The Affordable Care Act (ACA) mandates that Applicable Large Employers (ALEs) have specific responsibilities regarding health insurance coverage for their full-time employees. To ensure compliance and proper administration of the ACA, the IRS requires ALEs to report information about the health coverage they offer. This reporting is crucial for verifying employer compliance with shared responsibility provisions and for determining individual eligibility for premium tax credits through the Health Insurance Exchanges, such as Covered California.
Form 1095-C: Employer-Provided Health Insurance Offer and Coverage
Applicable Large Employers are required to file Form 1095-C annually with the IRS. This form, officially titled “Employer-Provided Health Insurance Offer and Coverage,” details the health coverage offered to full-time employees throughout the year. ALEs must submit these forms to the IRS by March 31st if filing electronically. Accompanying instructions for Form 1095-C are also available from the IRS to guide employers through the reporting process.
In addition to reporting to the IRS, ALEs are also obligated to furnish statements to their full-time employees. Generally, a copy of Form 1095-C serves as this statement, providing employees with information about the coverage offered to them, which is consistent with what is reported to the IRS. The deadline for furnishing Form 1095-C to employees is typically March 2nd each year. It’s worth noting that the IRS has, in the past, granted automatic 30-day extensions for furnishing these forms to employees, moving the deadline from January 31st to March 2nd. Employers should stay updated on any deadline changes announced by the IRS.
The information reported on Form 1095-C is used by the IRS for several key purposes. Firstly, it allows the IRS to verify whether ALEs are meeting their employer mandate under the ACA to offer health coverage to full-time employees. Secondly, it helps to identify individuals who may not be eligible for premium tax credits when purchasing health insurance through exchanges like Covered California. This ineligibility can arise if an individual is offered affordable, employer-sponsored health coverage.
For employers seeking more detailed information on these reporting requirements, the IRS provides extensive resources. The “Information Reporting by Applicable Large Employers” section on the IRS website is a valuable starting point. Furthermore, the IRS offers a comprehensive collection of “Questions and Answers about Information Reporting by Employers on Form 1094-C and Form 1095-C,” addressing common queries and providing clarity on various aspects of the reporting process.
Letter 226-J: Potential Employer Shared Responsibility Payment
California employers who are ALEs should also be aware of potential correspondence from the IRS in the form of Letter 226-J. Starting in late 2017, the IRS began sending Letter 226-J to ALEs who may owe an employer shared responsibility payment. This letter is triggered if the IRS determines that one or more full-time employees of an ALE received a premium tax credit for coverage obtained through a Health Insurance Exchange, such as Covered California.
Upon receiving Letter 226-J, it is critical for ALEs to respond promptly. Employers typically have 30 days from the date of the letter to respond to the IRS’s proposed assessment. Therefore, maintaining readily accessible Forms 1094-C and 1095-C is essential for efficient review and response to Letter 226-J.
It’s important to remember that the ACA and its associated regulations have evolved. For instance, in the 2015 calendar year, the IRS offered certain transitional relief measures. This included exemptions for ALEs with 50-99 full-time or full-time equivalent employees from the 95% coverage requirement that is part of the Employer Shared Responsibility provisions. Instead, ALEs with 100 or more full-time or full-time equivalent employees in 2015 could meet the requirement by offering coverage to at least 70% of their full-time employees. However, it’s crucial to note that all ALEs became subject to the 95% coverage requirement starting in 2016.
For further guidance on Letter 226-J, California employers can refer to resources like Circular Letter 600-070-17, and the IRS webpages dedicated to “Understanding your Letter 226-J” and “Q&A on Employer Shared Responsibility Provisions Under the Affordable Care Act.” These resources provide valuable context and answers to frequently asked questions, helping employers navigate their responsibilities under the ACA.
By staying informed about these reporting requirements and potential IRS correspondence, California employers can ensure compliance with the Affordable Care Act and avoid potential penalties. Utilizing the resources provided by the IRS is a key step in effectively managing these obligations.
