Smart business owners know the importance of keeping good records. The Affordable Care Act has created one more incentive for employers to keep abreast of sometimes complicated reporting requirements, by requiring them to provide information about company-provided health care to both their employees and the government.
Not all of the law’s employer responsibility provisions have been implemented yet. Nevertheless, it makes good business sense to establish effective systems to meet obligations that are likely to be rolled out soon. Acting early will give business owners more time to iron out any wrinkles before the law comes to bear.
Reporting to Employees
The Affordable Care Act requires most employers to report the cost of any employer-sponsored group health plan on employee Forms W-2. This requirement applies to all employers who provide what the government defines as “applicable coverage,” even if the employers are religious organizations or are not subject to Consolidated Omnibus Budget Reconciliation Act (COBRA) requirements. Small businesses issuing fewer than 250 Forms W-2 total are exempt from the reporting requirement until further guidance is issued.
For businesses subject to the rules, the amount reported in Box 12 of Form W-2 must include both the employer and employee portions of the plan’s cost. Certain forms of coverage must be reported, while other forms are either optional or excluded. The following chart gives an overview of the major types:
|Coverage Type||Report||Do Not Report||Optional|
|Independent dental or vision||X|
|Flexible Spending Arrangement (FSA) funded solely by salary reductions||X|
|Health Reimbursement Arrangement (HRA) contributions||X|
|Health Savings Arrangement (HSA) contributions||X|
|Domestic partner coverage included in gross income||X|
|Self-funded plans not subject to federal COBRA||X|
|Accident or disability income||X|
For more information, see the IRS' full chart of reporting requirements.
Affected employers are not required to issue Forms W-2 to workers who would not normally receive one, such as retirees, simply to fulfill the requirement. For terminated employees, employers may use any reasonable method to report partial-year coverage, as long as the method is applied consistently. For employees who voluntarily leave and request Forms W-2 in writing prior to year-end, employers must provide the forms within 30 days of the request, but are not required to report the health benefit amounts.
Proposed Section 6056 regulations from the Internal Revenue Service would mainly affect reporting to the Service, though they would also require employers to notify employees in writing of any employee-related information shared with the IRS. These statements will need to be provided annually by January 31. Note that these regulations are still under discussion, and that there is a chance Form W-2 reporting alone could satisfy the requirement. Nevertheless, employers should pay attention to how the final regulations are worded.
Employers subject to the Fair Labor Standards Act have a responsibility to provide all new employees, both part- and full-time, with a written notice pertaining to the Health Insurance Marketplace. These employers include federal, state and local government agencies; hospitals and institutions engaged primarily in the care of the sick, the aged or the developmentally disabled who live on the premises; preschools, elementary and secondary schools, postsecondary institutions of higher learning and schools for gifted children; and companies or organizations with annual sales of receipts over $500,000.
The Health Insurance Marketplace, often referred to as the exchanges, may provide alternatives that cost less than the employer-provided health care plan, if any. Employers must make clear that employer contributions, if any, may be lost if the new employee chooses to pursue private insurance instead. Employers may satisfy the notice requirement through third-party entities, such as insurers or multiemployer health plans, as long as every new employee receives such a notice regardless of whether he or she plans to enroll in the company health care plan.
Finally, any employer providing a health care option must also furnish employees with a standard Summary of Benefits and Coverage (SBC) form. This form explains what services and care the plan does and does not cover. It also lays out the plan’s cost clearly.
Reporting to the IRS
As previously mentioned, the Affordable Care Act introduced new reporting guidelines for employers, known as Section 6056 rules, which mainly affect how employers will report to the IRS. Last September, the Treasury issued proposed regulations to provide further guidance on how businesses should observe the rules; the final regulations were released in mid-February. For the most part, these regulations only apply to employers that had 50 or more full-time employees (or full-time equivalent employees) for the prior year.
Affected large employers must file a return with the IRS reporting certain information for every employee who was full-time for at least one month during the calendar year, including:
- The employee’s name
- The employee’s address
- The employee’s Taxpayer Identification Number (TIN)
- Information about the health care coverage offered to each employee by month, including
- What coverage was available
- The employee’s share of the lowest-cost, self-only premium
- Which months, if any, the employee was actually covered under the plan
The return will also specify how many employees the business had each month in the calendar year. These requirements are currently scheduled to take effect in 2015.
In addition to Section 6056 rules, certain employers may also fall subject to Section 6055 rules, regardless of size. These rules mainly apply to institutions providing health insurance, such as insurers. However, businesses that self-insure may also need to follow these rules. Affected businesses must provide information for each individual enrolled in minimum essential coverage, including the individual’s name, taxpayer ID number and the months in which the individual received coverage.
The IRS is currently considering allowing Section 6055 and Section 6056 reporting to be submitted together for organizations subject to both sets of rules. However, this concession has not yet been granted. Like Section 6056 rules, Section 6055 rules are scheduled to become mandatory in 2015, but are optional in 2014.
Employers that self-insure may also fall subject to the Patient-Centered Outcomes Research Trust Fund fee (the PCORI fee). The fee applies to policy years ending after September 30, 2012 and before October 1, 2019, and is equal to the product of the average number of individuals covered for the year and the applicable dollar amount. Organizations subject to the fee will need to file Form 720 annually to report and pay the fee.
If any of a business’ employees are liable for the Additional Medicare Tax, employers will also need to withhold the tax, set at 0.9 percent, and report the withholding. The threshold earnings amount to determine the tax liability is $200,000 for single filers and $250,000 for married taxpayers filing jointly. This tax should not be confused with the Net Investment Income Tax (NIIT), which is also sometimes called the Medicare surtax. The NIIT does not affect wages and is not the employer’s responsibility. (For more information on the NIIT, I invite you to read a recent article by my colleagues Anthony Criscuolo and Melinda Kibler.)
While small businesses are largely exempt from these mandatory reporting requirements, businesses with fewer than 25 full-time employees may wish to secure a tax credit for voluntarily providing health care coverage to their workers. Qualifying businesses will need to apply for the credit using Form 8941.
Self-employed individuals may also be eligible for a tax deduction for the cost of their health care. However, the Affordable Care Act has made this deduction solely applicable to income taxes, whereas in the past a deduction against self-employment taxes was available. Eligibility for this deduction is determined on a month-by-month basis.
Reporting to States
Certain states may have their own health care reporting requirements. For example, Massachusetts-based employers with 11 or more employees must file an Employer Health Insurance Responsibility Disclosure and an Employee Health Insurance Responsibility Disclosure for each employee. While these rules are not a product of the Affordable Care Act, employers should take care to comply with all state-specific reporting requirements as well as with federal rules.
As with most parts of the Affordable Care Act, reporting requirements will remain a moving target for some time. As a result, satisfying all of the rules may be a challenge for some employers, at least in the near term. However, the sooner you begin, the sooner you will be able to identify the more difficult rules to follow and develop adequate systems to address them, regardless of whether regulators extend leniency for what is technically required.