Many employers will face two significant new reporting requirements for employee health coverage starting next year:

  • Section 6055 Return:  Employers and insurers that provide minimum essential coverage must report information to the IRS about each covered individual for each month, and provide a copy of the report to covered employees and retirees.
  • Section 6056 Return:  Employers with at least 50 full-time employees must report additional information to the IRS (with a copy to the employee) to confirm that the employer offers health coverage that is affordable and provides minimum value to full-time employees and their dependents.

Final regulations (available here and here) adopt the reporting requirements proposed last fall, with only modest changes.  (We described the proposed requirements in our earlier post: Health Coverage Reporting Rules Create New Burdens for Employers.)  These are some of the challenges employers will confront as they prepare to comply with the new requirements:

No Further Extension of the Reporting Deadline

The IRS announced last year that it would waive the reporting penalties for coverage provided in 2014.  The final regulations do not provide any further extension of the reporting deadline.  Accordingly, the first reports will be due early in 2016 for health coverage provided in 2015.

Employers will have to develop administrative systems and procedures to collect the required information, and many employers will wish to engage outside vendors to help them comply with the new reporting requirements.  These arrangements generally must be in place by January 1, 2015, when the new requirements take effect.

No Electronic Statements Unless the Employee Consents 

An employer must provide individual statements to employees showing the health coverage information reported to the IRS for the employee and the employee’s family.  Although employers had requested rules that would allow them to furnish these statements electronically, the final regulations continue to provide that an employer may furnish an electronic statement only if the individual consents.  The consent rules will make electronic delivery impractical for many employers.

The employer’s request for consent must refer to the specific forms that the employer wishes to provide electronically.  Accordingly, even if an employer has previously received the employee’s consent to furnish other forms (such as Form W-2) electronically, or has received a general consent to furnish all forms electronically, these consents will not extend to the new health coverage statements.

No Forms Available Yet

The forms used to satisfy the reporting requirement—Forms 1094-B (transmittal) and 1095-B for the section 6055 return and Forms 1094-C (transmittal) and 1095-C for the section 6056 return—are still under development.  Employers and third-party administrators that wish to begin developing and testing reporting systems will have to wait until the draft forms are available.

The final regulations do accommodate large employers’ request that they be permitted to file a combined form if they are subject to both reporting requirements.  Under the final regulations, each member of a controlled group that constitutes an “applicable large employer” (that is, an employer with at least 50 full-time employees) must use Form 1095-C for both returns:  the top half of the form will provide the section 6056 information and the bottom half will provide the section 6055 information.  For employees enrolled in self-insured plans, a large employer will complete both parts of the form; for employees enrolled in insured coverage, a large employer will complete only the top half of the form and the insurer will use a separate form to provide the section 6055 information.

Reporting Required for Each Controlled Group Member

The section 6055 and 6056 returns must be filed under a separate EIN for each employer in a controlled group of companies (including single-member LLCs and other “disregarded” entities).  Although another member of the controlled group or a third-party vendor may file the returns on behalf of the employer, the filing entity must file the return under the employer’s EIN, and the employer (rather than the filing entity) will be liable for penalties if the return is not filed correctly.

For example, if the employees of many different subsidiaries participate in a single group health plan maintained by the parent company, each participating employer must file a separate return for its own employees under its own EIN.  Alternatively, the parent company or a third-party administrator may file a return on behalf of each participating employer: but the filing entity must  still file a separate return for each employer under that employer’s EIN.

Aggregation Required if Multiple Entities File Returns for a Single Employer

If more than one entity files section 6056 returns for a single employer under a single EIN, the employer (or its agent) must file one authoritative transmittal form on Form 1094-C that aggregates the employer-level data for all full-time employees of that employer.  In addition, each employee of the employer must receive a single employee statement, even if the employee participates in more than one plan of the employer during the year.

For example, suppose that an employer’s employees are covered under one of three group health plans.  The employer files the section 6056 returns for Plan A, the third-party administrator files the returns for Plan B, and the employer’s parent company files the returns for the employer’s employees who participate in Plan C, which is maintained by the parent company.  All three returns must be filed under the employer’s EIN.  One of the three filing entities must file a single transmittal form that aggregates the information reported under the employer’s EIN on the separate returns for the three plans.  In addition, if an employee participates in Plan A for part of the year and in Plan C for the remainder of the year, one of the three filing entities must provide the employee with a single statement that aggregates the information reported on the separate returns filed for Plan A and Plan C.

Employers and vendors will need to coordinate in order to determine how they will satisfy these aggregate filing requirements.  For large companies with many different group health plans, we expect that aggregating information across plans and vendors will be challenging.

Employers Must Obtain Social Security Numbers for Spouses and Dependents

The section 6055 return requires employers to report the Social Security numbers of employees’ spouses and dependents who are covered under the employer’s self-insured group health plan.  Although employers objected that they do not have this information, the final regulation continues to provide that employers must make reasonable efforts to obtain the information or face penalties.  Employers that do not currently collect this information should consider whether to request Social Security numbers for covered spouses and dependents at the next open enrollment.

Simplified Reporting Options Limited

The section 6056 return generally requires large employers to report a significant amount of detailed information for each calendar month.  Employers requested various exemptions and simplified reporting methods to ease the reporting burden.  The IRS rejected most of these proposals as being inconsistent with the purpose of the return or incompatible with proper administration of the tax laws.  For example, the final regulation does not permit employers to report on the basis of coverage dates or payroll periods rather than calendar months.  The final regulation does offer a few simplified reporting methods (in addition to allowing large employers to file section 6055 and section 6056 returns on a single form), however:

  • Qualifying Offer for All 12 Months:  For full-time employees to whom an employer makes a qualifying offer of coverage for all 12 months of a calendar year, the employer may file a return and provide an individual statement that include the employee’s name, tax identification number, and address, and indicate that the employee’s family received a 12-month qualifying offer and thus is not eligible for premium tax credits.  A “qualifying offer” is an offer of minimum essential coverage to the employee, spouse, and dependents that provides minimum value and is affordable.  For the purpose of this reporting exception, coverage is affordable only if self-only coverage does not cost more than 9.5 percent of the federal poverty line for a single individual living in the 48 contiguous states: the employer may not use the affordability safe harbors based on W-2 pay or rate of pay that are available under the shared responsibility rules.
  • Qualifying Offer Transition Rule for 2015:  For 2015 only, a large employer may use the simplified reporting method for all employees—including employees to whom it does not make a qualifying offer for all 12 months of the calendar year—if the employer makes a qualifying offer to a least 95% of its full-time employees (and their spouses and dependents).  Individual statements for employees who do not actually receive a qualifying offer for all 12 months would inform the employees (and their spouses and dependents) that they might be eligible to claim a premium tax credit for one or more months and would include a contact number for additional information.
  • Exemption for 98% Offers:  The final regulations allow certain employers that offer affordable, minimum-value coverage to a large percentage of their workforce (for example, to all employees who work more than 20 hours per week) to avoid identifying which employees are full-time within the meaning of the statute (i.e., they work on average at least 30 hours per week).  These employers may file section 6056 returns for their employees without determining how many full-time employees they have or which individual employees work 30 hours per week on average.  To be eligible for this reporting option, the employer must certify that it has offered, to at least 98% of the employees whom the employer includes in its report, coverage that provides minimum value and is affordable under any of the safe harbors.  An employer that uses this simplified reporting method will not be exempt from any penalties that might apply if it fails to file a report with respect to any employee who is actually a full-time employee within the meaning of the statute, including a full-time employee to whom it does not offer coverage.