Coming soon: The healthcare W-2
What is the new 1095-C form?
Every year, employers pull together an array of employee information in order to generate a W-2 for each employee who worked for them sometime during the year before. Employees need this W-2 in order to file their personal taxes. Partly for that reason, the IRS requires that employers mail out W-2s no later than Jan. 31.
Starting in 2016, employers with more than 50 full-time employees will be required to produce and send a second government form to employees — Form 1095-C. While the W-2’s main purpose is to communicate pay information to the IRS, the 1095-C’s function is to communicate health insurance information. Similar to the W-2, employees will also need the 1095-C to file personal taxes. That’s why the IRS is requiring employers to mail this form no later than Jan. 31, as well.
Because employers have never had to keep up with the kind of information required on the 1095-C before, it is likely these forms will cause some headaches.
Here are three facts to help prepare you for Form 1095-C.
What information is required on the form?
The form for each employee starts out with typical profile information: name, address, birthday, etc. Eventually, it begins asking about the individual’s health insurance. First, it asks whether or not the employer offered health insurance to the employee for each month of calendar year 2015, and what type of health insurance it was. There are a variety of codes (1a through 1i) that the employer uses to answer the question for each month of 2015.
Then, the employer must indicate the cost of the cheapest monthly premium available to the employee under the offered plan for each month during the year. Finally, the employer indicates the “4980H Safe Harbor Code” that applies to the employee’s situation for each month of 2015. These codes explain whether or not an employee was on the plan for each month and if they were not, whether or not the employer should be subject to a penalty. Self-insured employers are additionally required to give the name and social security number or birth date for every dependent of the employee and indicate which months during the year the dependent had coverage through the employer.
What is the purpose of Form 1095-C?
This form helps the IRS evaluate which employees were eligible for subsidies for individual health insurance during the year. It also helps the IRS determine whether the employer owes a penalty for not offering qualifying coverage mandated by the Affordable Care Act (ACA).
Bear in mind that employees who are offered qualified coverage by their employer are not eligible for subsidies. So, as an employer, if you offered qualified coverage to your team, but had an employee who claimed a subsidy anyway, it is likely that the IRS will end up “reclaiming” that subsidy from the employee. Conversely, if you did not offer qualified coverage and had an employee who claimed a subsidy, expect to pay a penalty.
Who compiles the form and distributes it to employees?
This is a great question. While the information that the form requires certainly exists, it generally does not live all in one place. Just like with W-2s, these forms need to be created for every employee the employer had in 2015 — even employees who are no longer with the company.
Many payroll companies have viewed these forms as falling within their core competencies. After all, they already do an array of other tax-related filings for employers. That said, the person responsible for compiling Form 1095-C is generally the health insurance broker who advises on healthcare compliance, and who is in the best position to pull together the necessary information and answer questions.
Ultimately, the best scenario for employers would be that these forms get automatically generated from the company’s online HR or benefits administration platform. The vast majority of employers, however, have not gone online with their benefits administration yet. As a result, many expect the compilation of data for these forms to be an extremely manual process.
Employers who have more than 250 employees for whom they need to submit a 1095-C, however, must submit them to the IRS electronically. So, even though compiling the data may be manual, the submission cannot be. Employers must either become accredited and capable of electronic submission to the IRS, by obtaining a Transmitter Control Code (TCC), or work with a vendor who is.
It will be interesting to see how this part of healthcare reform gets up and running. As a healthcare consumer, if you work for an employer that has more than 50 employees, be on the lookout to receive your first 1095-C early next year.
This column originally appeared in the August 12th edition of The Tennessean.
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