IRS may have big ACA employer tax woes, advocate says

IRS may play a big part in your company's ACA tax filing. Checkout this article from Benefits Pro about what the IRS will be looking for in companies ACA filings this year by Allison Bell

An official who serves as a voice for taxpayers at the Internal Revenue Service says the IRS may be poorly prepared to handle the wave of employer health coverage offer reports now flooding in.

The Affordable Care Act requires "applicable large employers" to use Form 1095-C to tell their workers, former workers and the IRS what, if any, major medical coverage the workers and former workers received. Most employers started filing the forms in early 2016, for the 2015 coverage year.

This year, the IRS is supposed to start imposing penalties on some employers who failed to offer what the government classifies as solid coverage to enough workers.

If Donald Trump's promise holds true, the Affordable Care Act could be on its way out. Along with it may...

Nina Olson, the national taxpayer advocate, says the IRS was not equipped to test the accuracy of ACA health coverage information reporting data before the 2016 filing season, for the 2015 coverage year. The IRS expected to receive just 77 million 1095-C forms for 2015, but it has actually received 104 million 1095-C's, and it has rejected 5.4 percent of the forms, Olson reports.

"Reasons for rejected returns include faulty transmission validation, missing (or multiple) attachments, error reading the file, or duplicate files," Olson says.

Meanwhile, the IRS has had to develop a training program for the IRS employees working on employer-related ACA issues on the fly, and it was hoping in November to provide the training this month, Olson says.

"The training materials are currently under development," Olson says. She says her office did not have a chance to see how complete the training materials are, or how well they protect taxpayer reports.

Olson discusses those concerns about IRS efforts to administer ACA tax provisions and many other tax administration concerns in a new report on IRS performance. The Taxpayer Advocate Service prepares the reports every year, to tell Congress how the IRS is doing at meeting taxpayers' needs.

In the same report, Olson talks about other ACA-related problems, such as headaches for ACA exchange plan premium tax credit subsidy users who are also Social Security Disability Insurance program users, and she gives general ACA tax provision administration data.

APTC subsidy

The ACA premium tax credit subsidy program helps low-income and moderate-income exchange plan users pay for their coverage.

Exchange plan buyers who qualify can get the tax credit the ordinary way, by applying for it when they file their income tax returns for the previous year. But about 94 percent of tax credit users receive the subsidy in the form of an "advanced premium tax credit."

When an exchange plan user gets an APTC subsidy, the IRS sends the subsidy money to the health coverage issuer while the coverage year is still under way, to help cut how much cash the user actually has to pay for coverage.

When an APTC user files a tax return for a coverage year, in the spring after the end of the coverage year, the user is supposed to figure out whether the IRS provided too little or too much APTC help. The IRS is supposed to send cash to consumers who got too little help. If an APTC user got too much help, the IRS can take some or all of the extra help out of the user's tax refund.

Another ACA provision, the "individual shared responsibility" provision, or individual coverage mandate provision, requires many people to obtain what the government classifies as solid major medical coverage or else pay a penalty.

Individual taxpayers first began filing ACA-related tax forms in early 2015, for the 2014 coverage year. Early last year, individual taxpayers filed ACA-related forms for the second time, for the 2015 coverage year.

Only 6.1 million taxpayers told the IRS they owed individual mandate penalty payments for 2015, down from 7.6 million who owed the penalty for 2014.

But, in part because the ACA designed the mandate penalty to get bigger each year for the first few years, the average penalty payment owed increased to $452 for 2015, from $204 for 2014.

The number of households claiming some kind of exemption from the penalty program increased to 8.6 million, from 8.4 million.

The number of filers who said they had received APTC help increased to 5.3 million for 2015, up from 3.1 million for 2014. And the amount of APTC help reported increased to $18.9 billion for 2015, from $11.3 billion in APTC subsidy help for 2014.

That means the 2015 recipients were averaging about $3,566 in reported subsidy help in 2015, down from $3,645 in reported help for 2014.

Olson says her office helped 10,910 taxpayers with ACA premium tax credit issues in the 12-month period ending Sept. 30, 2016, up from 3,318 in the previous 12-month period.

One of her concerns is how the Social Security Disability Insurance program, which is supposed to serve people with severe disabilities, interacts with the ACA provision that requires people who guess wrong about their income during the coverage year to pay back excess APTC subsidy help.

SSDI lump-sum payment headaches

Some Social Security Disability Insurance recipients have to fight with the Social Security Administration for years to qualify for benefits. Once the SSDI recipients win their fights to get benefits, the SSA may pay them all of the back benefits owed in one big lump sum.

The big, lump-sum disability benefits payments may increase the SSDI recipients' income for a previous year so much they end up earning too much for that year to qualify for ACA premium tax credit help, Olson says in the new report.

The SSDI recipients may then have to pay all of the ACA premium tax credit help they received back to the IRS, Olson says.

So far, IRS lawyers have not figured out any law they can use to protect the SSDI recipients from having to pay large amounts of premium tax credit help back to the government, Olson says.

For now, she says, her office is just trying to work on a project to warn consumers about how accepting any lump-sum payment, including an SSDI lump-sum benefits payment, might lead to premium tax credit headaches.

See the original article Here.


Bell A. (2017 January 16). IRS may have big ACA employer tax woes, advocate says [Web blog post]. Retrieved from address

DOL and IRS want a closer look at your retirement plan

Are you worried that your company's retirement plan is not up to government standards? If so take a look at this article from HR Morning about what the DOL and IRS are looking for in retirement plans by Jared Bilski

Two of the most-feared government agencies for employers — the DOL and IRS — have decided there’s a real problem with the way retirement plans are being run, and they’re ramping up their audits to find out why that is.

In response to the many mistakes the agencies are seeing from retirement plan sponsors, the IRS and DOL will be increasing the frequency of their audits.

What does that mean for you? According to experts, plan sponsors can expect the feds to dig deep into the minute operations of plans. That means the unfortunate employers who find themselves in the midst of an audit can expect to be asked for heaps of plan info.

Linda Canafax, a senior retirement consultant with Willis Towers Watson, put it like this:

“The DOL and IRS are truly diving deep into the operations of the plans. We have seen a deeper dive into the operations of plans, particularly with data. Plans may be asked for a full census file on the transactions for each participant. Expect the DOL and IRS to do a lot of data mining.”

