The Affordable Care Act will continue to provide new surprises for tax preparers and taxpayers for the foreseeable future.
âEvery year weâll have something new as it relates to the ACA,â said Roger Harris, president of Padgett Business Services. âLast year, it was all new. This year, you start with the fact that the employer has more responsibility in terms of the coverage requirement and the shared responsibility payment they owe if they fail to provide coverage.â
âThe good news is that practitioners donât calculate the amount of the payment â the Internal Revenue Service will do that for them,â said Harris. âBut they will probably be working with clients to make them aware of the penalty. They also have to worry about the Forms 1995-B and 1095-C reporting requirements. A taxpayer could get a Form 1095-A, Form 1095-B and Form 1095-C, or any combination of those. There are new forms, and more forms, and practitioners have to get used to asking for and understanding what the forms mean. Businesses and insurance companies have to get used to issuing those forms, and all of those will be new for both clients and practitioners.â
âThe fact that the act is being implemented in stages means that every year thereâs something new that we have to teach our clients and ourselves to be prepared for,â he added.
SURPRISE FOR EMPLOYERS
A key point for this yearâs rules is that employers that have between 50 and 99 full-time employees, or FTEs, are exempt from the employer mandate for 2015 but are still required to file Form 1095-C, noted Nicole Bogard, who leads the employee benefits practice at the Atlanta office of Seyfarth Shaw LLP.
âThis will sneak up on a lot of employers,â she explained. âThey will be wondering how to capture all the information they need to report on these tax forms and who will do it for them.â
âIf the employer is fully insured, then they are basically off the hook for providing the individual statements for employees, because the insurance company is responsible for providing those statements,â she said. âThe individual employees will use those statements to demonstrate that they have complied with the individual mandate, but if youâre insured with at least 50 full-time employees, the employer still has the responsibility to file Form 1095-C to demonstrate that they satisfied the employer mandate.â
âIf the employer has more than 250 returns that need to be filed, the employer will be required to file them electronically, so they will need to obtain the appropriate software,â she said. âThis is all new software. We just helped one client find appropriate software. We gave the employer a list of six recommendations. Itâs a lot of work to be done if the employer hasnât begun the process.â
Form 1095-C is filed and furnished to any employee of an applicable large employer who is a full-time employee for one or more months of the calendar year. ALEs must report that information for all 12 months of the calendar year for each employee. Form 1095-C shows the coverage that was made available to an employee, while a separate form, Form 1095-B, gives details about an employeeâs actual insurance coverage.
âRelated employers within a controlled group need to be aggregated for determining the number of âfull-timeâ or âfull-time equivalentâ employees employed by an ALE for the purpose of determining ALE status,â noted Bogard. âThe final instructions refer to these corporate families as an âAggregated ALE Groupâ and each ALE within the Aggregated ALE Group as an âALE Member.ââ
âEach employer with a separate employer identification number that is an ALE or an ALE Member is responsible for reporting,â she said. âIn some cases, related employers with separate EINs participate in the same self-funded group health plan. Despite having a single self-funded group health plan providing the coverage, Forms 1094-C and 1095-C will need to be completed for each employer EIN for the full-time employees of that employer. Each ALE will also need to report the names and EINs of other entities in the ALEâs controlled group on Form 1094-C.â
âForm 1095-C has to be sent out by Feb. 29, 2016, if they are on paper, or by March 31, 2016, if they are filed electronically,â Bogard continued. âThey have to be provided to the employee by Feb. 1, 2016. Itâs similar to W-2s in that they have to upload them to the IRS after they give them to their employees.â
W-2 PARALLELS
The Forms 1095-B [third-party insurers] and C [employers] are essentially to verify or get information on three things,â said Bill Smith, managing director of CBIZ MHMâs National Tax Office. âThey provide information on the individual mandate penalty, the employer shared responsibility penalty, and whether or not the employee is eligible for premium tax credit or assistance in buying on the marketplace or exchange.â
