Editor: Michael Dell, CPA
Employee Benefits & Pensions
The Treasury Department and the IRS in September released long-awaited notices of proposed rulemaking (REG-132455-11 and REG-136630-12) on information-reporting requirements for employers and health insurers under Secs. 6055 and 6056, as enacted by the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148. Under Sec. 6056, large employers subject to PPACA’s employer mandate (Sec. 4980H) must file a return with the IRS and provide a statement to each full-time employee with information regarding the offer of employer-provided health care coverage. Under Sec. 6055, employers offering self-funded plans and insurers generally must file a return with the IRS and provide a statement to each individual on who is covered by plans that constitute minimum essential coverage.
Notice 2013-45, issued in July, provided 2014 transitional relief for information reporting required under Secs. 6055 and 6056. The proposed regulations incorporate this relief and provide that the first filings that are mandatory will be for calendar year 2015 and will be made in early 2016.
The proposed regulations’ preambles request comments on ways to streamline the reporting rules and avoid duplicative reporting. At the same time, Treasury and the IRS want taxpayers to be mindful that the reported information is designed to assist the IRS and individuals in the fair and efficient administration of the individual mandate (Sec. 5000A), the employer mandate (Sec. 4980H), and the premium tax credit (Sec. 36B).
PPACA Reporting Provisions
PPACA enacted three information-reporting provisions requiring employers and health insurance issuers to report to the IRS and furnish statements to individuals with information regarding health care coverage. Each reporting provision was enacted for a particular purpose:
- Sec. 6051 requires employers to report annually all wages and wage-related information on Form W-2, Wage and Tax Statement . Beginning for 2012 (the Form W-2 provided to employees in January 2013), employers filing 250 or more Forms W-2 for the preceding calendar year are required to report the aggregate cost of employer-sponsored health care coverage. This provision of Sec. 6051 was enacted to inform employees of the value of employer-sponsored health care coverage provided on a pretax basis.
- Sec. 6055 requires employers sponsoring self-insured group health plans, insurance issuers, and governmental units to report to the IRS and provide a statement to individuals with information regarding minimum essential coverage. Employers and health insurance issuers report the information only if the individual is actually enrolled in coverage. This annual filing tabulates the individual’s health care coverage information on a monthly basis. Sec. 6055 was enacted to provide the IRS and individuals with the requisite information to administer the individual mandate.
- Sec. 6056 requires large employers (those with 50 or more full-time-equivalent employees, including governmental units) to report to the IRS and provide a statement to all full-time employees with information about the applicable offer of employer-provided coverage, whether or not the offer of coverage was accepted. This annual filing reports the offer of health care coverage on a monthly basis. Sec. 6056 was enacted to provide the IRS with information necessary to administer the employer mandate. It also provides the IRS and individuals with information necessary to administer the premium tax credit under Sec. 36B.
Employers and health insurance issuers repeatedly raised the concern that they are subject to duplicative reporting requirements. In fact, Sec. 6056(d) provides that combined reporting under Secs. 6051, 6055, and 6056 should be permitted to the maximum extent feasible. Treasury and the IRS acknowledged these comments and the statutory authority. Nonetheless, the proposed regulations generally do not permit combined reporting, based on the reasoning that each of the reporting provisions requires different types of information, applies to different entities, and is compiled on a different time frame. (Sec. 6051 requires reports of annual information, and Secs. 6055 and 6056 require reports of monthly information.) The proposed regulations’ preambles state that Treasury and the IRS are considering ways to combine the reporting by providing an option to use an indicator code on Form W-2 in certain circumstances. The proposed regulations also provide some concrete proposals for combined reporting in unique cases. Treasury and the IRS requested comments on how to combine the reporting while maintaining the integrity of tax administration.
Sec. 6056: Employer Reporting on Coverage Offered Under Employer-Sponsored Plans
Sec. 6056 requires large employers to collect and report detailed information regarding all full-time employees and the offer of employer-provided health care coverage. Treasury and the IRS met with and received comments from employers to address alternative ways to simplify the reporting requirements and avoid duplication.
