IRS Releases Final Forms 1094 and 1095 for Reporting Employer Health Coverage Information and New Publication Offering Further Guidance
/Thomson Reuters Tax & Accounting News
The IRS has released much-anticipated final Forms 1094 and 1095, which will be used to enforce Code § 4980H employer penalties, as well as individual mandate and tax credit eligibility rules. Issued under Code §§ 6055 and 6056, the forms were originally released as drafts in July 2014, with draft instructions following in August.
The “B forms” consist of the Form 1094-B transmittal and the Form 1095-B information return (which also serves as the required statement to individuals). Although some employers and other entities will be required filers, health insurers will be the primary users of the B forms, which report individuals enrolled in minimum essential coverage (MEC). The final B forms and instructions make few changes to the drafts.
The “C forms” consist of the Form 1094-C transmittal (which also reports important information relative to employer penalties) and the Form 1095-C information return (which also serves as the required statement to employees). Filed by applicable large employers (ALEs), the final C forms themselves are largely unchanged from the drafts (except for some modifications to the recipient instructions in the 1095-C). But the final C form instructions contain noteworthy clarifications and changes. Following are some highlights:
· Enrollment Information for Non-Employees. The draft instructions proposed combined reporting for ALEs sponsoring self-insured health plans by allowing them to satisfy both Code §§ 6055 and 6056 reporting obligations using the C forms. But the proposed instructions would have required use of B forms for non-employees enrolled in the ALE’s plan. The final instructions allow ALEs to use either the B forms or the C forms for enrolled non-employees. [EBIA Comment: ALEs are likely to welcome this change, since they will be able to focus just on the C forms and will not have to bother with B forms if they extend coverage to non-employees (such as non-employee directors, retirees, and COBRA qualified beneficiaries). Whether ALEs decide to use B forms or C forms for non-employees, the instructions emphasize that all family members with coverage due to the non-employee’s enrollment must be included on the same form as the non-employee. This same rule—all covered individuals must be reported on the same form—also applies to family members of an enrolled employee.]
· Authoritative Transmittal. Like the draft instructions, the final instructions allow an ALE to file more than one Form 1094-C transmittal (e.g., one for each operating division) so long as one of the transmittals is designated as the “authoritative transmittal.” The final instructions clarify that only the authoritative transmittal reports detailed information for the ALE (such as full-time employee counts and eligibility for transition relief); the “non-authoritative transmittals” leave this information blank. The final instructions also elaborate on how governmental employers can designate a related governmental agency to report on their behalf and include an example involving a school district.
· Controlled Groups. Each of the ALEs in a controlled group (known as ALE members) must file an authoritative transmittal. If an employee works for more than one ALE member during a calendar month, the employee is treated as the employee only of the ALE member for which the employee has the greatest number of hours for the month. The final instructions clarify that only the ALE member treated as the employer for the month reports Form 1095-C information for that employee for that month. [EBIA Comment: This treatment is consistent with Code § 4980H final regulations (see our article), which assess employer penalties separately for each ALE member.]
· Counting Employees. The final instructions require ALEs to report their total number of employees. In addition to the two counting methods in the draft instructions (first or last day of each calendar month), the final instructions allow counting on the first or last day of the first payroll period starting in the calendar month. [EBIA Comment: Some have questioned the need for a total employee count, since only full-time employees can trigger Code § 4980H penalties, but this requirement remains under the final forms. Full-time employees must also be reported, and ALEs will want to read the instructions carefully since the full-time employee counting rules have been modified. For example, employees in a limited non-assessment period are excluded from the full-time employee count but are included in the total employee count.]
· Deemed vs. Actual Offer of Coverage. For purposes of showing on the Form 1094-C transmittal that they offered MEC to enough full-time employees (70% in 2015; 95% thereafter), ALEs can take advantage of transition relief under which they are deemed to offer coverage to certain employees even if actual coverage is not offered. (This transition relief may apply to ALEs contributing to multiemployer plans, to non-calendar-year plans, and to plans taking steps to add dependent coverage.) However, on the Form 1095-C information return, only actual offers of coverage are reported. [EBIA Comment: The instructions explain that information regarding actual offers of coverage is required on Form 1095-C to facilitate administration of the Exchange tax credit. This result may be disappointing for ALEs contributing to multiemployer plans as they often do not receive actual eligibility information from the multiemployer plans and may struggle to report offers of multiemployer plan coverage accurately.]
· Employee Contributions. The final instructions remind ALEs that employee contribution information is based on the lowest-cost, self-only coverage providing minimum value that is offered to the employee; thus, the reported contribution is not necessarily the amount that the employee pays (e.g., the employee may be enrolled in more expensive family coverage).
· Other Changes. The final instructions to the C forms also include details on reporting for employees in limited non-assessment periods and using an alternative method of furnishing statements to employees. [EBIA Comment: While the preamble to the Code §§ 6055 and 6056 final regulations contemplates third parties (including service providers) facilitating reporting by ALEs and had indicated that further details would be provided in forms and instructions, the final forms and instructions do not shed any further light on how reporting will work when an ALE member contracts with a third party to assist with reporting. Further guidance would be welcome.]
IRS Publication 5196, a two-page brochure, summarizes the reporting requirements and is intended to help ALEs get ready for monthly tracking of offer and coverage information. The brochure summarizes the purposes of the C forms and provides a checklist of information ALEs will need to complete the forms.