What to watch for

Ultimately, it’s impossible to completely prevent an audit. But employers can — and should — do certain things to safeguard themselves in the event the feds come knocking.

First, a self-audit is always a good idea. It’s always better for you to discover any problems before the feds do. Next, you’ll want to be on the lookout for the types of errors that can lead the feds to your workplace in the first place.

The most common errors the IRS and the DOL are looking for:

  • Untimely remittance of employee deferrals (i.e., contributions)
  • Incorrect compensation definition (plan documents dictate which types of comp employees are eligible to contribute from)
  • Not following the plan’s own directives, and
  • Not having a good long-term system (20-30 years out) for tracking and paying benefits to vested participants.

See the original article Here.


Bilski J. (2017 January 6). DOL and IRS want a closer look at your retirement plan[Web blog post]. Retrieved from address

Compliance Recap December 2016

Make sure you stay up-to-date with the most recent alerts thanks to our partners at United Benefit Advisors (UBA).

December was a relatively busy month for new laws and administrative rulemaking in the employee benefits world. President Obama signed the 21st Century Cures Act into law. The IRS issued a reporting deadline reminder, two information reporting summaries, and Q&As on information reporting. A U.S. District Court issued a nationwide preliminary injunction regarding a portion of the Section 1557 regulations. The Centers for Medicare & Medicaid Services issued FAQs on broker compensation and discriminatory marketing practices. The Departments of Labor, Health and Human Services, and the Treasury issued FAQs on HIPAA special enrollment, women’s preventive services, and qualifying small employer health reimbursement arrangements. The Equal Employment Opportunity Commission issued an informal discussion letter regarding wellness programs under the ADA and GINA. The IRS issued final regulations about the premium tax credit and deferred finalizing the opt-out arrangement proposed rules to a later time.

UBA Updates

UBA released three new advisors in December:

  •  21st Century Cures Act
  •  Qualifying Small Employer Health Reimbursement Accounts
  •  FAQ on HIPAA Special Enrollment; QSE HRAs Released

UBA also updated existing guidance:

  • Cafeteria Plans: Qualifying Events and Changing Employee Elections (previously called Cafeteria Plans: Change in Status and Changing Employee Elections)
  • HRAs, HSAs, and HFSAs under the ACA

21st Century Cures Act
On December 13, 2016, President Obama signed the 21st Century Cures Act into law. Of the Act’s many components, employers should be aware of the impact the Act will have on the Mental Health Parity and Addiction Equity Act, as well as provisions that will affect the way certain small employers can use health reimbursement arrangements to reimburse individual premiums. There will also be new guidance for permitted uses and disclosures of protected health information under the Health Insurance Portability and Accountability Act (HIPAA).

IRS Reminder and Summaries
In December 2016, the IRS issued a reminder about its extension of the 2017 due date for employers and coverage providers to furnish information statements to individuals. The due dates to file those returns with the IRS are not extended. This IRS chart describes the upcoming deadlines. The IRS also issued two summaries: Information Reporting by Providers of Minimum Essential Coverage and Information Reporting by Applicable Large Employers.

IRS Q&As about Information Reporting by Employers on Form 1094-C and Form 1095-C
In December 2016, the IRS updated its longstanding Questions and Answers about Information Reporting by Employers on Form 1094-C and Form 1095-C that provides information about

  • Basics of Employer Reporting
  • Reporting Offers of Coverage and other Enrollment Information
  • Reporting for Governmental Units
  • Reporting Offers of COBRA Continuation Coverage and Post-Employment Coverage
  • Reporting Coverage under Health Reimbursement Arrangements

The Q&A describes when and how an employer reports its offers of coverage and provides examples to illustrate the codes that employers should use. The updated Q&A provides information on COBRA reporting that had been left pending in earlier versions of the Q&A for the past year.

U.S. District Court Issues Nationwide Preliminary Injunction – No Impact on Employee Benefit Plan Requirements
On December 31, 2016, the U.S. District Court for the Northern District of Texas granted a preliminary injunction sought by several states and private health care providers. The court issued a nationwide injunction that prevents the U.S. Department of Health and Human Services (HHS) and HHS’ Secretary from enforcing the Patient Protection and Affordable Care Act’s Section 1557 regulations that prohibit discrimination based on gender identity or pregnancy termination.

Practically speaking, until this litigation is resolved, healthcare providers and states will not face enforcement by HHS if they do not comply with the regulations that prohibit discrimination based on gender identity or pregnancy termination.

Healthcare providers and states should continue to comply with all other provisions of the Section 1557 regulations. This would include compliance with any portion of the Section 1557 regulations that impact employee benefit plans. On January 3, 2017, HHS released the following statement: “HHS’s Office for Civil Rights will continue to enforce the law – including its important protections against discrimination on the basis of race, color, national origin, age, or disability and its provisions aimed at enhancing language assistance for people with limited English proficiency, as well as other sex discrimination provisions – to the full extent consistent with the Court's order.”

CMS Frequently Asked Questions on Agent/Broker Compensation and Discriminatory Marketing Practices
In December 2016, the Centers for Medicare & Medicaid Services (CMS) issued a Q&A to address issuers’ attempts to discourage insurance offers to higher risk individuals by reducing or eliminating commissions to brokers for sales to higher risk individuals.

Federal regulations prohibit marketing practices that discourage higher risk individuals’ health insurance coverage enrollment, both inside and outside of the Marketplaces. In its Q&A, CMS concludes that a commission arrangement or other agent/broker compensation that is structured to discourage agents and brokers from marketing to and enrolling consumers with significant health needs constitutes a discriminatory market practice prohibited by federal regulations.

CMS provides the following example. If an issuer pays agents or brokers less through all forms of compensation for higher metal level plans (such as platinum and gold level plans), which are associated with higher utilization, than the issuer pays for lower metal level plans (such as bronze and silver level plans), then the payment arrangement is a failure to comply with the federal guaranteed availability provisions and qualified health plan marketing standards.

CMS will enforce this guidance for policy years beginning on January 1, 2018, in an individual or merged market, and plan years beginning after April 1, 2017, in a small group market in a state that permits quarterly rate updates. For non-grandfathered coverage offered with a plan or policy year beginning on or after such dates, issuer agent/broker compensation arrangements and accompanying marketing and distribution practices must comply with CMS’ guidance, regardless of whether coverage is offered through or outside of the Marketplaces.