Although the proposed regulations under Sec. 6056 attempt to streamline the reporting requirements, the default, general method of reporting continues to require employers to report detailed information about the employer-provided health care plans and the number of employees who are employed and offered coverage on a monthly basis. In response to comments from employers, the proposed regulations propose options for alternative simplified methods of reporting that would reduce the amount of information reported and attempt to avoid duplication. If adopted, the simplified reporting alternatives may be helpful for some employers, but they will offer little or no relief for others.
The default, general method of reporting requires large employers to report all information required by the statute, with some limited changes where Treasury and the IRS concluded that the information reported should be modified or was not needed. Tabulating information on a monthly basis during the calendar year for each full-time employee likely will be one of the most challenging aspects of the general reporting method for employers. This information includes:
- The number of the employer’s full-time employees for each month during the calendar year.
- For each full-time employee, the months during the calendar year for which coverage under the plan was available.
- For each full-time employee, the employee’s share of the lowest-cost monthly premium for self-only coverage providing minimum value that the large employer offered to that full-time employee, by calendar month.
In addition to the statutory information that must be reported, Treasury and the IRS expect to request additional information that the IRS believes is necessary for the verification process. In some cases, the additional information will be reported through the use of indicator codes as part of the information return. Included in the list of additional information to be reported is whether the employee had the opportunity to enroll his or her spouse in coverage that meets the minimum value standard and whether coverage was offered to employees who are not full time. Every employer required to file a Sec. 6056 return with the IRS must also furnish a Sec. 6056 statement to each of its full-time employees.
Time for Filing
The proposed rules would apply the same filing schedule used for Forms W-2 and 1099 to the Sec. 6056 reporting. The rules provide that Sec. 6056 returns must be filed annually with the IRS by March 31 if filing electronically (or by Feb. 28 otherwise) of the year immediately following the calendar year to which the return relates. Statements to employees must be provided annually by Jan. 31.
Transitional relief is provided for 2014; the first mandatory Sec. 6056 reporting will be for the 2015 calendar year.
Large employers that do not comply with the requirements for filing and furnishing statements under Sec. 6056 may be subject to penalties for failure to file a correct information return under Sec. 6721 and failure to furnish correct payee statements under Sec. 6722. However, Sec. 6724 permits such penalties to be waived if the failure is due to reasonable cause and not willful neglect.
Potential Simplified Methods of Reporting
The proposed regulations outline several options under consideration for Sec. 6056 reporting that are intended to offer large employers more streamlined approaches to information reporting. Those approaches include:
- Allowing Form W-2 reporting for certain groups of employees who were employed for the entire year;
- Allowing employers to certify that minimum value coverage was offered to all or potentially all full-time employees; and
- Allowing simplified reporting for self-insured employers offering employees, their spouses, and dependents mandatory, no-cost minimum value coverage.
Additional Considerations
Whether a large employer follows the default, general method of reporting or one of the alternative methods (if adopted by the IRS), the following issues addressed in the proposed regulations are important considerations.
Separate filing by each member of a large employer controlled group: The proposed regulations provide that the Sec. 6056 IRS filing and employee statement requirements are applied separately to each employer in a large employer controlled group, even though the determination of whether an entity is a large employer is made at the group level. Furthermore, if an employee provides services for more than one member of the controlled group and the employee’s combined hours of service make the employee a full-time employee, both members of the controlled group must make the Sec. 6056 filing for the employee. The proposed regulations permit a third party to make the Sec. 6056 filing on behalf of the employer (e.g., the parent corporation operating the employer-sponsored plan could make the filing). However, the employer (the subsidiary, in this example) is responsible for and is required to sign the return.
Filing date: Employers with non-calendar-year plans had requested an alternative filing date because they may collect information on the basis of a plan year, rather than on a calendar year. The IRS retained the calendar-year filing date to accommodate employees who must receive their Sec. 6056 statements early in the calendar year to complete their income tax return and properly reflect any available premium tax credit.
Multiemployer plans: Treasury and the IRS anticipate providing a bifurcated approach to Sec. 6056 reporting for full-time employees eligible to participate in a multiemployer plan. Under this bifurcated approach, one Sec. 6056 return would pertain to the full-time employees eligible to participate in a multiemployer plan, and another Sec. 6056 return would pertain to the remaining full-time employees (i.e., those who are not eligible to participate in a multiemployer plan).
