With the Supreme Court ruling handed down in June upholding Health Care Reform legislation, the most visible challenge to overturn the legislation ended. Now that the regulations are reality, applicable large employers (ALEs), which have 50 or greater full-time equivalents, are finding out that the compliance requirements for 2015 are complicated, burdensome and potentially very costly — and the outsourced resources for handling the process are reaching capacity.
Employers Face Tight Deadlines
The IRS has mandated the completion of the 1094 and 1095 series of compliance returns. The tax forms are required to be filed with the IRS and the large employers’ full-time employees and dependents, regardless of whether the ALE actually offers health insurance coverage.
The forms must be filed with the IRS no later than Feb. 28, 2016, if filed manually or March 31, 2016, if filed electronically for the 2015 year. ALEs with more than 250 FTEs are required to file electronically. Additionally, employers are required to provide the 1095-C forms to employees no later than Jan. 31, 2016.
The 1094-B and 1095-B forms are required for employers (and spouse/dependents) who are not ALEs but sponsor self-insured group health plans to meet the reporting requirements for providers of minimum essential coverage. Health insurance issuers will also file Form 1095-B to report on coverage for employees of small employers obtained through the Small Business Health Options Program (SHOP). The 1094-C (summary of health insurance offered and provided) and the 1095-C (employee month by month detailed information) forms are required to be filed by ALEs regardless if they offer fully insured or self-insured plans.
Costly Penalties for Late Filings and Noncompliance
To help ensure compliance, the IRS has implemented penalty provisions for improper filing. These include a $250 penalty for each return up to a maximum penalty of $3 million for larger companies for failing to file an information return or provide a payee statement. However, if the failures are corrected within 30 days of the filing date, the penalty drops from $250 to $50 per return and an annual maximum of $500,000 for larger employers. If the employer willfully disregards the reporting requirement altogether, the fine for larger employers jumps to $500 per return with no annual penalty maximum.
Filing Complexities Leading Many Employers to Outsource
Ron Harley, ADP Division vice president, Added Value Services Health Compliance, estimates that “over 80 percent of large employers are outsourcing these forms because of the complexity of the regulations and reporting elements.” Outsourced vendors are quickly reaching capacity to help organizations comply.
Extensions for filing with the IRS are projected to be readily available under appropriate circumstances. Applicable employers may file an extension request and be quickly granted a 30-day extension. However, extensions to file Form 1095-C for employees are projected to be more difficult to attain.
According to Harley, what makes completing the forms more complicated is that “most HR systems are not fully integrated between payroll, time, benefits and leave of absence, and the information needed is not static. It is a combination of static and derived information that is needed to complete the 32 elements on Form 1095-C.”
To further complicate matters, the IRS implemented a new electronic filing system called the ACA Information Reports (AIR) for these forms. To file electronically, ALEs must submit an Application for Transmitter Control Code (TCC). The submitter must verify that the IRS processed the transmission and returned a receipt ID, acknowledgment and associated error file before filing. So, even if you complete the forms successfully, if you have not “registered” with the IRS to file electronically, you will not be able to file.
Finding a Solution
The window of time for support by solution providers is closing. Employers should work closely with their accountants, payroll providers, insurance broker and other trusted advisers to determine how their organization will address these new requirements.
For more information on Health Care Reform, contact Ron Present, Partner and Health Care Industry Group Leader, at 314.983.1358 or firstname.lastname@example.org.