FAQs on HIPAA Special Enrollment; QSE HRAs Released
On December 20, 2016, the Department of Labor (DOL), Department of Health and Human Services (HHS), and the Department of the Treasury (collectively, the Departments) issued FAQs About Affordable Care Act Implementation Part 35. The FAQs cover a new HIPAA special enrollment period, an update on women’s preventive services that must be covered, and clarifying information on qualifying small employer health reimbursement arrangements (QSE HRAs).

EEOC Informal Discussion Letter
In December 2016, the Equal Employment Opportunity Commission (EEOC) released one informal discussion letter to address wellness programs under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). These letters are customarily released to the public within a few months of being provided to the initial addressee.

The letter confirmed that the ADA wellness rules apply only to wellness programs that require a medical exam or answers to disability-related questions, or both. The ADA wellness program rules does not apply if the same incentive can be earned with or without a medical exam or answering disability- related questions. Further, employers may offer incentives only to employees who enroll in the employer-sponsored group health plan and complete wellness activities; if the incentive is the same across all the employer’s group health plans, then the employer must use the lowest-cost option to calculate the applicable incentive limit.

IRS Premium Tax Credit Regulation VI
On December 19, 2016, the IRS issued final regulations relating to the health insurance premium tax credit.
If an individual declines enrollment in affordable, minimum value employer-sponsored coverage for a year, and the individual is not given an opportunity to enroll in employer-sponsored coverage for one or more succeeding years, the individual is not disqualified from premium tax credits for the succeeding years. For purposes of the employer shared responsibility penalty, a large employer may be treated as not having offered coverage for those succeeding years.

On a separate issue, although the proposed rule addressed the effect of payments made available under opt-out arrangements on an employee’s required contribution for purposes of premium tax credit eligibility and an exemption from the section 5000A individual shared responsibility provision, the final regulations do not finalize regulations on the effect of opt-out arrangements on an employee’s requirement contribution.

Per the final regulations, the Treasury Department and the IRS continue to examine the issues raised by opt-out arrangements and expect to finalize regulations later. Until final regulations are applicable, individuals and employers can continue to rely on the proposed rule and the guidance provided in Notice 2015–87.

Question of the Month

Q. Under the ACA, which employers must report information on Form W-2 and what information must be reported?

A. The Affordable Care Act requires employers to report the cost of coverage under an employer- sponsored group health plan.

Reporting the cost of health care coverage on Form W-2 does not mean that the coverage is taxable.

Employers that provide "applicable employer-sponsored coverage" under a group health plan are subject to the reporting requirement. This includes businesses, tax-exempt organizations, and federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families). Federally recognized Indian tribal governments are not subject to this requirement.

Employers that are subject to this requirement should report the value of the health care coverage in Box 12 of Form W-2, with Code DD to identify the amount. There is no reporting on Form W-3 of the total of these amounts for all the employer’s employees.

In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. See the chart below from the IRS’ web page and its questions and answers for more information.

Download the compliance recap here.

IRS Releases 2016 Forms and Instructions for 6055/6056 Reporting

Updated January 4, 2017

Make sure you are up-to-date with the IRS new rules on 6055/6056 from our partners at United Benefits Advisor (UBA).

Under the Patient Protection and Affordable Care Act (ACA), individuals are required to have health insurance while applicable large employers (ALEs) are required to offer health benefits to their full-time employees. In order for the Internal Revenue Service (IRS) to verify that (1) individuals have the required minimum essential coverage, (2) individuals who request premium tax credits are entitled to them, and (3) ALEs are meeting their shared responsibility (play or pay) obligations, employers with 50 or more full-time or full-time equivalent employees and insurers are required to report on the health coverage they offer.

Final instructions for both the 1094-B and 1095-B and the 1094-C and 1095-C were released in September 2016, as were the final forms for 1094-B, 1095-B, 1094-C, and 1095-C. In December 2016, the IRS updated its longstanding Questions and Answers about Information Reporting by Employers on Form 1094-C and Form 1095-C.

When? Which Employers?
Reporting will be due early in 2017, based on coverage in 2016. All reporting will be for the calendar year, even for non-calendar year plans. The reporting requirements are in Sections 6055 and 6056 of the ACA. Draft instructions for both the 1094-B and 1095-B, and the 1094-C and 1095-C were released in August 2016. The final instructions are substantially similar to the draft instructions.

6055 Requirements: Forms 1094-B and 1095-B
IRS Form 1095-B is used to meet the Section 6055 reporting requirement. Section 6055 reporting relates to having coverage to meet the individual shared responsibility requirement. Form 1095-B is used by insurers, plan sponsors of self-funded multiemployer plans, and plan sponsors of self-funded plans that have fewer than 50 employees to report on coverage that was actually in effect for the employee, union member, retiree or COBRA participant, and their covered dependents, on a month-by-month basis. Filers use Form 1094-B as the transmittal to submit the 1095-B returns.

6056 Requirements: Forms 1094-C and 1095-C
IRS Form 1095-C is primarily used to meet the Section 6056 reporting requirement. The Section 6056 reporting requirement relates to the employer shared responsibility / play or pay requirement. Information from Form 1095-C is also used to determine whether an individual is eligible for a premium tax credit. Employers with 50 or more full-time or full-time equivalent employees complete much of Form 1095-C to report on coverage that was offered to the employee and eligible dependents. In addition, to save large employers that sponsor self-funded plans from having to complete two forms, a Part III has been included in Form 1095-C. Large employers with self-funded plans use that part of the form to report information about actual coverage that otherwise would be reported on Form 1095-B. Employers with 50 or more full- time or full-time equivalent employees with fully insured plans will skip section III, and their carrier will complete a separate B series form to report that information for them.

Form 1094-C is used in combination with Form 1095-C to determine employer shared responsibility penalties.
Employers with 50 or more full-time or full-time equivalent employees must provide Form 1095-C to virtually all employees who were full time (averaged 30 hours per week) during any month during the year, even if coverage was not offered to the employee or the employee declined coverage. (If the full- time employee never became eligible during the year, most likely because the employee is a variable- hours employee in an initial measurement period, the form does not need to be provided).

