IRS continues to lay the groundwork for 2016 ACA reporting penalties

IRS continues to lay the groundwork for 2016 ACA reporting penalties

By now, many employers have received penalty assessments (Letter 226J) for noncompliance with the employer mandate in the tax year 2015. These penalty letters where not issues until Nov 1st of 2017. However, U.S. Treasury Inspector General for Tax Administration (TIGTA) reports from this year show that the IRS is gearing up to begin issuing penalty letters for the 2016 tax year very soon.

At Sky Insurance Tech, we do a good deal of penalty consulting for prospective clients. These are almost always clients that did their reporting with a lower priced, sub-par vendor, if they did their reporting at all. Recently, we have been getting a ton of phone calls regarding letter 5699 from the IRS for the 2016 tax year.

Letter 5699 is what the IRS uses to inquire about an employer’s reason for not properly filing their forms 1094/1095C. Employers who receive this letter have 30 days to respond. If the employer cannot prove that the letter was sent in error, then there is serious consequence, including a letter 226J for the 2016 tax year.

The IRS didn’t issue 2015 letter 226J penalty assessments until November 1st of 2017. However, November 1st of 2018 is right around the corner, which is the time frame we are expecting to see the 2016 penalty letters released. It is also important to note that just because the 2016 notices are set to be issued, this does not mean that the 2015 notices are finished being distributed.

For these reasons we encourage employers to revisit their previous year’s filings. Make sure that these were both accurate and timely.

If assistance is needed with either previous reporting years, or with penalty notices from the IRS, we are here to help.

President Trump’s ACA Executive Order

Anyone keeping up with the news recently has probably seen headlines mentioning new Executive Orders executed by President Trump. Very shortly after being sworn into office on January 20th, newly elected President Trump signed an Executive Order beginning to outline his Administrations intent to repeal the Affordable Care Act (ACA).

No-one yet knows how long the law will remain in effect. However it was made clear in the Executive Order that it is “Imperative for the executive branch to ensure that the law is being efficiently implemented”. It also stated that all executive departments should “take all actions consistent with the law to minimize the unwarranted economic and regulatory burdens of the ACA”. The order then mentions that there should be an effort to afford states more flexibility and control in order to create a more open healthcare market.

After the release of the Executive Order, many are still trying to determine what this all means. What will happen to the individual mandate? What does this mean for insurers? Will employers still have to comply with IRC section 6056? What about the exchanges? Before addressing these things it is imperative to first review some key language from the Executive Order itself.

Sec. 2. To the maximum extent permitted by law, the Secretary of Health and Human Services (Secretary) and the heads of all other executive departments and agencies (agencies) with authorities and responsibilities under the Act shall exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.

Sec. 3. To the maximum extent permitted by law, the Secretary and the heads of all other executive departments and agencies with authorities and responsibilities under the Act, shall exercise all authority and discretion available to them to provide greater flexibility to States and cooperate with them in implementing healthcare programs.

Sec. 4. To the maximum extent permitted by law, the head of each department or agency with responsibilities relating to healthcare or health insurance shall encourage the development of a free and open market in interstate commerce for the offering of healthcare services and health insurance, with the goal of achieving and preserving maximum options for patients and consumers.

Sec. 5. To the extent that carrying out the directives in this order would require revision of regulations issued through notice-and-comment rulemaking, the heads of agencies shall comply with the Administrative Procedure Act and other applicable statutes in considering or promulgating such regulatory revisions.

The executive order may in fact first and foremost be a political play. President Trump ran an entire campaign on the promise of dismantling the healthcare law and replacing it with “Something Fantastic”!  Obviously this lays out the ground work for Tom Prince, Andrew Puzder and Steven Mnuchin, incoming HHS, Labor and treasury secretaries (Respectively).

Currently, none of these gentlemen have been confirmed by the Senate and therefor there will be some time elapse before they can take any action.

When they are in a place to take action there are still many steps that have to be taken first.  For instance if any action is to be taken regarding loosening any rules this will most likely require new proposed regulations. This in turn is followed by a review and implementation period. On top of this the Democratic Party is not planning on “playing nice”. To sum it all up any changes will inevitably take some time. These things typically take a while (possibly years) even way they are noncontroversial.

