New ACA IRS Filing Requirements: Are You Prepared?

Nonprofit organizations are subject to Affordable Care Act (ACA) requirements similar to those that apply to for-profit organizations. While there are some positive aspects of the ACA, there are also several challenges in complying with both the employer and individual mandates. As there are no exceptions for tax-exempt organizations, nonprofits face the same opportunities and hurdles as for-profit companies. With the deadlines for filing ACA-related forms fast approaching, it’s critical that nonprofit organizations are aware of both the benefits and potential pitfalls of ACA filing requirements.

The Pros
One of the most beneficial aspects of the ACA is that many nonprofit employers are eligible for the Small Business Tax Credit if they employ 25 or fewer full-time equivalent employees and average wages are less than $50,000, along with certain other requirements. The credit is applied against payroll taxes for up to 35 percent of the cost of health payments made by the employer. For 2015, employers must have purchased insurance on the Small Business Health Options Program (SHOP) exchange in order to qualify.

The Pitfalls
While this credit can be a boon to nonprofits, the calculations, filing and reporting requirements involved in claiming it are detailed and time consuming; it is important to involve an experienced tax advisor in this process.

The individual mandate of the ACA requires most taxpayers to have health insurance or pay a penalty, with some exceptions, such as income levels and minimal breaks in coverage. Known as Minimal Essential Coverage (MEC), these plans provide the necessary requirements under the ACA and can be obtained by plans purchased on the Health Insurance Marketplace, Medicare, Medicaid, CHIP, veteran plans and most employer-provided coverage.  The Internal Revenue Service (IRS) relied on good faith when individual taxpayers verified they had minimum essential healthcare coverage on the 2014 Form 1040. However, beginning in 2015, in order to determine individual proof of coverage as well as satisfy the employer mandate, employers with more than 50 full-time equivalent employees, referred to as Applicable Large Employers (ALE), must submit informational reports to the IRS that summarize details about the healthcare benefits provided to employees. The appropriate information will demonstrate to the IRS not only whether an individual taxpayer has met the shared responsibility payment as part of the individual mandate, but also if the employer has met the requirements under the employer mandate.

The compliance forms known as 1095-B or 1095-C (depending on the size of the employer and type of coverage offered) need to be distributed to employees by March 31, 2016. (Note that this due date was previously February 1, 2016, but an extension was granted under IRS Notice 2016-4). ALEs must distribute Form 1095-C to all employees regardless of whether they offer fully-insured or self-funded insurance plans. Form 1095-B is issued to employees by the health insurance carrier, regardless of the number of employees. Complicated with special coding, it is important that employers provide accurate information in order to avoid a penalty from the IRS.

Form 1094-B and Form 1094-C are the transmittal forms that employers need to submit to the IRS by May 31, 2016, or June 30th if the electronic filing requirement is met. Additionally, Form 1095-A is issued by the government to taxpayers who purchased healthcare on the exchange.

As mentioned above, the reporting requirements under the Affordable Care Act are similar as those for not-for-profit employers with virtually no distinction. Full-time employees (defined as working 30 hours or more weekly under the ACA) must be reported on the 1095-B or 1095-C series forms whether or not insurance is offered or chosen by the employee. Variable-hour employees determined to be full-time during a measurement period and part-time employees with coverage must also be reported. In particular, it can be complicated when there are a number of employees who fluctuate between full and part-time working hours and are not covered by insurance, a fairly typical situation in the nonprofit sector. Missing an offer of coverage for an employee who should otherwise be covered can trigger a penalty for employers under the ACA.

Coverage information on dependents, type of coverage and costs are listed by month for these reports. This can get complicated for situations where employees are hired mid-year, have been terminated or have a qualified change in status such as marriage or divorce.

Ultimately, the responsibility is on the plan sponsor to ensure the insurance carrier is providing the necessary forms as well as completing the employer filing requirements. If employers have not prepared for the 2015 filing year, now is the time to take action. The BDO Compensation and Benefits Team is prepared to assist clients with the form reporting and all aspects of ACA compliance and reporting.

For more information, contact Kimberly Flett, Senior Director, Specialized Tax Services – Global Employer Services – Compensation and Benefits at [email protected].