2016 Updates
The 2016 instructions for Forms 1094-C and 1095-C include some form revisions and code changes. The Qualifying Offer Method Transition Relief is not applicable for 2016. Clarification language was added to remind filers of the definition of “full-time employee” and to inform recipients that the form should not be submitted with their returns. New codes 1J and 1K were added to address conditional offers of spousal coverage.

For the 1094-B and 1095-B forms, there are a few form revisions. Clarification language was added to remind recipients that the form should not be submitted with their returns. Also, the form is updated to reflect the rule that a taxpayer identification number (TIN) may be entered.

1094-C and 1095-C Highlights

  • Who Must File
  • Extensions and Waivers
  • Full-Time Employee Count
  • Correcting Forms 1094-C and 1095-C
  • Extensions to Furnish Statements to Employees
  • Penalties
  • 98 Percent Offer Method
  • Qualifying Offer Method
  • Plan Start Month Box
  • Multiemployer Plan Relief
  • Reporting Offer of Coverage for the Month in Which an Employee is Hired
  • Reporting Offer of Coverage for the Month in Which an Employee Terminates Employment
  • COBRA Coverage
  • Post-Employment (Non-COBRA) Coverage
  • Line 15 Calculations
  • Break in Service
  • HRA Reporting
  • Conditional Offer of Spousal Coverage

1094-B and 1095-B Highlights

  • Who Must File
  • Correcting Forms 1094-B and 1095-B
  • Coverage in More than One Type of Minimum Essential Coverage
  • Reporting

Download the release here.

3 things NAHU told the IRS about ACA premium tax credits

The National Association of Health Underwriters has tried to show Affordable Care Act program managers that it can take a practical, apolitical approach to thinking about ACA issues.

Some of the Washington-based agent group's members strongly supported passage of the Patient Protection and Affordable Care Act of 2010 and its sister, the Health Care and Education Reconciliation Act of 2010. Many loathe the ACA package.

But NAHU itself has tried to focus mainly on efforts to improve how the ACA, ACA regulations and ACA programs work for consumers, employer plan sponsors and agents. In Washington, for example, NAHU has helped the District of Columbia reach out to local agents. NAHU also offers an exchange agent certification course for agents.

Now NAHU is investing some of the credit it has earned for ACA fairness in an effort to shape draft eligibility screening regulations proposed this summer by the Internal Revenue Service, an arm of the U.S. Treasury Department.

Janet Stokes Trautwein, NAHU's executive vice president and chief executive officer, says she and colleagues at NAHU talked to many agents and brokers about the draft regulations.

For a look at just a little of what she wrote in her comment letter, read on:

1. Exchanges have to communicate better

The IRS included many ideas in the draft regulations about ways to keep consumers honest when they apply for Affordable Care Act exchange premium tax credit subsidies.

ACA drafters wanted people to be able to use the subsidies to reduce out-of-pocket coverage costs as the year went on, to reduce those costs to about what the employee's share of the payments for solid group health coverage might be.

To do that, the drafters and implementers at the U.S. Department of Health and Human Services and the IRS came up with a system that requires consumers to predict in advance what their incoming will be in the coming year.

Consumers who predict their income will be too low and get too much tax credit money are supposed to true up with the IRS when the file their taxes the following spring. The IRS has an easy time getting the money when consumers are supposed to get refunds. It can then deduct the payments from the refunds. When consumers are not getting refunds, or simply fail to file tax returns, the IRS has no easy way to get the cash back.

The exchanges and the IRS also face the problem that some people earn too little to qualify for tax credits but too much to qualify for Medicaid. Those people have an incentive to lie and say their income will be higher than it is likely to be.

Trautwein writes in her letter that the ACA exchange system could help by doing more to educate consumers when the consumers are applying for exchange coverage.

"The health insurance exchange marketplaces [should] be required to clearly notify consumers of the consequences of potential income-based eligibility fraud at the time of application, in order to help discourage it from ever happening," Trautwein writes.

2. Federal health and tax systems have to work smoothly together

Trautwein notes in her letter that the ACA exchange system has an exchange eligibility determination process, and that the IRS has another set of standards for determining, based on a consumer's access, or lack of access, to employer-sponsored health coverage, who is eligible for premium tax credit subsidies.

NAHU is worried about the possibility that a lack of coordination between the IRS and the HHS could lead to incorrect decisions about whether exchange applicants have access to the kind of affordable employer-sponsored coverage with a minimum value required by the ACA laws and regulations, Trautwein writes.

"We believe that it is fairly easy for consumers to mistakenly apply for and then receive advanced payments of a premium tax credit for which they are not eligible" based on wrong ideas about affordability, she says.

Consumers could easily end up owing thousands of dollars in credit repayments because of those kinds of errors, she says.

In the long run, employers should be reporting on the coverage they expect to offer in the coming year, rather than trying to figure out what kind of coverage they offered in the past year, Trautwein says.

In the meantime, the IRS and HHS have to work together to improve the employer verification process, she says.

3. Employees do not and cannot speak ACA

Trautwein says NAHU members also worry about exchange efforts to depend on information from workers to verify what kind of coverage the workers had.

"Based on our membership's extensive work with employee participants in employer-sponsored group benefit plans, we can say with confidence that the vast majority of employees do not readily understand the various ACA-related labeling nuances of their employer-sponsored health insurance coverage offerings," she says.

"Terms that are now commonplace to health policy professionals, like minimum essential coverage and excepted benefits, are meaningless to mainstream consumers," she says.

NAHU does not see how an exchange will know what kind of coverage a worker really had access to until after employer reporting is reconciled with information from the exchanges and from individual tax returns, which might not happen until more than a year after the consumer received the tax credit subsidies, Trautwein says.

"This weakness on the part of the exchanges could leave consumers potentially liable for thousands of dollars of tax credit repayments, all because of confusing terms and requirements and inadequate eligibility verification mechanisms," she says.

See the Original Article Here.


Bell, A. (2016, September 30). 3 things NAHA told the IRS about ACA premium tax credits [Web log post]. Retreived from

New ACA Reporting Guidance

Just as employers are settling down after a hectic and often frustrating year of Affordable Care Act (ACA) reporting compliance, the IRS is gearing up for next year, and just released the 2016 draft forms and instructions. Employers should spend a few moments becoming familiar with the proposed changes and clarifications since early preparation is key to successful (and less stressful) reporting.

