10 Jan Confusion with Healthcare Reporting for Employers and Employees (Forms 1095)
Some of the reporting requirements for the Affordable Care Act (Obamacare or ACA) are finally hitting some employers and their employees this tax season. New forms, 1095-B and 1095-C, were originally intended to be sent with the same deadlines as employee W2s. However, the reporting deadlines were delayed nearly two months (now due the end of March to employees, end of May to IRS if filing by paper, end of June to IRS if filing electronically).
This has only added more confusion. We’ve had many clients contact us with the following questions:
What are these 1095 forms?
Which employers are expected to file them?
Which employees should be expecting them?
What happens if employees file their personal tax returns before receiving their 1095-B and/or 1095-C?
It’s crazy that there is still so much confusion about this nearly 6 years after it was signed into law, but here we are. Hopefully this brief article will help you sort out your own questions with regard to your business or personal tax responsibilities.
What are the 1095-B and 1095-C Forms?
The 1095-B and 1095-C Forms originated with two new Internal Revenue Code sections that were added with the Affordable Care Act:
· Section 6055
· Section 6056
The main purpose of both of these sections is to provide information to the IRS to enable them to enforce the penalties associated with not having the mandated coverage under the ACA.
As a result of these new reporting requirements, forms 1095-B and 1095-C were created. Both forms are similar in that they both furnish information to the IRS and the taxpayer about coverage. They both contain identifying information about the employee or policyholder that is the primary insured. Coverage information will be used on individual tax returns to verify they did have the required minimum essential coverage (MEC) for some or all of the year.
Section 6055 (insurer responsibility) is the required reporting to the IRS of information relating to covered individuals that have been provided minimum essential coverage (MEC) during a calendar year. Section 6055 reporting is to ensure individuals have the mandated coverage.
- Form 1095-B is used for reporting minimum essential coverage (MEC) under section 6055 to the IRS and for furnishing coverage information to covered individuals. Insurance issuers in both the individual and group markets, must file form 1095-B, except if coverage is obtained through the Individual Marketplace. This form requires the name, address, and Social Security numbers (SSNs) for all covered individuals –including spouses and children. The report must include the months for which they were covered for at least one day. This allows the IRS to verify that particular individuals have the required minimum essential coverage (MEC). Without this form, individuals may be subject to the individual penalty.
Section 6056 (employer responsibility) requires applicable large employers (ALE) to file information returns with the IRS and provide statement to full time employees about the health insurance offered. Section 6056 reporting is to ensure large employers are offering coverage to all eligible employees. (Please see us if you’re unsure if your business is an applicable large employer 208.356.8500).
- Form 1095-C (for Applicable Large Employers) contains information about the offer of health insurance coverage to eligible employees, their share of the lowest premium and other information related to the employer shared responsibility provisions. Individuals then take this information and use it determine if they are eligible for a premium tax credit through coverage purchased on the Exchange. Remember your employees can still go shop for coverage on the Exchange/Marketplace, but that does not mean they will be eligible for the premium tax credit or subsidy.
Here are some common scenarios and answers to who is responsible for the forms:
- Small Group/Fully Insured – If you are a small group (under 50 full time equivalents) and you offer a fully insured plan either through the SHOP Marketplace or off the Marketplace then the insurer files form 1095-B. The employer is not responsible for the 6056 reporting (no form 1095-C).
- Small Group/Self Insured – If you are a small group (under 50 full time equivalents) and you offer a self-insured plan, the employer is responsible for sending the form 1095-B. Form 1095-C is not required.
- Large Group/Fully Insured – If you are an applicable large employer (ALE) meaning you have over 50 full time equivalent employees, the insurer files the form 1095-B. The employer is responsible for form 1095-C sections I and II. So, Part III is left blank and the individual gets the information from the insurer on Form 1095-B. Every ALE will need to complete the Form 1095-C for each full-time worker who was an employee for any month of the calendar year.
- Large Group/Self-Insured – If you are an applicable large employer (ALE) meaning you have over 50 full time equivalent employees, and you are self-insured, you fill out all sections of form 1095-C. The employer is completely responsible for the reporting.
Remember, employers with 50 to 99 employees were not subject to the employer mandate in 2015, but still are required to satisfy the reporting requirements.
What should employees be expecting?
Often, employees aren’t sure if their employer is an Applicable Large Employer, if their employer is self-insured, or even if they were considered full-time for certain periods of the year. Employees aren’t sure if they should expect 1095-Bs, 1095-Cs, or nothing at all. Most assume that all necessary tax documents come at the end of January.
Now that the IRS has extended the reporting deadlines for employers, it’s very likely that many workers will file their personal tax returns before the end of March and before receiving forms 1095-B and/or 1095C.
There will be employees who will find themselves in compromising situations because they:
- Weren’t aware that they had been offered coverage,
- Erroneously believed that their employer-sponsored coverage met minimum requirements,
- Erroneously believed the coverage was unaffordable, or
- Went to the Marketplace or Exchange for coverage and wrongly received Premium Assistance Tax Credits when they had affordable, qualifying coverage through their employer.
Because of this chaos, the IRS issued Notice 2016-04, explaining:
“Individuals who rely upon other information received from employers about their offers of coverage for purposes of determining eligibility for the premium tax credit when filing their income tax returns need not amend their returns once they receive their Forms 1095-C or any corrected Forms 1095-C. Individuals need not send this information to the Service when filing their returns but should keep it with their tax records.”
“Individuals who rely upon other information received from their coverage providers about their coverage for purposes of filing their returns need not amend their returns once they receive the Form 1095-B or Form 1095-C or any corrections. Individuals need not send this information to the Service when filing their returns but should keep it with their tax records.”
So, if individuals depend on OTHER INFORMATION given them from their employers or coverage providers regarding their health coverage or offers of coverage, they will not be required to amend tax returns.
Employers should contact Smith, Kunz 208.356.8500 with any questions regarding their status as Applicable Large Employers, and for any assistance in preparing forms 1095-B, and 1095-C before the March 31 deadline.
Employees can file tax returns before receiving forms 1095-B and 1095-C, and will not be required to amend the return once the actual forms are received.