Another widely mentioned impact of the Executive order would be the issuing of blanket hardship exemptions to all who enroll in coverage. This could be another way of “loosening” the impact of the individual mandate. However while this can be done in theory it is not practical at all. Granting hardship exemptions to all would essentially implode the current healthcare exchanges as carriers must have the individual mandate in order to offset the risk taken on when enrolling those with pre-existing conditions. Again, possible but not likely.

Lastly, many are wondering what this means for the employer mandate and therefore employer reporting. So far there has been no word specifically on this. One thing is for sure, until the Treasury Department announces something different the current law of the land still stands. This means that all employers should be prepared to furnish 1095Cs to employees by early March and also plan to have these filed with the IRS by the March 31st deadline.

 

 

12 Most Common ACA Reporting Employer Mistakes

As we enter the fall of 2016, many employers across the country are still recuperating from their prior year ACA reporting experience.  At the same time, they are beginning to plan and make decisions on how to improve their process for 2016 ACA reporting.

As one of the nations largest ACA reporting vendors, we have had a front row seat for how thousands of employers have navigated their first year of ACA reporting.  We have seen many who had a good experience, while others were disastrous.  Along the way we have learned specifically what employers are struggling with and outlined them as the 12 Most Common ACA Reporting Employer Mistakes.


Below we have outlined these quickly as bullet points.  To learn more details about these most common mistakes, join us for our upcoming webinar series.  Learn more now…

#1 Mistake:  Not understanding the importance of correct medical enrollment and payroll data

#2 Mistake:  Forgetting that ACA reporting requires HIPAA and HITECH compliance

#3 Mistake:  Incorrectly applying your various medical plan classes in the reporting

#4 Mistake:  Filing aggregated, common ownership companies all under 1 EIN to the IRS

#5 Mistake:  Incorrect or non-existent tracking of part-time and variable hour employee hours

#6 Mistake:  Showing incorrect costs on line 15 of form 1095-C

#7 Mistake:  Applying affordability safe harbors incorrectly

#8 Mistake:  Coding each individual form 1095-C by hand in section 2

#9 Mistake:  Believing that your insurance carrier completed the ACA reporting on your behalf

#10 Mistake:  Not correctly reporting for COBRA participants, retirees and part-time employees

#11 Mistake:  Not providing the forms 1095-C to responsible persons by the time deadline

#12 Mistake:  Not responding to all exchange letters received


As a bonus, we thought we would also include the top 3 employer misunderstandings regarding ACA reporting:

#1 Misunderstanding:  Not understanding who should get a form 1095-C

#2 Misunderstanding:  Not aware that there are options other than coding each 1095-C by hand (one by one)

#3 Misunderstanding:  Not understanding that ACA penalties are automatic!

 

 

Responding to Exchange Letters to Employers

As part of the enforcement of the employer mandate under ACA, employers will receive letters from the state and federal exchanges regarding persons who did the following:

  • They went to the exchange,
  • Received coverage from that exchange,
  • Listed a specific employer as their employer of record at the time, AND
  • They received a subsidy which reduced the cost of that coverage to them and their family

All of these things must happen in order for you to receive an exchange letter as an employer.  You will also notice that we did not say that they were an employee but rather called them a ‘person’.  The reason for this is that we are seeing many instances where persons reported to the exchanges that they were an employee of ABC Corporation when they were not.  This is a critically important point for employers because we often will hear an employer say, “We did not respond to the exchange letter because it wasn’t our employee”.  Wrong answer!

You must respond to all exchange notices regardless of the circumstances under which you received one because you are essentially guilty until proven innocent.  The same thing goes for part time employees or other individuals on whom you receive an exchange notice but did not have a duty to provide them coverage.  If you simply do not respond to the exchange letter then your time will be up after 90 days and you will be sent a bill for the penalties on that person.


What should be included in responding to Exchange Letters?

Although there has not yet been specific guidance provided in how to respond to exchange letters, it is reasonable to believe you should include any pieces of information and documentation regarding the employment and offer of coverage to the person in question.  This could include payroll records, dates of employment and an overall explanation of your position.  It should also certainly include a copy of the form 1095-C on this person which was E-filed to the IRS.