As background, applicable large employers (ALEs) must self-report information relevant to IRS assessment of employer shared responsibility penalties on Forms 1094-C and 1095-C, including whether full-time employees were offered (or not offered) minimum value and affordable health coverage. Small employers who offer self-insured plans are considered coverage providers and must also report coverage information for employees and dependents relevant to assessing the individual shared responsibility mandate by filing Forms 1094- B and 1095-B. An ALE that is self-insured is also considered a coverage provider, but reports information relevant to the individual mandate for employees and dependents on Part III of Forms 1094-C and 1095-C. (Note: Health reimbursement arrangements (HRAs) are considered minimum essential coverage for reporting purposes and may require an employer sponsoring an HRA integrated with an insured plan to report coverage as a selfinsured employer.)

The more notable updates for employers relate to Forms 1094-C and 1095-C. ALEs reporting on those forms should note the following changes and clarifications.

  • Transition Relief. In 2015, the IRS provided various transition relief from the Section 4980H requirements to provide affordable and minimum value coverage (ALEs with 50 to 99 full-time equivalent employees (FTEs) were generally exempt, and ALEs with 100 or more FTEs were afforded reduced compliance obligations and penalties). The 2016 Form 1095-C and instructions reflect the expiration of this relief for plan years beginning on or after January 1, 2016, but cautions those employers with non-calendar year plans that may rely on the transition through the last day of the plan year ending in 2016 that reporting is still required for all 12 months. Presumably, this is aimed at small ALEs that mistakenly assumed the transition relief from penalties included transition relief from reporting. The IRS also eliminated the “Qualifying Offer Method Transition Relief” for 2016 reporting, and ALEs may use the Qualifying Offer Method for simplified 1095-C compliance if an employee received a “qualifying offer” for all 12 calendar months.
  • Authoritative Transmittal Clarification. When an ALE submits more than one transmittal of Forms 1095-C to the IRS, the ALE must file an “authoritative transmittal” that includes data on all of the Forms 1095-C filed for that ALE. This requirement generated a lot of confusion in 2015 for employers that are part of an aggregated ALE (a group of employers under common control) – especially when the ALE members all participated in a common plan with a single ALE member responsible for the reporting. The draft instructions clarify that the “authoritative transmittal” requirement applies on an Employer Identification Number (EIN) basis and should not be used for submitting Forms 1095-C on behalf of more © 2016 Fisher & Phillips, LLP, and United Benefit Advisors, LLC. All rights reserved. 8 than one ALE member of a controlled group of employers. Thus, each employer with a separate EIN should have a separate Form 1094-C designated as the authoritative transmittal for submitting Forms 1095-C to the IRS. The instructions also clarify how to report employees that transfer between or are shared by ALE members in an aggregated group.
  • Full-Time Employee Definition. The draft instructions emphasize to employers that when reporting “full-time employees,” employers must use the definition of full-time employees in Section 4980H and related regulations regardless, of the employer’s classifications of employees under its personnel policies or plan eligibility. Remember that the ACA definition of “fulltime” is not always consistent with an employer’s eligibility policies for full-time employee benefits.
  • Form 1095-C Coding Changes. Clarifications and changes to the codes on Form 1095-C have been made, including the addition of Codes 1J and 1K for Line 14 to reflect “conditional offers of spousal coverage,” which are offers subject to one or more reasonable, objective conditions such as an offer to make spousal coverage available only if the spouse is not eligible for other coverage.
  • Employee Required Contribution. A new term, “employee required contribution,” is added for Line 15 affordability reporting and generally means the employee’s share of the monthly cost for the lowest-cost, self-only minimum essential coverage providing minimum value that is offered to the employee by the ALE member. In determining the employee required contribution, employers need to incorporate IRS guidance regarding the impact of flex credits and opt-out payments that may increase the employee required contribution for affordability purposes.
  • Continuation Coverage. New COBRA reporting instructions are included for employees who terminated employment. In addition, the instructions clarify that offers of post-employment coverage other than COBRA to a former employee should not be reported as an offer of coverage.

Stay tuned for future updates and issuance of the final forms and instructions for 2016. In the meantime, copies of the proposed 2016 Forms and Instructions are available from the IRS website.

Content included in the Summer 2016 Benefits and Employment Briefing provided by our partner, United Benefit Advisors.

ACA Reporting Error Messages: Handling Missing or Incorrect TINs

Beginning in 2015, it first became mandatory for applicable large employers (ALEs) and self-insured employers of any size to comply with the Affordable Care Act (ACA) reporting requirements in Internal Revenue Code (IRC) Sections 6055 and 6056. For ALEs with more than 250 employees, the reporting is required electronically through the Affordable Care Act information returns (AIR) system, though many smaller employers relying on third parties for reporting also used AIR. One of the more troublesome issues for employers filing under the AIR system has been the “accepted with errors” and “AIRTN500” messages from the IRS, indicating an issue with a Social Security number (SSN) or Taxpayer Identification Number (TIN) listed on the Form 1095-C or 1095-B filed by the employer.

There are many reasons why an employer may receive this error notice with respect to an employee or dependent. First and foremost, the employer may have left off a digit or incorrectly entered the information, and confirmation that the form is properly completed should be the first step in addressing the error message. Of course, many employers are concerned with the possibility that a TIN may be invalid even though the employer has filed Form W-2s for an employee for years with the same TIN and never received an error message. However, an error message could be generated simply due to the way the AIR system matches TINs with the first four letters of an employee’s or dependent’s name, which appears to be particularly problematic with Hispanic names that may be hyphenated or are preceded with “de la,” which the AIR reportedly assumes are the first four letters of the last name.

Employers who are required to file IRS Form 1095-C or Form 1095-B are subject to penalties for failure to promptly correct information on returns and for failure to furnish correct statements to individuals in a timely manner. This correction is required even though the error message indicates that the filing was “accepted.” Although the IRS has stated that the “AIRTN500” error messages are not formal notices of penalties or proposed penalties, this does not mean the IRS will not later assess penalties – as much as $260 per incorrect or incomplete form – if the employer does not follow the proper solicitation procedures and establish that the failure was due to reasonable cause and not willful neglect.

Mismatched TIN

Assuming an employer has a TIN for its employee that has been used previously for tax reporting purposes, the employer has generally satisfied the first solicitation requirement under the proposed regulations. Note that the proposed regulations instruct reporting entities filing a “mismatched” TIN to use a modified version of the general TIN solicitation procedures which were previously released in Notice 2015-68. These rules require employers to conduct an advance solicitation during the initial plan enrollment, or if the individual is already enrolled as of September 17, 2015, during the next open enrollment season. It then calls for a second solicitation at a “reasonable time” thereafter, and a third solicitation by December 31 of the year following the first solicitation.

