Come 2016, the Affordable Care Act requires all employers – large and small – to report employee and dependent information, health care plan eligibility and other key information from the 2015 tax year. Unless you prepare now and track all necessary information in 2015, this requirement could be a challenge. Follow these steps to understand the reporting requirements and put a system in place.
1 – Are you a small or large employer? If you offer employee benefits, there are reporting requirements whether you are a small (fewer than 50 employees) or large (51 or more employees) employer. If you are a large employer, you have reporting requirements whether you offer employee benefits or not.
2 – How are your health benefits funded? Employers that offer fully funded employee benefits can count on their insurance company to handle some of the reporting on their behalf. In particular, if your small business is fully funded, your insurance carrier holds the responsibility for reporting. However, if your business is self-funded, you alone are responsible for completing the reporting. In the case of a large employer with fully funded benefits, both the insurer and the employer will have reporting obligations.
3 – Are your payroll systems equipped to handle the reporting requirements? Employers should be tracking each employee’s eligibility for benefits. Large employer reporting requires information specific to each employee indicating, for each month of the year, if the employee was eligible, enrolled, in a waiting period or not eligible for coverage.
Because large employer reporting requires information on an employer’s entire workforce (not just those covered by health benefits), insurers are unable to assist with this report. For this reason, employers with 50 or more employees should consult with their payroll services firm to ensure they will be capable of filing this information next February.
4 – Do you have Social Security numbers on file for each of your employees’ dependents? Employers will likely have a Social Security or tax identification number on file for each employee. But the SSN for dependents who are covered on the employer’s benefits plan isn’t always on file. Consider, for example, the newborn who is added to benefits before a Social Security card is issued. Do you have a process in place to follow up with the employee and collect that SSN a few months after the child’s birth? Employers should plan an audit to ensure their records include these numbers. Fines of $100 per missing SSN may be assessed by the IRS.
5 – Are you ready for employees’ questions this year? All of these employer reporting requirements go into effect in 2016 (for the 2015 tax year). But, taxpayers are required to report on whether they had health coverage in 2014 when they file their 1040 in 2015 (for the 2014 tax year). That means your employees may be asking you how they should answer questions on their taxes this year.
For most people (those who were covered by an employer’s plan for the entire year), the question requires a simple check of a box. Tax preparers, however, may ask their clients for “proof of coverage” to complete their filing. Although the IRS does not require any documentation from taxpayers who were covered by an employer’s plan, a tax preparer may want reassurance that they are completing the form accurately. Taxpayers who didn’t have coverage for some or all of 2014 will be required to pay a fine, known as the individual penalty, or claim an exemption/hardship for the year (which requires yet another form).
Employers – be they small or large, self- or fully funded – can find helpful information at www.irs.gov/aca.
Make sure you are prepared for the reporting requirements in 2016 by establishing a tracking system now for all the important information in 2015.