Are you beginning to see why having correct ACA reporting is of such critical importance?  If you would like to learn more about this as well as all of the changes in ACA reporting from 2015 to 2016, take a look at our recorded webinar entitled, “2016 ACA REPORTING – PLANNING FOR THE 2016 UPDATES AND NEW REPORTING FORMS”

 

Trouble Tracking Part-Time ACA Hours? Better Figure It Out To Avoid The $2,160 ACA Penalty . . .

Many employers in the marketplace are still experiencing difficulties in measuring the hours of their part-time and variable hour employees to determine if they are actually full time under the Affordable Care Act (ACA) regulations.  Making this determination is critically important since as an Applicable Large Employer (ALE) beginning with the 2016 reporting calendar year, you must provide qualifying coverage to 95% of your full time employees in order to be considered compliant.

The penalty for not being compliant in 2016 is that you will be charged $180 per full time employee per month.  It is important to remember this penalty applies to all of your full time employees, and not just the ones whom you might have failed to offer coverage to.

How does this have anything to do with tracking of part time employee hours you ask?  Let’s take an example so you can see how it plays out in reality.  We will make the following assumptions of an employer:

  • 130 full time employees who are offered coverage
  • 50 part time employees who’s hours are measured to determine if they are eligible for coverage

In our simplistic example, we will assume that the employer offered coverage to all of their full time employees, 130 in total.  So you immediately are likely thinking that they should be in good shape since they have offered coverage to 100% of their full time employees.  Right? … Well, Maybe.

We will further assume that in the measuring of the hours of part time employees they did not extend an offer of coverage to any of these employees.  However, at a later date they determined that correctly applying the measuring rules under ACA would mean that 12 of these 50 total part time employees actually were indeed full time.

Oh … No ….  Now think about what percentage of coverage you offered as an employer.

130 offered coverage  |  Total full time employees 142  |  91.5% offer of coverage

So what happens now?  Your company now will owe a penalty in 2016 of:  112 X $2,160 = $241,920

(Why 112 you ask?  The A penalty isn’t paid on the first 30 full time employees.  Also, this is a simplified example.  In reality an employer would be charged the penalty at the rate of $180 per month per employee.  Therefore, if they did not make the appropriate offer for the entire year that would add up to $2,160 per employee for the year.  Otherwise, the penalty would only apply to each month in which appropriate coverage was not offered.)


Do I have your attention now? 

So you might not understand some of the complexities that come into play when measuring the hours of part time employees, so let’s talk about that.

The Affordable Care Act requires applicable large employers (ALEs) to offer appropriate and affordable health coverage to their full time employees who work 30 or more hours per week (130 hours per month). Employers are also required to measure the hours worked of part-time and variable hour employees to determine if they should be offered coverage as all other full time employees. There are two methods available to employers for use in measuring: Monthly Measurement Method, and the Look-Back Measurement Method.

Monthly Measurement Method

The monthly measurement method proves difficult in application since an employee must be offered coverage in any month which they worked over 130 hours, yet the employer might not know this until the end of the month. Many employers are unaware of this fact and apply the method incorrectly, measuring one month and then making the offer in the following month. This is an incorrect application of the rules.

Overall, the monthly measurement method leads to uncertainty and inability to predict employees as full time and can lead to unnecessary penalties. For that reason, most employers choose the Look-Back Measurement Method.

 

Look-Back Measurement Method

The Look-Back Measurement Method involves designating a period of months over which you measure the hours worked by an employee to determine if they are indeed full time. This period is called the measurement period. Following the measurement period, employers are given a short administrative period during which they can communicate and enroll any new employees on the plan. Finally, employees enter their stability period where they are guaranteed to maintain coverage regardless of the number of hours worked.

Administrating the look back method can be complex. However, by following our simple methodology you can easily track your employees and ensure you offer coverage to anyone who becomes a full time employee.

 

Example of the Difficulties

As an example let’s consider an employer in the Staffing Industry.  This employer hires a new employee and then put them on assignment.  Let’s further assume that assignment ends after 4 months.  The overwhelming majority of companies would continue to keep this person on their ‘books’ as an employee rather than go through the process of formally terminating them.  After all, they could go out on another assignment at any time.  However this methodology then causes the employees ACA reporting to be completely wrong, and as you likely know you as an employer are ultimately on the hook for penalties due because of incorrect reporting.