âI like to compare it to Form 941 and W-2s,â he said. âForm 1095-C is what the employers send to their employees. They also have to tell the IRS what was in the information they sent with the W-2, and thatâs done on the 941. Likewise, the employer sends the employee a 1095-C and sends the IRS a 1094-C that tells the IRS what was in the 1095-C.â
âWith the 1095-C, youâre saying what kind of coverage you offered to your employees so they and the IRS can confirm whether youâre offering minimal essential coverage,â Smith explained. âIf you donât, then there are a couple of different things going on. If the cost is too expensive for the employee, he or she can be eligible for premium assistance in the marketplace, and if youâre not offering minimum essential coverage or itâs too expensive, youâre subject to the shared responsibility penalty.â
What makes it difficult for employers is the fact that they have to draw information from different sources in the company, Smith observed. âWe offered a service to help employers do this. There was so much demand for it that we had to cut it off at the end of September. Now weâre trying to figure out how to help those who didnât sign up early enough.â
âOne of the interesting aspects of the ACA is that the individual mandate penalty has jumped up this year and gets pretty expensive next year,â Smith said. âFor 2015, itâs $315 per adult and $162.50 per child or 2 percent of family income, whichever is greater, with a max of $975 per family. Next year it goes up to $695 per adult or 2.5 percent of family income, up to a max of $2,085. The individual mandate is starting to make its pain felt this year and next year, so itâs really an encouragement to get coverage. The penalty can be less than the premiums you have to pay, but bear in mind that then you wonât be getting
any coverage.â
CONSEQUENCES âŠ
âFor 2015, companies that have more than 50 full-time employees will have to report the number of employees to the IRS and show whether they are responsible for providing affordable care, or not,â said Sheila Clark, director of The Income Tax School. âThey need to provide forms both to employees and to the IRS, to prove that they are meeting the requirements of the ACA. They also need to issue information to their employees to prove that they do have affordable care. If they donât have coverage and they are required to have coverage, there is paperwork that needs to be completed.â
âIf the employer does meet the requirement to provide health insurance to employees, they have to prove that theyâve offered it to at least 70 percent of their FTEs for 2015. Beginning in 2016, that goes up to 95 percent. For employers who do not offer coverage if they are required to do so, or who offer health insurance to fewer than the required percentage [70 percent in 2015, 95 percent in 2016 and after] and at least one of the full-time employees received the premium tax credit, the employer will be liable for the shared responsibility payment,â Clark said. âThis is calculated by multiplying $2,000 times the number of full-time employees minus up to 30 employees.â
âEveryone is spending a lot of time getting up to speed on their reporting obligations after the first year of the employer mandate,â said Scott Austin, head of the healthcare reform initiative at Hunton & Williams. âOne issue is employees who are variable, who are not clearly full-time employees and therefore who may not be eligible for coverage under their employerâs plan. In that case the employer is required to track the hours worked to determine if they are full-time employees or not. If they are, the employer is required to offer coverage or face potential penalties.â
There are two levels of potential penalties, Austin noted. âThe first level is based on offering coverage to essentially all of the employerâs full-time employees [70 percent in 2015 and 95 percent in 2016]. Even if it does offer coverage to the required percentage, if it does not meet affordability requirements for certain employees and the employee gets coverage and a subsidy from an exchange, thereâs a potential second level of penalty.â
Even if a new administration seeks to repeal the ACA, Austin believes it would be difficult to undo. âWe could undo pieces of it,â he said. âWe could eliminate some of the taxes and payments that are required under it. Some of the provisions have not yet taken effect, but so much has been around for several years that it would be difficult to unravel the entire thing.â
Of greater concern, he indicated, is whether the system is sustainable. âWill we be able to continue to fund it?â he said. âFor example, the Cadillac tax [a 40 percent excise tax on high-cost employer-sponsored plans] isnât effective until 2018, but itâs such a critical component in the funding of the act. If that is eliminated, how do you support the system financially?â