ACA Reporting for 2020 More Complex Than Prior Years

The Affordable Care Act, in its original form, included a penalty on any individual who failed to have health care coverage at required levels. This Individual Mandate was designed to “encourage” individuals who were not inclined to purchase health care coverage to do so in order to spread the cost of health care treatment among a larger pool of covered individuals instead of only the sick. Effective January 1, 2019, the Tax Cuts and Jobs Act eliminated the federal penalty on individuals who fail to have health care coverage.
 
In response to the removal of the Individual Mandate at the Federal level, many states have passed legislation that encourages its residents to have health care coverage.
 
Employers continue to have a major role in providing group health care coverage to their employees because nothing has changed with regard to the ACA’s Employer Mandate that applies to Applicable Large Employers (ALEs), i.e., organizations with 50 or more full-time or full-time equivalent employees. ALEs are required to offer Minimum Essential Coverage that provides Minimum Value to at least 95% of their full-time workforce (and their dependents) and that is affordable for the employee concerned. ALEs that fail to meet these requirements will be subject to penalties under Internal Revenue Code (IRC) Section 4980H.
 
Since 2015, ALEs have been required to provide annual information to employees and to the IRS on IRS Form 1095. Non-ALEs that provide health care coverage via a self-insured arrangement also are required to provide and file the annual information to employees and to the IRS. The Form 1095s are used by the IRS to enforce both the Employer Mandate and the Individual Mandate at the Federal level.
 
IRC penalty sections 6721 for failure to file and 6722 for failure to provide forms to individuals apply to Form 1095-C and 1094-C filings. If no information is filed with the IRS, penalties will be proposed and often assessed based on the number of Form W-2s filed by the taxpayer. Even when the number is corrected to match the required Forms 1095-C, the penalty can be substantial, and the IRS has proven to be unreceptive to most requests to waive the penalties based on reasonable cause. Increased penalty amounts may apply for certain failures in the case of intentional disregard (see IRC Sections 6721(e)(2) and 6722(e)(2)). The penalty rates and maximums for not filing correct information returns and/or not furnishing correct payee statements, including inflationary adjustments if applicable, are reflected in the tables below (*-as adjusted for inflation).

States with Individual Mandates

Several states have passed legislation requiring individual healthcare. For enforcement purposes, these states need information from employers about health care coverage provided to employees. Employers with employees residing in California, Massachusetts, New Jersey, Rhode Island, Vermont, or the District of Columbia must report their ACA information to both the relevant state or District of Columbia and the IRS. The patchwork of state-level ACA reporting creates complexities for year-end reporting, especially for employers operating in multiple states or that prepare the ACA year-end reports in-house:

 

California

California has the same reporting requirements as the Federal requirements and a copy of the federal Forms 1095-C must be filed with California’s Franchise Tax Board by March 31, 2021. A copy of the Form 1095 must be furnished to employees by January 31, 2021, which is satisfied by complying with the Federal requirement.

 

Massachusetts

Massachusetts’ mandate has been in place since 2006 and  generally is fulfilled by insurance carriers on behalf of individual employers. The state does not require employee-level details like the IRS requires on Form 1095-B and C. Employers must file by December 15 of the reporting year, a deadline that is considerably earlier than the federal filing deadline.

 

New Jersey

New Jersey requires ALEs to use IRS Forms 1094-C and 1095-C, and IRS Forms and 1094-B and 1095-B, if self-insured with fewer than 50 full-time and full-time equivalent employees, to communicate health insurance information to the state. The deadline is March 31 of the following reporting year.

 

Rhode Island

Rhode Island’s individual penalty went into effect in January 1, 2020. Beginning January 2021, employers will only need to provide healthcare receipts to employees. The state has not disclosed whether the furnishing of health statements will be on the standard IRS Form 1095-C or through a similar document. Employers with employees in Rhode Island should monitor any updates.

 

Vermont

Employers in Vermont currently are not subject to any additional ACA reporting requirements. Indications are that state reporting will be implemented only if the federal ACA reporting requirements are eliminated.

 

District of Columbia

The law in the District of Columbia requires every “applicable entity that provides Minimum Essential Coverage to an individual during a calendar year” to submit an information return regarding such coverage to the Office of Tax and Revenue (OTR). It also requires the applicable entity to submit a statement about the individual’s type of coverage. These filing requirements, while similar to Federal filing requirements under the ACA, are not the same. All information returns required by OTR must be filed electronically through MyTaxDC—paper filings are not accepted. These reporting requirements apply to 2019 annual reports that were due on June 30, 2020. For future reporting years, the DC filing deadline is 30 days after the Federal filing deadline.