For Applicable Large Employers (ALEs), 2016 is the calendar year in which the prior rules of offer of coverage expired.  Specifically, I am referring to the fact that in 2015 ALEs only had to offer coverage to 70% of their ACA full time employees in order to avoid the ‘A’ penalty for not providing coverage.

The ‘A’ penalty for employers is a penalty of $2,160 per full time employee and you count all of your full time employees (not just the ones you didn’t offer coverage to).

 

 

E-File of ACA 1095 Forms … What Can Go Wrong?

Under the Affordable Care Act (ACA), Applicable Large Employers are required to report to the IRS the type and cost of the medical plans offered to their full time employees. For many employers, the creation of these forms can be done by an internal system or though a HRIS system which they use in their business. It is common however for these systems to not have the ability to transmit the data to the IRS electronically, which is known as E-File.

For this reason many companies look to outside professionals to assist them in this transmission of their forms 1094 and 1095 to the IRS through the IRS’ AIR system. The process would seem straight forward, however there are many areas in which employers are experiencing problems. These problems are expected to increase for 2016 reporting due to the fact that the ‘Good Faith Effort’ provision under ACA is expiring. In short what this means is that you as an employer will be responsible for the accuracy of your created ACA forms.

The reason this is a challenge for many E-File vendors is the simple fact that they truly don’t understand ACA reporting. The overwhelming majority of ACA E-File vendors are companies who transmit 1099’s to the IRS and entered the ACA business as an extension of their normal business practices. The challenge with this from an employers perspective is that these vendors do not fully understand the reporting in the first place and thus are not prepared to assist employers with ensuring they are reporting correctly.  This would include errors in their coding, incorrect forms, avoiding ACA penalties, who should actually receive a form 1095, etc.  A simple quiz of your ACA E-File software vendor will likely reveal exactly how much they understand about the reporting.

And don’t forget about ACA E-File compliance!  Yes, forms 1095 contain Protected Health Information (PHI) and thus requires you as an employer to maintain HIPAA and HITECH compliance.  This includes how you transmit the data to your vendor (must be securely, encrypted), entering into a Business Associate Agreement, etc.  Learn more about ACA E-File HIPAA compliance.

The most important thing to remember as an employer is that this is all YOUR responsibility, and you cannot delete any of the fines for being wrong.  Use this ACA reporting software quiz to help you make sure you have the right vendor for your organization.

 

2016 Changes to ACA Transitional Relief in Reporting

For 2015 employer mandate reporting under the Affordable Care Act (ACA) there were various pieces of transitional relief which changed the way in which data was reported to the IRS on forms 1094-C and 1095-C.  As we begin the 2016 ACA reporting season, it is important to understand what has changed to ensure your compliance with the reporting requirements.  This is specifically important because for 2016 the ‘Good Faith Effort’ provisions will be expiring.  This means that employers who reporting incorrectly will be penalized and fined.

Here is a quick overview of the pieces of Transitional Relief which no longer apply moving forward as of the 2016 ACA reporting season:

  • 2015 Qualifying Offer Transitional Relief
    • This changes line 22 (B) of form 1095-C
    • This also changes form 1095-C line 14 in that no longer can code 1I be used
  • 2015 MEC Coverage Transitional Relief Expired
    • During 20105 reporting, on form 1094-C an employer would indicated in part III if they offered Minimum Essential Coverage based upon a standard of this MEC coverage being offered to 70% of their full time population
    • For 2016 reporting, this standard has increased to 95%
  • 4980H Transitional Relief Still Applies in Certain Circumstances
    • For 2015 reporting the ACA reporting rules allowed for two pieces of Transitional Relief commonly referred to as ’50 to 99′ and ‘100+’ Transitional Relief.  These were indicated on line 22 of form 1094-C and then again as appropriate in section III of the form 1094-C.  Specifically they were designed to eliminate or reduce penalties for certain employers who qualify should they be subject to employer mandate penalties.
    • For the most part these are expiring for 2016 reporting.  However, for employers who maintain a non-calendar year plan, they can continue to use these pieces of Transitional Relief until the end of their 2015 plan year.