One area of confusion generated from the proposed regulations is that the filer is not required to make an initial solicitation if the filer has the TIN of the employee and has used that TIN for other information returns. The regulations then provide that no further solicitation is required with respect to such individual unless the employer is notified by the IRS or, in some cases, by a broker, that the TIN is incorrect. Hopefully, the final regulations will clarify whether the AIRTN500 message is considered notice that the TIN is incorrect for purposes of the solicitation requirement. A contrary interpretation of the regulations is that additional solicitation is only required for a mismatched TIN if the employer receives a specific penalty notice from the IRS (Notice 972CG, for example) regarding the TIN.

However, because penalties for failures to report correct information increase as time goes on, employers should consider proceeding with the solicitation process outlined above for mismatched TINs based on the AIR error message to establish reasonable cause and ensure success in having penalties waived. Further guidance from the IRS on this issue would be welcome.

The IRS also established a transitional rule for handling returns with missing TINs that treats individuals who were enrolled in coverage prior to July 29, 2016, as if their accounts were opened (that is, as if the individual submitted a substantially complete application for coverage) on July 29, 2016. According to the rule, the initial solicitation is recognized as long as it was requested as part of an application for coverage or at any point before July 29, 2016. A first annual solicitation should occur after a “reasonable time,” which is now defined as within 75 days from July 29, 2016. A second annual solicitation should occur by December 31 of the year following the initial solicitation. This means that if you reported no TINs for employees or dependents on ACA forms, you should make the first annual solicitation by October 12, 2016. If you do not receive a TIN after that solicitation, you must solicit the TIN again by December 31, 2017, to show reasonable cause.

When approaching employees in the solicitation process, remember that the ACA is not the only law to consider. Care should be taken to ensure that you are satisfying immigration laws and, in particular, the Information Reform and Control Act, which imposes restrictions on asking employees for specific documents. Any solicitation process should be done in consultation with both your immigration and benefits counsel. If you happen to receive an admission from an employee that he or she is not legally using the provided TIN, you should consult with your attorney regarding the obligation to correct not only the Form 1095-C or 1095-B, but other tax filings such as historic Forms W-2 for that individual. Hopefully, future guidance from the IRS will clarify some of the confusion surrounding correction of the TIN error messages, and employers should stay tuned for updates on this issue.

Content included in the Summer 2016 Benefits and Employment Briefing provided by our partner, United Benefit Advisors.

Compliance Recap: September 2016

Compliance Recap Provided by our Partner, United Benefit Advisors

September was not a very active month for administrative rulemaking in the employee benefits world. The Internal Revenue Service (IRS), Department of Labor (DOL), and Pension Benefit Guaranty Corporation (PBGC) extended the public comment period for the proposed Form 5500 annual return/report revision. The IRS issued rules defining terms relating to marital status and setting the 2016-17 special per diem rates. The Department of Health and Human Services (HHS) issued interim final regulations on maximum civil monetary penalties. Finally, the IRS finalized the special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home.

UBA Updates

UBA released five new advisors in the past month:

UBA updated existing guidance:

Proposed 2018 Benefit Payment and Parameters Rule

The Centers for Medicare & Medicaid Services (CMS) released a proposed rule for the 2018 Benefit Payment and Parameters and a fact sheet about the proposed rule. Among other items, the proposed rule provides updates and annual provisions relating to:

  1. Risk adjustments
  2. Cost-sharing parameters and cost-sharing reductions
  3. The Small Business Health Options Program
  4. Eligibility and appeals
  5. The Medical Loss Ratio program

The Benefit Payment and Parameters rule is typically finalized in the first quarter of the year following the release of the proposed version. Comments on the proposed rule are due by October 6, 2016.

Read the UBA Advisor on the proposed regulations.

Proposed Form 5500 Rules Comment Period Extended

In July 2016, the Department of Labor (DOL), Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC) published a Notice of Proposed Revision of Annual Information Return/Reports to revise Form 5500 annual return/reports. At that time, the deadline for submitting public comment was set as October 4, 2016.

On September 20, 2016, the DOL issued a news release to announce that the DOL, IRS, and PBGS would extend the public comment period deadline to December 5, 2016. The agencies will publish notice of the extension in an upcoming Federal Register edition.

Final Rule on Definition of Terms Relating to Marital Status

On September 2, 2016, the Internal Revenue Service (IRS) issued final regulations that define terms used in the Internal Revenue Code (IRC) describing the marital status of taxpayers for federal tax purposes.

In general, for federal tax purposes, the terms "spouse," "husband," and "wife" mean an individual lawfully married to another individual. The term "husband and wife" means two individuals lawfully married to each other. A marriage of two individuals is recognized for federal tax purposes if the marriage is recognized by the state, possession, or territory of the United States in which the marriage is entered into, regardless of domicile.

Two individuals who enter into a relationship denominated as marriage under the laws of a foreign jurisdiction are recognized as married for federal tax purposes if the relationship would be recognized as marriage under the laws of at least one state, possession, or territory of the United States, regardless of domicile.

The terms "spouse," "husband," and "wife" do not include individuals who have entered into a registered domestic partnership, civil union, or other similar formal relationship not denominated as a marriage under the law of the state, possession, or territory of the United States where such relationship was entered into, regardless of domicile.

The regulations were effective on September 2, 2016.

Interim Final Regulation on Maximum Civil Monetary Penalties

On September 2, 2016, the Department of Health and Human Services (HHS) issued interim final regulations that adjust for inflation the maximum civil monetary penalties (CMP) that fall under HHS's jurisdiction. The regulations reflect changes required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the Act).

Adjustments under the Act were effective on August 1, 2016, and HHS's CMP adjustment regulations were effective on September 6, 2016. HHS issued its regulations for immediate implementation, without the notice and comment procedures that normally accompany new regulations.

Under prior rules, CMP adjustments required significant rounding of figures and penalty increases were capped at ten percent. The Act removed the rounding rules (that is, penalties are now simply rounded to the nearest dollar).

