New IRS rules on ACA reporting requirements
September 5, 2013 - The IRS has just released proposed regulations regarding the health coverage reporting requirements in §§ 6055 and 6056 of the Internal Revenue Code (IRC) as added by PPACA §§ 1502(a) and 1514(a), respectively. Please find below the IRS media release from late today.
While the reporting requirements are admittedly technical, a few points merit particular mention. I provide just a little context and summarize the most interesting points below.
- The preamble to the § 6056 nicely distinguishes the two provisions by noting that, “Section 6055 requires reporting of certain health coverage information by various entities (issuers, employers sponsoring self-insured group health plans, and governmental units) only for individuals who are actually covered (and not for individuals who are offered coverage but do not enroll), and multiple covered individuals may be included on one return. Section 6056 requires reporting of information by applicable large employers on offers of coverage that have or have not been made only to full-time employees (whether or not the offer has been accepted).
- The purposes for the provisions are similarly distinct. The reporting under § 6055 will help the IRS to verify compliance with the individual mandate and assess “individual shared responsibility” penalties under IRC § 5000A as added by PPACA § 1501(b). These data will also enable the IRS to determine enrollment in coverage that would make an individual ineligible for the premium assistance tax credits under IRC § 36B. In contrast, the reporting under § 6056 helps the IRS to identify which individuals have an offer of affordable coverage of minimum value, thereby making them ineligible for the premium assistance tax credits. This has the related effect of helping the IRS to determine whether an employer may be subject to the IRC § 4980H “employer shared responsibility” penalties as added by PPACA § 1513(a), which apply to large employers that have one or more employees who qualify for the new premium assistance tax credits.
- Earlier this year on July 2, 2013, Treasury announced that it would delay the §§ 6055 and 6056 reporting requirements and postpone implementation of the § 4980H penalties by one year until 2015.
Key Points in Proposed Rules:
Medicaid/CHIP:The proposed reporting requirements under § 6055 apply to state agencies that administer Medicaid and CHIP programs as well as to state and local governmental employers.
Potential State Pushback: While federal law almost certainly supersedes the so-called “Health Care Freedom Acts” in some 18+ states, these state statutes frequently prohibit state officials taking action that may give effect to the ACA’s individual mandates, etc. See, e.g., Tennessee Code Annotated § 56-7-1016. It remains unclear whether and how state officials will comply with §§ 6055 and 6056 requirements (once finalized) and/or report this information.
SSNs for Dependents, Too: The proposed § 6055 regulations require all reporting entities to include the Taxpayer ID Number (or “TIN”, which is typically an individual’s Social Security Number) for dependents as well as primary insureds. The proposed rules essentially require reporting entities to make multiple attempts to collect this from a taxpayer. Many insurers and sponsors of self-funded group plans are likely to comment on this requirement.
Affected Employers: The proposed reporting requirements of § 6055 apply to small employers only to the extent that they offer a self-funded group health plan. If such small employers instead offer a fully-insured group health plan (which is far more common), the insurer would appear to be responsible for the reporting under the proposed rules. In contrast, the proposed § 6056 requirements would apply to all employers subject to the § 4980H penalties (i.e., those employers with 50+ full-time employees as defined in the as-yet finalized implementing rules for § 4980H).
Simplified Reporting: While the general approach would require employers to file new paperwork in order to comply with these requirements, the IRS is considering a number of simplified reporting options. These include allowing employers (at least in some instances) to report the § 6056 information on an employee’s W2 – and to combine §§ 6055 and 6056 reporting where feasible.
Creating New Threshold? The IRS may also allow employers to report “zero” for the employee premium field in the § 6056 reporting if the annualized employee contribution for employee-only coverage is less than $800. It remains unclear whether this will result in a clustering of employee premiums at $66.67 per month (i.e., $800/12).
Minimum Value: The proposed § 6056 rules would not require employers to report the actual minimum value of the group health plan; rather, the employer could simply certify that it meets or exceeds the 0.60 statutory minimum. Many research and advocacy groups are likely to urge the IRS to at least collect these data (thereby allowing the IRS can assess the changes in minimum value over time and across industries).
Dependent Affordability: The proposed § 6056 rules would not require employers to provide any information about family premiums. The IRS notes in the preamble that its goal is to reduce the reporting burden and eliminate nonessential reporting elements. Given that the final premium tax credit rule defines “affordability” of coverage using the employee-only premium (even when determining affordability for dependents*), the IRS believes that the family premium is unnecessary. Again, many research and advocacy groups are likely to urge the IRS to at least collect these data (thereby allowing the IRS to assess the impact of its affordability definition for dependents).
* Note the following result under the final premium assistance tax credit rules: An employer that contributes 50% to employee coverage and 50% family coverage may still yield an “unaffordable” premium for both the employee and his/her dependents under the tax credit eligibility rules, but an employer than contributes 100% for employee coverage and 0% for family coverage would always yield an “affordable” premium for both the employee and the dependents. The former family may qualify for a tax credit, while the latter family would not.
Voluntary Compliance: The IRS is urging employers to comply with the §§ 6055 and 6056 reporting in 2014 so as to facilitate resolution and trouble-shooting, thereby enabling a smoother implementation the following year when it becomes mandatory.
Real Delay? While the Treasury make the decision to postpone implementation of these reporting requirements by one year, many employees who are potentially eligible for the ACA’s insurance affordability programs will ask their employers to complete the “Employer Coverage Tool,” which is part of the final HHS application for health coverage (available athttp://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/marketplace-app-standard.pdf). For this reason, many employers may face substantial reporting responsibilities in 2014 even absent the §§ 6055 and 6056 requirements.
Please feel free to contact me with any questions.
Senior Vice President for Health Policy
Jackson Hewitt Tax Service Inc.
Cell: (615) 761-6929