There are also a number of other various changes which are important to understand.  If you would like to go more in-depth to fully understand the reporting differences between 2015 and the proposed instructions by the IRS for 2016 ACA reporting, visit the recorded webinar section of our website.  Specifically the 2016 ACA Reporting – Planning For The Updates and New Forms by clicking here.  In this recorded session we cover the following topics:

  • New deadlines for 1095-C form distribution
  • New E-filing deadline
  • No more ‘Good Faith Effort’ clause
  • Transitional relief changes
  • New codes for line 14 of form 1095-C
  • New MEC coverage guidelines
  • How to determine if you are an applicable large employer (ALE) and need to report

ACA 1095 Reporting Deadlines, For 2016

As an Applicable Large Employer (ALE) there are several deadlines which must be met in order to correctly comply with the Employer Mandate rules under ACA.  These dates have changed from 2015 into 2016 as shown below, which is causing employers the need to get started early for their 2016 ACA reporting.


Forms 1095-B and 1095-C due to employees

  • 2015 Deadline:  March 31st, 2016
  • 2016 Deadline:  January 31st, 2017

 

Forms 1094-B, 1095-B, 1094-C and 1095-C due to IRS if mailing forms*

  • 2015 Deadline:  March 31st, 2016
  • 2016 Deadline:  February 28th, 2017

 

Forms 1094-B, 1095-B, 1094-C and 1095-C due to IRS if e-filing forms

  • 2015 Deadline: June 30th, 2016
  • 2016 Deadline: March 31st, 2017

 

*Only available for employer with fewer than 250 forms.

ACA Part-Time Hourly Tracking for Staffing & Hospitality Industries

Employers in these and other similar industries have had an extremely difficult time complying with the ACA requirements regarding reporting and the measurement of employee hours worked to ensure coverage is offered appropriately.  As these employers know, operating a company in the staffing and hospitality industry is unlike any other business.  They have highly specific needs that very few people fully understand.

It was specifically for this reason that we launched StaffACA.com.      Staff ACA is an Affordable Care Act (ACA) reporting company with specific expertise in industries who’s workforce is somewhat non-traditional.

Through our experience in working with these employers, we ultimately found the fundamental issue that is causing 90%+ of all the problems. For most organizations, the issue comes down to how they calculate employee hire and termination dates. Simply put, the ACA rules regarding how to calculate these dates do not match up with the manner in which these type of organizations operate their businesses.

As an example let’s consider an employer in the Staffing Industry. Further, this employer hires a new employee and then put them on assignment. Let’s further assume that assignment ends after 4 months. The overwhelming majority of companies would continue to keep this person on their ‘books’ as an employee rather than go through the process of formally terminating them. After all, they could go out on another assignment at any time. However this methodology then causes the employees ACA reporting to be completely wrong, and as you likely know you as an employer are ultimately on the hook for penalties due because of incorrect reporting.

This is only one simple example, but it goes to show the ultimate problem of how non-traditional workforces operate their businesses in a manner that makes ACA compliance and reporting extremely difficult.

Learn more at StaffACA.com

New 2016 ACA Reporting Codes on Form 1095-C

The draft regulations for 2016 ACA reporting have been released and with those instructions have come two new codes for consideration in part II of the form 1095-C.  Specifically these are for line 14 of the form 1095-C, the offer of coverage, and they introduce a new concept to the reporting of a conditional offer of coverage.

A conditional offer of coverage is an offer of coverage that is subject to to certain conditions which would impact the availability of coverage for the spouse of an employee.  One example of a conditional offer of coverage would be if an employer offered health coverage to an employee and their spouse, unless the spouse was otherwise eligible for another group health plan sponsored by another employer.

Code 1J

Code 1J is used on line 14 of form 1095-C when an employee was offered coverage for all days of the month which:

  • Provided minimum essential and minimum value to the employee, and
  • Provided at least minimum essential coverage to their spouse that was a conditional offer, but
  • Did not provide coverage to the dependents of the employee

Code 1K

Code 1K is used on line 14 of form 1095-C when an employee was offered coverage for all days of the month which:

  • Provided minimum essential and minimum value to the employee, and
  • Provided at least minimum essential coverage to their spouse that was a conditional offer, but
  • Did provide coverage to the dependents of the employee