Under the regulations, the adjusted penalty amounts apply only to CMPs assessed after August 1, 2016, whose associated violations occurred after November 2, 2015 (the Act's enactment date).

As a result, violations occurring on or before November 2, 2015, and assessments made prior to August 1, 2016, whose associated violations occurred after November 2, 2015, continue to be subject to either:

  • the CMP amounts under existing regulations.
  • the amount under the statute, if a penalty had not yet been adjusted by regulations.

The regulations and introductory material include initial catch-up adjustments for CMPs, and the Act requires HHS to publish annual adjustments by January 15 of every year.

Increased CMPs Involving HIPAA Violations

The maximum adjusted penalty for each violation of HIPAA's administrative simplification provisions prior to February 18, 2009, is $150 (increased from $100). (February 18, 2009, was the effective date of certain increased penalties for HIPAA violations under the Health Information Technology for Economic and Clinical Health Act (HITECH)).

In addition, the maximum adjusted penalties for each violation of HIPAA's administrative simplification provisions on or after February 18, 2009, are:

  • If it is established that a covered entity (CE) or business associate (BA) did not know (and by exercising reasonable diligence would not have known) that the CE or BA violated the provision:
    • $110 (increased from $100)
    • $55,010 (increased from $50,000)
  • If it is established that the violation was due to reasonable cause and not willful neglect:
    • $1,100 (increased from $1,000)
    • $55,010 (increased from $50,000)
  • If it is established that the violation was due to willful neglect and corrected during the 30-day period beginning on the first date the CE or BA knew (or by exercising reasonable diligence would have known) that the violation occurred:
    • $11,002 (increased from $10,000)
    • $55,010 (increased from $50,000)
  • If it is established that the violation was due to willful neglect and was not corrected during the 30-day period beginning on the first date the CE or BA knew (or by exercising reasonable diligence would have known) that the violation occurred:
    • $55,010 (increased from $50,000)
    • $1,650,300 (increased from $1,500,000)

Increased Penalties for Non-HIPAA Violations

The maximum adjusted penalty for failing to provide summaries of benefits and coverage under the ACA is $1,087 (increased from $1,000). The maximum annual penalty for violations of the ACA's medical loss ratio reporting and rebating rules is $109 (increased from $100).

The maximum adjusted penalty for an employer (or other entity) that offers a financial or other incentive for an individual who is entitled to benefits not to enroll under a group health plan or large group health plan that would be a primary plan is $8,908 (increased from $5,000).

The maximum adjusted penalty for any entity serving as an insurer, third party administrator (TPA), or fiduciary for a group health plan that fails to provide information to HHS identifying situations where the group health plan is (or was) a primary plan to Medicare is $1,138 (increased from $1,000).

Question of the Month

Q. How are health savings account (HSA) contributions calculated?

A. HSA contributions are calculated by month. In 2016, if an individual who moves from family coverage to single coverage, the individual's maximum contribution amount is calculated as

(X/12 x $6,750) + (Y/12 x $3,350) = $____. The dollar figures used in the formula will change annually based on the IRS contribution limits.

X represents the number of months the individual was eligible under family coverage; Y represents the months the individual was eligible for single coverage.

2016 Draft Forms & Instructions Released: Affordable Care Act Reporting Update

Great feature from The National Law Review by Damian A. Myers,

Since our last ACA Reporting Update, the extended deadlines to distribute Forms 1095-B and 1095-C to covered individuals and employees and to file the forms with the IRS have passed.  The IRS has stated, however, that late forms can still be submitted via electronic filing and the forms that received an error message should be corrected.  By many accounts, the first ACA reporting season presented numerous challenges.  From collecting large amounts of data to compiling the forms, to working with service providers that faced their own unique challenges, to facing form rejections and error notifications from an inadequate IRS electronic filing system, employers and coverage providers faced obstacles nearly every step of the way.  Nevertheless, most employers and coverage providers were able to get the forms filed and put the 2015 ACA reporting season behind them.

But, alas, there is no rest for the weary. In late-July, the IRS released new draft 2016 Forms 1094-B and 1095-B (the “B-Series” Forms) and Forms 1094-C and 1095-C (the “C-Series” Forms).  Additionally, on August 1, the IRS released draft instructions to the C-Series Forms (as of the date of this blog, draft instructions for the B-Series Forms have not been released).  For the most part, the 2016 ACA reporting requirements are similar to the 2015 requirements, subject to various revisions described below.

  • Various changes have been made to the forms and instructions to reflect that certain forms of transition relief are no longer applicable. For example, the non-calendar year transition relief (for plan years starting in 2014) that applied in 2015 does not apply in 2016. Similarly, changes have been made to reflect that the “Section 4980H Transition Relief” is still relevant only for non-calendar year plans though the end of the plan year ending in 2016.  The Section 4980H Transition Relief exempts applicable large employers (“ALEs”) with 50-99 full-time employees from penalties under Section 4980H of the Internal Revenue Code (the “Code”) and reduces the 95% threshold to 70% for other ALEs.  The relief also exempts ALEs from having to offer coverage to dependents if certain requirements are met. For calendar year plans, the threshold is at 95% throughout 2016 and dependent coverage must be offered during each month of the year.

  • The draft instructions to the C-Series Forms provide more detail and examples on how ALEs should prepare the forms. Instead of referring to “employers” throughout the instructions, the IRS has replaced that term in most cases with “ALE Member.”  The reason for this change is to highlight the fact that each separate ALE Member must file its own forms. Examples related to completing the authoritative Form 1094-C highlight that each separate entity (determined based on employer identification number) is required to file its own authoritative Form 1094-C.

  • As promised by the IRS last year, there are two new indicator codes for Line 14 of Form 1095-C. These new codes ask employers to indicate whether a conditional offer was made to a spouse. An offer of coverage to a spouse is conditional if it is subject to one or more reasonable, objective conditions. For example, if a spouse must certify that he or she is not eligible for group health coverage through his or her employer, or is not eligible for Medicare, in order to receive an offer of coverage, the offer is considered conditional.

  • The draft instructions to the C-Series Forms reflect that the good faith compliance standard applicable to 2015 forms (under which filers could avoid reporting penalties upon a showing of good faith) no longer applies for 2016 ACA reporting. Going forward, reporting penalties may be waived only upon the standard showing of reasonable cause.