 

Federal Changes

Significant changes are included in the recently released draft of the Federal Form 1095-C. There are new codes that indicate the type of offer made to employees. Offer codes 1L through 1S relate to health reimbursement arrangements (HRAs) to address a new rule issued pursuant to President Trump’s Executive Order No. 13813 that allows the use health reimbursement accounts (HRAs) funded by employers to reimburse employees for the cost of health insurance coverage purchased in the individual health insurance marketplace. This final rule is applicable to plans beginning in 2020.
 
Another change required to address coverage provided by HRA reimbursement of individual health care insurance is the requirement to provide monthly zip code information on Line 17. The zip code for the employee’s primary residence or primary work location should be entered each month, depending on which location determines the affordability of the coverage.
 
The employee’s age as of January 1 and the plan start month are also new additions to the Form. Employers should begin now to ensure the records for employees’ dates of birth are in good order and readily accessible.
 
There are no changes to the Form 1094-C from the prior year.

 

Take Action Now

Employers should begin now to determine their state information filing requirements. With the increased number of employees working remotely, there may be an unexpected obligation to a state based on employee’s work location. It is also important to review how smoothly the Form 1095/1094-C filing process went in prior years to determine if there is a need to make any procedural changes in advance of the year-end filing requirements. BDO can assist with determining and satisfying the ACA year-end reporting requirements.

 

Large Businesses with Gross Receipts of More Than $5 Million  (*Average annual gross receipts for the most recent three taxable years) and government entities (other than Federal entities) (IRC Sections 6721 and 6722)
Time returns filed/furnished	Not more than 30 days late	31 days late – August 1	After August 1 or Not at All	Intentional Disregard
Due 01-01-2020 thru 12-31-2020	$50 per return or statement -       $556,500* maximum	$110* per return or statement - $1,669,500* maximum	$270* per return or statement - $3,339,000* maximum	$550 per return or statement - No limitation
Due 01-01-2019 thru 12-31-2019	$50 per return or statement - $545,500* maximum	$100 per return or statement - $1,637,500* maximum	$270* per return or statement - $3,275,500* maximum	$540* per return or statement - No limitation
Due 01-01-2018 thru 12-31-2018	$50 per return or statement - $536,000* maximum	$100 per return or statement - $1,609,000* maximum	$260* per return or statement - $3,218,500* maximum	$530* per return or statement - No limitation
Due 01-01-2017 thru 12-31-2017	$50 per return or statement - $532,000* maximum	$100 per return or statement - $1,596,500* maximum	$260* per return or statement - $3,193,000* maximum	$530* per return or statement No limitation
Due 01-01-2016 thru 12-31-2016	$50 per return or statement - $529,500* maximum	$100 per return or statement - $1,589,000* maximum	$260* per return or statement - $3,178,500* maximum	$520* per return or statement - No limitation
Due 01-01-2011 thru 12-31-2015	$30 per return or statement - $250,000 maximum	$60 per return or statement - $500,000 maximum	$100 per return or statement - $1,500,000 maximum	$250 per return or statement - No limitation

 

Small Businesses with Gross Receipts $5 Million or Less (*Average annual gross receipts for the most recent three taxable years) (IRC Sections 6721 and 6722)
Time returns filed/furnished	Not more than 30 days late	31 days late – August 1	After August 1 or Not at All	Intentional Disregard
Due 01-01-2020 thru 12-31-2020	$50 per return or statement - $194,500* maximum	$110 *per return or statement - $556,500* maximum	$270* per return or statement - $1,113,000* maximum	$550* per return or statement - No limitation
Due 01-01-2019 thru 12-31-2019	$50 per return or statement - $191,000* maximum	$100 per return or statement - $545,500* maximum	$270* per return or statement - $1,091,500* maximum	$540* per return or statement - No limitation
Due 01-01-2018 thru 12-31-2018	$50 per return or statement - $187,500* maximum	$100 per return or statement - $536,000* maximum	$260* per return or statement - $1,072,500* maximum	$530* per return or statement - No limitation
Due 01-01-2017 thru 12-31-2017	$50 per return or statement - $186,000* maximum	$100 per return or statement - $532,000* maximum	$260* per return or statement - $1,064,000* maximum	$530* per return or statement - No limitation
Due 01-01-2016 thru 12-31-2016	$50 per return or statement - $185,000* maximum	$100 per return or statement - $529,500* maximum	$260* per return or statement - $1,059,500* maximum	$520* per return or statement - No limitation
Due 01-01-2011 thru 12-31-2015	$30 per return or statement - $75,000 maximum	$60 per return or statement - $200,000 maximum	$100 per return or statement - $500,000 maximum	$250 per return or statement - No limitation