New Rules Simplify ACA Employer Shared Responsibility Reporting Obligations

BACKGROUND

Under the ACA, ALEs may face excise taxes if they either fail to offer minimum essential coverage to at least 95% of their full-time employees, or if the coverage offered is unaffordable or does not provide minimum value. These excise taxes, known as employer shared responsibility payments, are triggered when an employee receives a premium tax credit through a state healthcare exchange for one or more months in the corresponding tax year.

The ACA imposes on ALEs certain information-reporting responsibilities regarding minimum essential coverage offered to employees. Reporting is primarily accomplished using IRS Form 1095-C, which must be filed with the IRS and furnished to all full-time employees and employees receiving employer-sponsored coverage. Similar reporting rules apply to insurers and certain other employer-sponsored health plans, which are typically reported on Forms 1094-B and 1095-B. These reporting rules remained in place, despite the ACA’s individual mandate being reduced to $0 under the Tax Cuts and Jobs Act of 2017. Each ALE must also submit at least one Form 1094-C to the IRS. This is a “transmittal” form that reports the ALE’s general information, whether the ALE is an aggregated ALE, the total number of full-time employees in each month of the previous year, whether the ALE offered minimum essential coverage to its full-time employees, and the total number of all employees (i.e., full-time and non-full-time employees) in each month of the previous year.

Generally, ALEs must submit these forms to the IRS by February 28 of the subsequent year if paper filed or by March 31 of the subsequent year if electronically filed. ALEs that have to file more than 250 Forms 1094-C or Forms 1095-C often must file electronically. ALEs may elect to meet this requirement by providing each employee with a copy of his or her specific Form 1095-C that the ALE submitted to the IRS. Each full-time employee must receive this information by January 31 of the subsequent year.

THE PAPERWORK REDUCTION ACT

The Paperwork Reduction Act amends Section 6056 of the Internal Revenue Code, which obligates ALEs and health insurers (carriers) to prepare and furnish Forms 1095-C/1095-B to employees. Significantly, ALEs no longer need to mail forms to employees if they meet certain requirements. Instead, if ALEs provide timely notice to individuals of their right to request these forms, ALEs must only provide these forms to employees upon request by the later of January 31 or 30 days after the request. The required notice must be clear and conspicuous and posted in a location that is reasonably accessible to all individuals, stating that responsible individuals may receive a copy of the form upon request.

To apply for 2024 forms due in 2025, the required notice should be posted by January 31, 2025.  More guidance from the IRS on the manner of compliance, including good faith reliance for the current cycle, and a sample notice would be welcome.

THE EMPLOYER REPORTING IMPROVEMENT ACT

The relief provided by the Paperwork Reduction Act is narrowly targeted. In contrast, the Employer Reporting Improvement Act’s modifications are broader, though no less welcome. These are summarized below.

Taxpayer Identification Number Reporting. Historically, the ACA forms generally required disclosure of each covered person’s social security number (SSN) or tax identification number (TIN). The new law allows ALEs to substitute a birthdate in instances where an SSN or TIN is available. This provision of the law codifies existing IRS practice.

Letter 226-J Response Timing. ALEs now have 90 days to respond to Employer Shared Responsibility Penalty notices in Letter 226-J. The prior IRS standard was 30 days. While this should result in fewer extension requests, particularly as ALEs seemingly rarely received the Letter 226-J until near the end of the prior 30-day period, it is unclear how this extension will apply to any follow-up notices the IRS may send.

Statute of Limitations. The law establishes a six-year statute of limitations on the IRS for returns due after December 31, 2024, for assessing employer shared responsibility payments, a change that is particularly welcome. The limit begins to run on the later of the due date for the underlying form or the date the return is actually filed. Under prior law, there was no statute of limitations.

Electronic Delivery. ALEs may furnish any requested ACA forms to individuals electronically, provided such individual has consented to and not revoked their consent to electronic delivery.  Forms must be provided on paper to individuals who have not consented to electronic delivery.

ACTION ITEMS FOR ALEs

1. Review new legislation: Ensure your benefits team is familiar with the new rules and understands the specific changes and how they impact your reporting obligations.
2. Implement notice requirements: For plan sponsors that want to take advantage of the reporting relief, prepare and make available the required notice by January 31, 2025. Ensure the notice is clear, conspicuous, and accessible, providing all necessary contact information for employees to request a copy of their form.
3. Update internal processes: Adjust your internal processes to align with the new reporting allowances to permit the use of birthdates instead of SSNs/TINs when you are unable to locate the SSN/TIN for a covered individual.
4. Monitor compliance: Keep an eye out for an IRS Letter 226-J or related follow-up notices from the IRS and ensure you respond within the required 90 days or request an extension. If you are currently working on a response to a Letter 226-J, consider contacting the IRS to confirm they will automatically extend the response deadline to 90 days.
5. Obtain consent for electronic disclosure: For plan sponsors that already do or wish to furnish ACA and other employee benefits documentation electronically, confirm you have valid consent or work through a process to obtain the required consent from employees. This can be somewhat challenging, as the IRS, US Department of Labor, and US Department of Health and Human Services often have different rules for electronic disclosure of forms and notices that fall under their purview.

For more information on these changes, please contact your regular McDermott lawyer or one of the authors listed below.