  • The draft instructions to the C-Series Forms include new information related to coding for COBRA continuation coverage. There has been some uncertainty regarding how to treat offers of COBRA continuation coverage since the IRS removed relevant guidance from its Frequently Asked Questions website in February 2016. Similar to the 2015 instructions, the draft 2016 instructions provide that offers of COBRA coverage after termination from employment should be coded with 1H (Line 14) and 2A (Line 16) whether or not the COBRA coverage is elected. The new instructions now state that this coding sequence also applies for other, non-COBRA post-employment coverage, such as retiree coverage, when the former employee was a full-time employee for at least one month of the year.

In the case of an offer of COBRA coverage following a reduction in hours, the basic coding requirement is the same as in 2015 – the offer of COBRA coverage is treated as an offer of coverage on Line 14 of the Form 1095-C. The draft instructions expand on this basic requirement to explain how to code Lines 14 and 16 when the offer of COBRA coverage is not made to a spouse or dependent.  In general, for purposes of Code Section 4980H, an offer of coverage made once per year to an employee and his or her spouse and dependents is treated as an offer for each month of the year even if the coverage is declined for the employee, spouse, and/or dependents.  Under general COBRA rules, only those individuals enrolled in coverage immediately prior to the qualifying event receive an offer of COBRA coverage.

So how does this play out when an employee with a spouse and dependents elects self-only coverage during open enrollment and later loses that coverage due to a reduction in hours? The draft instructions treat the initial offer of coverage at open enrollment and the offer of COBRA coverage as two separate offers of coverage.  To determine the proper coding, the employer must look at who had the opportunity to enroll at each offer.  During open enrollment, the employee, spouse and dependent had the opportunity to enroll.  Thus, until the reduction in hours and loss of coverage, the coding should be 1E (offer to employee, spouse and dependent) in Line 14 and 2C (enrolled in coverage) in Line 15.

In contrast, the offer of COBRA coverage was only available to the employee and, therefore, after the reduction in hours, the coding should be 1B (offer to employee only) in Line 14. If the employee does not elect the COBRA coverage, code 2B (part-time employee) could be inserted in Line 16.  If, however, the employee does elect COBRA coverage, it appears that code 2C (enrolled in coverage) should still be inserted in Line 16.  Although this latter coding sequence is likely intended to protect the spouse and dependents from being “firewalled” from a premium credit, there appears to be nothing to indicate that the employer should not be assessed a penalty for failing to make an offer to the employee’s dependents.

  • The draft instructions for the C-Series Forms provide additional insight into how to calculate the number of full-time employees for purposes of column (b) in Part III of the Form 1094-C. The draft instructions clarify that the determination of full-time employee status is based on rules under Code Section 4980H and related regulations and not on other criteria established by an employer. Note that, currently, the draft instructions state that the monthly measurement period must be used for this purpose, but it appears that this is a mistake and that it should reference both the monthly measurement and look-back measurement methods. The IRS may clarify this in the final instructions.

  • One important non-change in the draft instructions is that the specialized coding for employees subject to the multiemployer plan interim guidance remains in effect for 2016 reporting. The interim guidance provides that an employee is treated as having received an offer of coverage if his or her employer is obligated pursuant to a collective bargaining agreement to contribute to a multiemployer plan on the employee’s behalf, provided that the multiemployer plan coverage is affordable and has minimum value and the plan offers dependent coverage to the eligible employee. The coding for such as employee is 1H (no offer of coverage) for Line 14 and 2E (multiemployer plan interim guidance) for Line 16.

There will undoubtedly be tweaks to the draft instructions to the C-Series forms, but significant changes appear unlikely. Given that only five months remain in 2016, employers should start planning now for 2016 ACA reporting based on the draft instructions and make alterations as necessary when final instructions and other guidance is released.

See the original article Here.


Myers, D. A. (2016 August 4). 2016 draft forms & instructions released: affordable care act reporting update. [Web blog post]. Retrieved from address

Impact of Telemedicine on HSA Eligibility

One of the hottest benefit trends in 2016 is the adoption of free or low cost “telemedicine” programs to provide employees easy and affordable access to medical care. However, employers adopting these programs alongside high deductible health plans (HDHPs) need to be sure that they do not inadvertently disqualify the covered employees from eligibility for a health savings account (HSA).

The term “telemedicine” generally refers to healthrelated services delivered over the telephone or internet to employees and covers services ranging from non-specific wellness information about health conditions to primary care diagnosis and advice with prescription drug services. The employee’s cost for such services also varies and may consist of a charge on a “per-use” basis, or a monthly or annual fee for access. In many cases, employers are subsidizing the cost of the services or offering the services free of charge to encourage usage, which could create issues for employees with HSA coverage.

An HSA allows participants to defer compensation on a pre-tax basis for the purpose of paying eligible medical expenses if the participant is covered under an HDHP. In addition, the HSA participant must not be covered under any “disqualifying coverage.” Disqualifying coverage includes any health coverage that provides a benefit before the HDHP deductible is met and is often referred to as “first dollar coverage.” The IRS rules allow an exception from the first dollar coverage prohibition for certain types of coverage, including “permitted insurance” (for example, workers’ compensation, specified disease or illness insurance, per diem hospital benefits), “excepted benefits” (such as stand-alone dental or vision benefits), preventative care services, certain employee assistance programs (EAPs), and discount card programs allowing employees to receive discounted health services at managed care rates if the employee must pay for the balance until the HDHP deductible is met. Telemedicine programs that fall under one of the above categories will not prevent an individual from contributing to an HSA.

However, many telemedicine programs go beyond providing preventative care or EAP benefits and do not fall within the permitted insurance or excepted benefits categories. Thus, a telemedicine benefit could count as disqualifying coverage, for example, if the employer pays a portion of the cost of a telemedicine consultation, or the participant pays less than fair market value for access to the consultation, before meeting the HDHP deductible. Any telemedicine program providing primary care or prescription drug services in particular would likely trigger IRS scrutiny unless the employer can establish that the cost passed on to participants is the fair market value for the services. Although the IRS has not yet weighed in on the impact of telemedicine programs on HSA benefits, employers that sponsor HDHPs and telemedicine programs should consider the risks of potential HSA disqualification with legal counsel to ensure employees are not subjected to unintended income and excise taxes for participating in disqualifying coverage.

Content included in the Summer 2016 Benefits and Employment Briefing provided by our partner, United Benefit Advisors