Despite multiple challenges, many portions of the Patient Protection and Affordable Care Act (ACA) are still in effect and employers are taking steps to remain in compliance with the law. This fact sheet is intended as a quick checkup as businesses prepare for reporting on coverage offered under their employer-sponsored healthcare plans in 2019 and develop their compliance strategies for 2020.
ACA Reporting: Safe Harbors, Forms, and Transition Relief
Affordability: In 2020, if the premium for the lowest-cost, employee-only coverage option available to employees does not exceed 9.78 percent of an employee’s adjusted gross household income, the coverage will be considered “affordable” for purposes of the ACA. This is lower than the 9.86 percent threshold in place last year, meaning some coverage options that were marginally “affordable” in 2019 may not remain so in 2020. Three affordability safe harbors—Rate of Pay Safe Harbor, Form W-2 Safe Harbor, or Federal Poverty Line Safe Harbor—are generally available to simplify an employer’s task in determining whether a plan is considered to have offered at least one “affordable” employee-only coverage option. Note that wellness incentives, incentives to waive coverage, and other factors can impact the affordability determination.
Forms 1095-B and 1095-C Reporting Form Distribution to Employees: Employers have until March 2, 2020—extended from January 31, 2020—to provide employees with copies of their Forms 1095-B or 1095-C. Employers can distribute these forms in conjunction with employees’ W-2 wage statements for 2019, which can streamline distribution of employee tax forms or can distribute them separately.
Stemming from the effective repeal of the ACA’s individual coverage mandate effective January 1, 2018, the IRS has provided additional transition relief available for 2019 reporting of “minimum essential coverage” on Form 1095-B. Rather than distributing Forms 1095-B directly, eligible employers may instead post notice on their websites that the forms are available upon request, along with certain contact information. However, a hard-copy of the Form 1095-B must be provided within 30 days of receipt of an employee’s request. Similar relief from the ACA’s “failure to furnish” penalties is available for eligible employers with respect to Form 1095-C reporting for employees who were not working full-time schedules during every month of 2019.
Filing Deadlines for Information Returns and Transmittals: The deadline to file Forms 1094-B or 1094-C with the Internal Revenue Service in paper form is February 28, 2020. (This deadline as not extended by the IRS.) The electronic filing deadline is March 31, 2020. Employers filing 250 or more returns (inclusive of Form W-2 submissions) must file electronically. An updated copy of instructions for the 2019 Forms 1094-B and 1095-B can be found here. An updated copy of instructions for the 2019 Forms 1094-C and 1095-C can be found here.
“Good Faith” Transition Relief: The Internal Revenue Service (IRS) extended “good faith” transition relief to employers for ACA reporting for plan year 2019. This transition relief provides relief from penalties for employers that report inaccurate or incomplete information if they can show they made good faith efforts to comply with the reporting requirements. An important note: this relief does not apply for failing to timely provide statements to employees or failing to timely file with the IRS.
Employers may want to analyze their employee data to ensure they have accurately accounted for ACA full-time employees. Depending on the nature of a company’s business and workforce, the number of ACA full-time employees may be different depending on which measurement method the company is using (e.g., monthly or look-back safe harbor). Capturing and maintaining accurate employee service data is critical to defending against IRS penalty assessments.
No “Cadillac Tax”: In December 2019, President Donald Trump signed a spending package that eliminated the so-called “Cadillac Tax” under the ACA, which would have imposed a 40 percent excise tax on “excess” coverage offered under employer-sponsored plans . The “Cadillac Tax” would have been effective in 2022.
What’s Next? The future of the ACA remains in flux. In December 2019, the U.S. Court of Appeals for the Fifth Circuit ruled the individual mandate—the provision requiring individuals to have health coverage or pay a penalty—unconstitutional on the basis that it could no longer be viewed as a tax as a result of a 2017 tax bill that rendered the individual mandate ineffective by zeroing out the penalty. The court remanded the case to the U.S. District Court for the Northern District of Texas—which had ruled the entire ACA invalid—to determine whether the individual mandate could be severed from the rest of the ACA. A coalition of Democratic attorneys general has requested expedited review of the decision by the Supreme Court of the United States. However, the Trump administration is seeking to delay Supreme Court review until the district court rules on the severability issue. It is unclear whether the Supreme Court will expedite review of the decision or wait until the district court issues a ruling on severability. However, some states, such as California, have passed laws implementing their own versions of the ACA’s individual mandate; the legal viability of such requirements has yet to be tested.
Ogletree Deakins’ sixth annual Employee Benefits and Executive Compensation Symposium will take place from April 21 to April 22, 2020, at the Palmer House Hilton in Chicago. The full agenda for the program is available here. If you have questions or would like to register, please click here or contact our Events team at ODEvents@ogletree.com.