IRS Issues Draft 2015 Instructions for ACA Reporting Forms
Author: Rena Pirsos, XpertHR Legal Editor
August 20, 2015
The IRS has issued draft 2015 Instructions for Forms 1094-C and 1095-C, which employers are required to complete and file with the IRS to report on the terms and conditions of the health care coverage offered to their employees, as required by the Affordable Care Act (ACA) and Internal Revenue Code (IRC) § 6055 and § 6056. Draft Instructions for Forms 1094-B and 1095-B have also been issued; these forms are used to report information to the IRS on each individual to whom minimum essential coverage was provided.
Employers must begin filing the forms in 2016 for the 2015 tax year. Because these forms are drafts, employers should not use them for reporting until the IRS officially releases them as final.
Forms 1094-C and 1095-C
The draft Instructions to Forms 1094-C and 1095-C include a number of clarifications:
- Extensions. The draft 2015 Instructions provide that an automatic 30-day extension of time to file is available to employers that complete Form 8809, Application for Extension of Time to File Information Returns, so long as the employer files this form by the due date of the returns. An employer may apply for an additional 30-day extension under certain hardship conditions. A similar provision applies to requests for extensions of time to furnish statements to recipients.
- Increased Penalties. The draft 2015 Instructions reflect the increase in employer penalties for filing incorrect information returns and payee statements under the Trade Preferences Extension Act of 2015. Effective for returns and payee statements required to be filed or provided after 2015, the penalties have increased to $250 per day (up from $100 per day) up to an annual maximum of $3,000,000 (up from $1,500,000).
- Eligibility for 98% Offer Method. Due to confusion over how this method should be applied in relation to the treatment of employees in a limited nonassessment period, the draft Instructions clarify that an employer is eligible to use this method (as an alternative to the general method) only if the employer certifies that, taking into account all months during which the individuals were employees of the employer and were not in a limited nonassessment period, the employer offered affordable health coverage providing minimum value to at least 98% of its employees for whom it is filing a Form 1095-C employee statement, and offered minimum essential coverage to those employees' dependents. The Instructions include an example of an arrangement that complies with the 98% Offer Method.
- New 'Plan Start Month' Box. Form 1095-C includes a new "Plan Start Month" box, used to take into account a difference in the way affordability is determined for purposes of an individual's eligibility for premium tax credits or affordability for purposes of IRC § 4980H. An employer must use the box to indicate the plan year so the IRS can enforce the premium tax credit rules.
- Transition Rule for Multiemployer Plans. To ease employer and multiemployer plan reporting challenges, in order for an Applicable Large Employer (ALE) Member to report offers of coverage involving multiemployer arrangements for 2015, it should enter code 1H (on line 14 for any month for which the employer enters code 2E on line 16 (indicating that the employer was required to contribute to a multiemployer plan on behalf of the employee for that month and, therefore, is eligible for multiemployer interim rule relief). In other words, code 1H may be used even if the employee was not eligible to enroll in coverage under the multiemployer plan.
- COBRA Coverage Offers. The draft Instructions provide that an ALE Member should use code 1H for any month for which an offer of COBRA continuation coverage applies, if the former employee does not enroll in coverage, and even if his or her spouse or dependent independently enrolls in coverage. Usually, the former employee would have enrolled in coverage.
- Employee Premiums. For purposes of determining the monthly employee contribution, an employer may divide the total employee share of the premium for the plan year by the number of months in the plan year to determine the monthly employee contribution for the year. The draft Instructions provide an example.
- Transition Rule for Determining ALE Status. For 2015, an employer may determine its ALE status by reference to a period of at least six consecutive months during 2014, rather than the full 2014 calendar year; this transition rule is found in the preamble to the final regulations under IRC § 4980H.
- Unpaid Leaves of Absence. The draft 2015 Instructions provide that, in certain circumstances, an employee may have a break in service (including a break in service due to a termination of employment) during which he or she does not earn hours of service, but once he or she again starts earning hours of service, the employer must treat the individual as a continuing employee rather than a new hire for purposes of certain rules under the § 4980H regulations. However, because these rules do not impact whether the individual was an employee during the break in service, he or she should be treated as an employee only during the break in service for purposes of reporting if the individual remained an employee during that period (and had not terminated employment).
Forms 1094-B and 1095-B
Regarding health reimbursement arrangements (HRAs), the draft 2015 Instructions to Forms 1094-B and 1095-B clarify that an employer that maintains an insured group plan and a self-funded HRA must separately report the HRA coverage.
Substitute Forms Specifications
The IRS has also issued a draft of Publication 5523, General Rules and Specifications for Affordable Care Act Substitute Forms 1095-A, 1094-B, 1095-B, 1094-C, and 1095-C. Employers that do not use the official IRS forms and/or statements for recipients must use an acceptable substitute. To be acceptable, substitute forms and statements must comply with all the rules provided in Publication 5523. Because the publication is a draft, changes may still be made to it by the IRS until the IRS publishes the final version.