Christmas is less than 80 days away… Seriously, where has this year gone?!? While it’s hard to believe, December 25th is right around the corner. This means Affordable Care Act (ACA) reporting is also quickly approaching. We know thinking about ACA requirements may not bring the same excitement as seeing presents under the tree, but our hope is to help lessen any stress by gifting an understanding of the latest news on ACA reporting.
In a previous post, we announced that the IRS raised the ACA affordability percentage for 2021. This post serves as a follow up, looking at the new employer mandate penalties for 2021; the 2020 draft reporting forms; and IRS Notice 2020-76 (released just last week) that provides transition relief for health coverage reporting for 2020.
As a reminder, under the ACA, an Applicable Large Employer (ALE) (one with 50 or more full-time employees during the previous year (including full-time equivalent employees)) is required to either offer affordable minimum essential coverage that provides minimum value to its full-time employees and dependents, or potentially pay an employer shared responsibility payment (a penalty). Each year, ALEs are required to report to the IRS whether coverage was offered, and whether the coverage satisfied the affordability and minimum value standards. Certain small employers have annual reporting requirements as well.
2021 Employer Mandate Penalties
The employer mandate penalties are increased annually to reflect an inflationary adjustment. There are two types of penalties related to reporting requirements under the ACA. Per Section 4980H(a), the “A Penalty” is imposed when an ALE fails to offer minimum essential coverage to at least 95% of its full-time employees. Per Section 4980H(b), the “B Penalty” is imposed when an ALE offers coverage, but the coverage is not affordable or does not provide minimum value (i.e., does not pay at least 60% of the total allowed cost of benefits). The penalties for 2021 are as follows:
- A Penalty: Penalty amount equals $2,700 (increased from $2,570 for 2020) for each full-time employee, minus the first 30 employees. When determining the penalty amount, ALL full-time employees must be counted (even those who have minimum essential coverage), except for the first 30 employees that can be excluded.
- B Penalty: Penalty amount equals $4,060 (increased from $3,860 for 2020) for each full-time employee who receives the premium tax credit.
2020 Coverage Reporting (Filing in 2021)
Each year, ALEs are required to issue two reports regarding the minimum essential coverage offered to employees – one to the IRS (Form 1094-C) and one to individuals (Form 1095-C). Similarly, small self-funded employers (with less than 50 full-time employees (including full-time equivalent employees)) are required to report participant enrollment in coverage on Forms 1094-B and 1095-B.
The IRS has released the 2020 draft reporting forms for review. Comparing the 2019 Forms to the 2020 Draft Forms, no changes were made to the 2020 Draft Form 1094-C. Changes were made to Draft Form 1095-C. This is in response to the final rule issued last summer, applicable to plan years beginning on or after January 1, 2020, that permits employers to reimburse employees for qualified health insurance costs (e.g., premiums for individual health coverage purchased through the Marketplace) via an Individual Coverage Health Reimbursement Arrangement (ICHRA) if certain conditions are met.
Changes to the 2020 Draft Form 1095-C include a new Line 17 in which to provide the monthly Zip Code used by the employer for determining affordability if the employee was offered an ICHRA. New codes have also been added to report the location used by the employer when determining the affordability of coverage (i.e., the employee’s primary residence or work site). In addition, the form now provides a space to enter the employee’s age.
No changes were made to the 2020 Draft Form 1094-B. However, just as the Draft 1095-C has been updated to capture whether the employee or other individuals were covered by an ICHRA, the 2020 Draft Form 1095-B has similarly been revised to include a new coverage code.
While it is helpful for employers to review the 2020 Draft Forms, they cannot be used or relied upon for filing. Further, the IRS warns that additional changes may be made before releasing the finalized forms. As of the publishing of this post, the instructions to complete the forms and the penalty amounts for failing to comply with the reporting requirements have not yet been released.
IRS Notice 2020-76
IRS Notice 2020-76, released on October 2nd, gives employers some relief by extending the deadline to furnish 2020 Forms 1095-B and 1095-C to individuals. The new due date is March 2, 2021, extended from January 31, 2021. Employers will not be permitted to further extend this deadline.
No extension has been granted to employers for purposes of submitting the 2020 Forms to the IRS (i.e., 1094-B, 1094-C, and copies of 1095-B or 1095-C). This means the forms must be submitted on or before March 1, 2021 (or March 31, 2021 (if filing electronically)). An extension for filing these forms is available by submitting Form 8809.
Additionally, Notice 2020-76 extends furnishing relief to small self-funded employers by providing that the IRS will not impose a penalty for failure to distribute Form 1095-B to individuals if certain conditions are met.
For any questions or additional information, please contact your HORAN account representative.
The information contained in this document is informational only and is not intended as, nor should it be construed as, legal or accounting advice. Neither HORAN nor its consultants provide legal, tax nor accounting advice of any kind. We make no legal representation, nor do we take legal responsibility of any kind regarding regulatory compliance. Please consult your counsel for a definitive interpretation of current statute and regulation, and their impact on you and your organization.