provide some general information that may be adjusted to match the employer’s situation.

More detailed information in regard to employer reporting requirements can be found in our employer reporting guide found here.

Specific information about 2016 extended deadlines may be found here.

 

 

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

• Issue Brief- Affordability Considerations

Affordability Considerations

Issue Date: June 2015

For purposes of individual eligibility for tax subsidies through a public exchange, and for compliance with the employer shared responsibility rules under Section 4980H, it is important to understand whether or not coverage offered under an employer-sponsored group health plan is “affordable.” When setting plan contribution rates employers must consider IRS employer affordability safe harbors, the various elements that play into the determination of the employee contribution, and the penalties associated with failing to offer affordable coverage.  Continue reading “• Issue Brief- Affordability Considerations”