Governmental entity: Governmental employers can designate a person to comply with the Sec. 6056 reporting requirements.
Full-time employee transition rule: Sec. 4980H defines who is a full-time employee for purposes of the employer mandate excise tax. This same definition of full-time employee applies for purposes of Sec. 6056 reporting. The proposed regulations under Sec. 4980H provided some important transitional relief for 2014 for determining which employees are considered full time and when employers could face an excise tax under Sec. 4980H(b) if coverage does not meet the law’s affordability and minimum value standards. Future guidance will address whether this transitional relief will be provided for 2015.
Sec. 6055: Information Reporting of Minimum Essential Coverage
For employers that sponsor self-insured plans and health insurance issuers that provide individuals with minimum essential coverage, the Sec. 6055 proposed regulations provide helpful accommodations for reporting to the IRS and furnishing statements to covered individuals. However, the proposed regulations do not address all of the concerns raised by employers and insurers about the information statements that must be made to primary insureds and all covered dependents.
Background: Reporting under Sec. 6055 is primarily focused on administration of the individual mandate enacted by PPACA under Sec. 5000A. The information reporting required under Sec. 6055 is intended to allow taxpayers to establish, and the IRS to verify, that the taxpayers were covered by minimum essential coverage and their months of enrollment.
Persons subject to reporting requirements: The proposed regulations address a number of issues regarding which persons are responsible for the Sec. 6055 reporting. Some of the rules to be highlighted include:
- Insurers of qualified health plans on an exchange: The proposed rules state the insurers of qualified health plans on an exchange are not required to submit Sec. 6055 returns because the exchanges already must report information to individuals and the IRS that is needed to comply with or administer the individual mandate. Insurers are still required to report on qualified health plans enrolled in through the Small Business Health Options Program (SHOP) because annual reporting by exchanges does not include these plans.
- Employers sponsoring self-insured plans: Similar to the Sec. 6056 proposed rules requiring separate reporting by each employer in a controlled group, the Sec. 6055 proposed regulations provide that the employer, determined without application to the controlled group rules, is responsible for the filing. The proposed rules also state that reporting entities may use third parties to facilitate filing returns and furnishing statements to comply with Sec. 6055 reporting. These arrangements do not transfer the potential liability for failure of the reporting entity to report and furnish statements under the regulations.
- Multiemployer self-insured plans: An association, committee, joint board of trustees, or other representative of the parties that establishes or maintains the multiemployer plan is responsible for the Sec. 6055 filing.
- Governmental entity sponsor of a self-insured plan: A governmental entity may designate a person to make the Sec. 6055 filing on behalf of the governmental employer.
Information required to be reported: The Sec. 6055 information return must include the name, address, and taxpayer identification number (TIN) of the primary insured and each individual covered under the policy and the months that the individuals were covered.
Health insurance issuers and employers expressed concern that they do not typically collect TINs for covered dependents and suggested allowing alternative means of identifying these individuals. The proposed regulations follow the statute and require TIN reporting of all covered individuals, including dependents. While TIN reporting is required, reporting entities will not be subject to penalties if they make a reasonable effort to collect the TIN but were unable to do so. As a backstop to TIN reporting, the proposed regulations allow the reporting entities to report the enrollee’s date of birth, but only if they first make a reasonable effort to collect the TIN and are unable to do so.
Combined filings: As discussed above, Treasury and the IRS are considering alternatives for combined Secs. 6051, 6055, and 6056 filings.
Time for filing: The proposed rules provide that reporting entities must file Sec. 6055 returns annually with the IRS by March 31 if they file electronically (or by Feb. 28 otherwise) of the year following the calendar year in which they provided minimum essential coverage. Reporting entities must furnish the required statements to individuals annually by Jan. 31.
The proposed rules state that reporting entities that file at least 250 returns must report the information under Sec. 6055 to the IRS electronically and that entities with fewer returns are not required to file electronically but may do so.
EditorNotes
Michael Dell is a partner at Ernst & Young LLP in Washington, D.C.
For additional information about these items, contact Mr. Dell at 202-327-8788 or michael.dell@ey.com .
Unless otherwise noted, contributors are members of or associated with Ernst & Young LLP.
