2014 W-2 compliance with the Affordable Care Act and 2015 reporting

The employer mandate under the Affordable Care Act finally went into effect Jan. 1, 2015, but companies shouldn’t forget they may still need to report ACA-related information on 2014 W-2s.

With the employer mandate, a number of new reporting requirements commence for employers, and many may find their internal systems are not currently set up to capture this data.

First, employers report the total cost (both employer and employee contributions) of employer-provided healthcare on W-2s using box 12, code DD. If an employer issued at least 250 W-2s for 2013, then the cost of employer-provided healthcare must be reported to employees on the 2014 W-2s. To determine how many W-2s were issued in the prior year, W-2s issued to both union and non-union employees and to full-time and part-time employees must be counted. The exception for employers who issued fewer than 250 W-2s in the prior year is only for a limited time. It is part of the “transition relief” provided under current guidance from the IRS.

For 2014 personal tax returns, preparers will use this W-2 information to determine taxpayers’ compliance with the individual mandate and the related reporting requirements.

Second, in preparation for the 2016 information reporting season (disclose data for the 2015 tax year), the IRS released drafts of several new healthcare forms (and instructions) to help employers comply with the reporting requirements under the Affordable Care Act.

  • Form 1095-B, Health Coverage
  • Form 1095-C, Employer Provided Health Insurance Offer and Coverage
  • Form 1094-B, Transmittal of Health Coverage Information Returns
  • Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
  • Form 8941, Credit for Small Employer Health Insurance Premiums

Employers and/or insurance companies will prepare Form 1095-B to report information to the IRS about individuals who are covered by minimum essential coverage and therefore not liable for the individual shared responsibility payment (individual mandate). Filers of 250 or more information returns must file these electronically. In general, health insurance issuers or carriers will prepare and file the 1095-B forms for all insured employer coverage. Employers offering self-insured coverage that do not meet the employer mandate requirements will also use the 1095-B forms to report coverage.

In part 1 of Form 1095-B, each filer must designate a responsible person. This person cannot be the business owner but can be a covered employee, former employee, parent, or other person enrolling individuals in coverage. More than likely this will be a human resource employee. Parts 2 and 3 will report employer and health insurance coverage issuer information. Part 4 lists each covered individual (including spouses and dependents covered by the plan), their Social Security numbers, date of birth, and the months coverage was provided.

In lieu of Form 1095-B, applicable large employers (ALEs) offering self-insured coverage will use Form 1095-C to report information about the coverage provided to each employee. ALEs are those subject to the employer shared responsibility payment or employer mandate. Contributing employers in a multi-employer plan will also use Form 1094-C and use an indicator code identifying the employer as a participant in such a plan. Generally, this form will be provided only to the employee. Part 1 is information about the employee and the employer. Part 2 breaks down the cost of coverage by month as well as each month coverage was offered. Part 3 lists each individual covered, with Social Security numbers, dates of birth, and each month covered.

Form 1094-B is the transmittal for the forms 1095-B filed by the employer or sponsor of the health coverage. The name and contact information of the responsible person, address of the filer, and total number of 1094-Bs filed will be reported.

ALEs will file Form 1094-C (those with more than 50 full-time or full-time equivalent employees) as the transmittal for the required 1095-C forms. Form 1094-C must contain aggregate employer data for all full-time employees. Multiple transmittal forms may be filed (for example, if an employer has multiple categories of plans or employees where separate reporting is needed); however, in these cases, an authoritative transmittal would also be filed (by checking the box on line 19 of part 2) summarizing data for all other 1094-Cs filed.

Those employers with fewer than 100 full-time equivalent employees, while exempt from the employer mandate until 2016, are not exempt from the reporting requirements for 2015. Such employers qualifying for transition relief from the employer mandate will be required to certify on their Form 1094-C transmittal form that they meet the conditions for being exempt from the employer penalty for 2015. Line 22 of Form 1094-C must be completed indicating the method under which transition relief is granted.

Eligible small employers will use Form 8941 to figure the credit for healthcare premium assistance. The maximum credit is a percentage of health insurance premiums paid but can be reduced by limitations based on the number of full-time equivalent employees, average annual wages, state average premiums, and state premium subsidies and tax credits.

While these forms are not due for 2014, the IRS is encouraging employers to voluntarily file early. Reporting is required for 2015, with first returns due in early 2016. Employers will be subject to penalties up to $200 per return for failing to timely file these returns or statements to employees.

Since much of this data is computed on a monthly basis, we encourage you to review your systems now to ensure it is being adequately captured in order to facilitate timely reporting. In some cases, employees may not want to provide certain information such as children’s Social Security numbers so early data gathering could be critical to minimize penalty exposure. Safe guarding of this information is also essential; with the additional reporting requirements, the risk of identity theft increases. Employers must follow HIPAA and ERISA breach notification rules in the event of a data breach.

For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.

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.