As the reporting deadlines under the Affordable Care Act (ACA) near, many school districts are finalizing Forms 1094-B, 1094-C, 1095-B, and 1095-C as appropriate. Because employers are complying with the instructions from the Internal Revenue Service (IRS) for the first time this year, many questions have arisen. The following questions are some of the most frequently asked questions TASB Legal Services has heard from districts during the past few weeks.
1. When are the reporting and transmittal forms due?
On December 28, 2015, the IRS announced that employers have additional time to comply with the 2015 ACA information reporting requirements. Specifically, the IRS extended the deadline to distribute Form 1095-C (and Form 1095-B, if applicable) to employees from February 1, 2016 to March 31, 2016. The deadline to file Forms 1094-B, 1095-B, 1094-C, and 1095-C with the IRS was extended from February 29, 2016 to May 31, 2016 if filed on paper and from March 31, 2016 to June 30, 2016 if filed electronically. The IRS indicated that it does not anticipate any additional extensions relating to ACA information reporting. See IRS Notice 2016-4 (Dec. 28, 2015).
2. In Part II of Form 1095-C, line 16, which 4980H Safe Harbor provision should we use?
Under the ACA, an employer must offer affordable insurance to its employees or face an affordability penalty. The determination of whether insurance is affordable is based on the employee's household income, an amount that includes not only the employee's take-home pay but also income earned through other sources, such as income earned by family members. Because employers cannot accurately determine an employee’s total household income, the IRS has provided three safe harbors that employers may rely upon to calculate affordability: the rate of pay safe harbor, the federal poverty line (FPL) safe harbor, and the W-2 safe harbor. See Internal Revenue Service, Instructions for Forms 1094-C and 1095-C (Feb. 23, 2016).
For most districts, the 2H rate of pay safe harbor is the best method for determining if the lowest cost, employee-only insurance premium is affordable for a particular employee. Instead of running the affordability calculation for each individual employee, the district may simply determine the lowest rate of pay that will meet the affordability threshold for the month.
Though not as simple to calculate as the FPL safe harbor, the employee’s monthly household income calculated under this method will typically be higher than that used by the FPL safe harbor, resulting in less burden on the district to pay more toward employee premiums so that they may be affordable. Unlike the W-2 method, the rate of pay safe harbor can be applied prospectively, and it does not require the district to take into account pre-tax deductions selected by individual employees or deductions that result in decreasing the employee’s monthly household income used to determine affordability.
The fact that an hourly employee’s monthly household income under the rate of pay safe harbor is always calculated using the applicable rate of pay times an assumed 130 work hours provides consistency in planning employer premium contributions and allows for an employee who works variable hours to work less during a particular month without changing the affordability of the insurance premiums.
The rate of pay safe harbor method is not without its drawbacks. For example, it method may not be used for exempt employees whose monthly salary is reduced for any reason. In addition, as the calculation assumes that an hourly employee works 130 hours per month, in the case of employees with variable hours, you may not use any hours worked over 130 during a month to determine affordability. As a result, in some cases an employee’s take-home pay may be underestimated so that the insurance premiums may be deemed unaffordable when they are really not.
3. Is there a circumstance when the district would leave line 16 of the 1095-C form, Part II blank?
Yes. There is no requirement to enter a code in line 16 if none of the codes apply. If the district does not fill in this portion of the form, it is essentially conceding that it may owe a penalty for failing to offer affordable coverage for that month. See Internal Revenue Service, Instructions for Forms 1094-C and 1095-C (Feb. 23, 2016).
4. Who is responsible for the enrollment information captured in Part III of Form 1095-C, the employer or the insurer?
It depends. If an employer’s health plan is fully-insured, the health plan is responsible for enrollment reporting for all enrollees in the plan. If the plan is self-insured, the employer is responsible for the enrollment reporting for that plan and large employers, those with more than 50 full-time employees, must submit a 1095-C with Part III completed for all employees and their dependents who enrolled in the plan.
TRS has indicated that under federal law, the TRS PPO plans under TRS-ActiveCare (TRS-ActiveCare 1-HD, TRS-ActiveCare Select, and TRS-ActiveCare 2) are self-insured plans, while the HMO plans are fully-insured. Therefore, if the district is a TRS ActiveCare district, the district must report enrollment information for all employees and their dependents who enroll in a PPO plan, whether those employees are working full-time or part-time. See Teacher Retirement System of Texas PPACA Reporting Under IRC Section 6055 and 6056 (April 29, 2015).
However, if the district properly delegated the enrollment reporting for the self-insured plans to TRS by November 1, 2015, TRS is the designated governmental entity for purposes of ACA enrollment reporting. 26 C.F.R. 1.6055-1(c)(2)(ii). If the district delegated this responsibility, the district will leave Form 1095-C Part III blank, and TRS will report the enrollment information for all enrollees on the district’s behalf.
TRS will report the enrollment information for all enrollees in the HMO plans. The district will leave Form 1095-C Part III blank. Note that self-insured districts with less than 50 full time employees must file a Form 1095-B on all persons who enrolled in the coverage.
5. What should the district list in the certification of eligibility, line 22 of the 1094-C transmittal form?
Part II of 1094-C is used to collect identifying information for the district. Line 22 is where the district indicates the applicable certifications of eligibility. Of the four certifications of eligibility, districts will most likely be claiming 4980H transition relief, if any.
Two types of Section 4980H transition relief, both based on the size of the employer, may be claimed through this indicator at Line 22. The first type is available to districts that have 50-99 full time equivalent employees in 2014 and that meet certain statutory requirements.
Such districts are exempt from the requirement to offer coverage and the affordability requirement until the first day of the 2016 plan year. The institution must file a certification with the IRS in early 2016 to take advantage of this extension.
The second type of transition relief may be claimed at Line 22 by districts with 100 or more full time equivalent employees in 2014. A district that qualifies for this relief may avoid the penalty for failure to offer coverage for the 2015 plan year if it offers insurance to at least 70% of its full-time employees as of the first day of the 2015 plan year.
Districts with additional questions should contact TASB Legal Services at 800.580.5345.