2016 year-end tax letter: ACA reporting in 2016: What to expect

To many applicable large employers (ALEs), it feels like the initial year of ACA reporting has yet to come to an end. Data errors reported by the IRS and subsidy award notices delivered by insurance exchanges as well as the IRS have kept employers in the 2015 reporting loop throughout this year. Now 2016 reporting looms on the horizon.

While the reporting mechanics remain very much the same for the second year, here is a look at what sets Round Two apart from Round One:

The rules

The biggest change for 2016 is the weaning away of transition relief available to ALEs. Most notably, these employers must offer coverage to 95 percent or more of their full-time employees in order to comply with the ACA (for 2015, this coverage threshold was set at 70 percent). In addition, the relief that allows employers with fewer than 100 full-time employees (including full-time equivalents) to be exempt from assessable payments only applies to employers who operate noncalendar-year benefits plans. This relief can only be taken through the final month of the noncalendar plan year that extends into 2016. For the first new plan-year month in 2016 and going forward, the ALE status is achieved at the threshold of 50 full-time employees (including full-time equivalents). What this means is the “medium-sized” employer of 51 to 99 full-timers needs to be ready to act like an ALE at some point in 2016.

The relief that was extended to multiemployer plans for 2015 does carry forward to 2016. Rather than attempt to collect offer and coverage data from other sources on behalf of union employees when such coverage is offered by parties other than the employer (e.g., a collective bargaining unit or union benefits fund), this particular type of employer can continue to use specific relief codes when reporting on unionized employees.

The forms

Structurally, not much has changed with the various versions of Forms 1094 and 1095. Two new codes were added — Codes 1J and 1K — for use in reporting conditional offers of coverage made by the ALE to an employee’s spouse by way of Form 1095-C. Two other codes (1I and Line 16’s 2I) were eliminated due to the lost transition relief outlined in the previous section.

When releasing the 2016 forms, the IRS also made it a point to stress that each ALE member is required to report complete information for all 12 months for any employee who was full time for one or more months. In the case of a midyear hire, this would mean the IRS is expecting data in Part II of Form 1095-C for the months in 2016 prior to the employee’s hire month — it does not want these months prior to the start of employment to be left blank within the reported data.

Worth noting are the form instructions, which were revised for 2016 to include more examples that employers may find useful.

The transmittal

Employers filing 250 or more information returns must continue to use the AIR system to electronically transmit data to the IRS. The 250-or-more requirement applies separately to each type of form filed and separately for original and corrected returns. Examples of how this works, as well as instructions for how to receive a waiver from the electronic filing requirement, are demonstrated within the IRS’s 2016 Instructions for Forms 1094-C and 1095-C. These instructions can be downloaded at irs.gov.

The IRS has expressed that its reporting back to employers who transmit data electronically will improve for the 2016 submissions. Specifically, this enhancement will assist employers who filed Form 1095-C and struggled with understanding which covered individual(s) were responsible for taxpayer identification number (TIN) errors reported by the IRS. While most employers who filed electronically experienced this particular type of error in 2015 — one that resulted whenever the IRS was unable to match the reported names and Social Security numbers of all individuals to its own database records — the IRS could only report the error back to the employer at the form level. Employers were then challenged to have to examine all of the covered individual information reported on that form in order to attempt to identify and correct the error. More specified reporting will make this process easier starting next year.

The deadlines

Perhaps most impactful to all ALEs is the restoration of the original reporting deadlines for the 2016 tax year. Forms 1095-B and 1095-C are due to employees (postmarked, if mailed) by Jan. 31, 2017. Forms 1094-B, 1095-B, 1094-C and 1095-C are due to the IRS if filing on paper by Feb. 28, 2017. If filing electronically, the forms are due to the IRS by March 31, 2017.

While it is possible these deadlines will change, employers should be prepared to comply with the 2016 deadlines in accordance with the dates outlined above. The challenge most employers will face is harnessing all the data needed to generate, test and mail the forms within a one-month window. Thus, it is important to use these deadlines to map out a plan that includes all reporting-related deliverables and resource accountabilities.

Lastly, the notices

In addition to gearing up for the 2016 reporting deliverables, employers also need to be prepared for IRS subsidy notices. These notices are expected to begin hitting in the November timeframe and apply to subsidies granted for the 2015 tax year.

Different from exchange subsidy notifications, the IRS will use Notice 972CG to inform filers who are subject to penalties under IRC section 6721. Included with the notice will be a listing of the information returns filed with missing or incorrect name/TIN combinations. The notice itself also is the mechanism the filer will use to demonstrate, by way of a response (appeal), how it acted in a responsible manner in its attempts to collect this information. For certain employers, 2015 may live on for some time to come.

While one year of ACA reporting experience is meaningful, the compressed 2016 deadlines and the blending of notifications tied to the previous reporting year — plus the complex nature of the reporting itself — will continue to stretch the capabilities of many employers. For these reasons and due to the significant penalty exposure tied to noncompliance, this particular aspect of ACA preparedness now warrants year-round strategic and operational focus.

View more insights in the 2016 year-end tax planning letter >

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The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.