APA Recommends Fixes to ACA’s Information Reporting Instructions
Original article written by: Alice P. Jacobsohn, Esq. of the American Payroll Association
Straight lines, roomy, unique and distinctive features, minimalist in design, easy to find. Your favorite pair of jeans, perhaps, but for payroll professionals, IRS tax forms and their instructions. Each year, the American Payroll Association (APA) submits comments to the IRS making recommendations to improve a variety of tax forms and instructions. In September, the APA’s Government Relations Task Force IRS Issues Subcommittee submitted recommendations on the Draft Instructions for Forms 1094-C and 1095-C.
Form 1094-C is the reporting mechanism for the transmittal of employer-provided health insurance offer and coverage information for employers with 50 or more employees. The reported information is about the employer’s healthcare program offer and employee enrollment. Form 1095-C provides the IRS with information about each employee for employer-provided health insurance offers and coverage. These returns assist the IRS in determining whether an employer owes a payment for shared responsibility in accordance with the Affordable Care Act’s (ACA) section 4980H requirements. For example, if a large employer does not offer its full-time employees and dependents health care coverage, that employer must pay a fee to the IRS. Form 1095-C also is used to decide if an employee is eligible for a premium tax credit.
APA’s Suggested Changes
Because the ACA is new, so are its employer reporting requirements. That is why APA members want to make sure the instructions for employer-filed returns are easy to follow. Some of the APA’s comments regard correcting typos, using proper form titles referenced in the instructions, using correct citations, and fixing dates. These comments may seem minor but, at minimum, these errors can cause confusion because they are distracting to payroll and tax professionals.
The APA suggested a number of substantive changes to the instructions. The instructions require employers to retain copies of the returns for at least three years. Other employment and tax form record-keeping is for four years (e.g., Forms W-2). Therefore, the APA asked the IRS to provide an explanation for the three years, reference regulations where this time frame is required, or change the instructions to four years.
In addition, the draft instructions describe information reporting penalties but do not include details about reduced penalties if correct information returns are filed within 30 days of the filing deadline or by August 1. The draft instructions also are unclear about how employers are to provide the forms to employees, suggesting first that mail or hand delivery of a paper copy is required and then later stating that first class mail is required. In several places a reference is made to employees’ dependents for offers of health coverage, but spouses are not mentioned. The IRS should clarify whether the agency intended to include spouses.
More specifically, the APA found problems with the multi-employer plan instructions for Form 1095-C. Multi-employer plans operate autonomously from contributing employers. Employers do not know whether an employee was offered or enrolled in coverage. Therefore, requiring reporting on health coverage enrollment does not make sense; yet, the draft instructions flip-flop between code entries that imply this reporting is required.
The APA had learned that the IRS was including Health Reimbursement Arrangements (HRA) as self-insurance plans such that reporting by some employers would be required in Section III of Form 1095-C. The draft instructions did not include this information. In addition, APA felt that very few employers are likely to look at the instructions for Forms 1094-B and 1095-B, where the HRA reporting requirement was given a brief mention, because those forms are used by insurance carriers.
As a final comment, the APA noted that the draft instructions for Form 1095-C allow the use of an employee’s date of birth if a social security number (SSN) is not entered on the form, but do not indicate that this is an option only if an SSN is not available after the employer makes a series of attempts to acquire it.
Some Changes Made on Final Instructions
The IRS published final instructions on September 16 before seeing the APA’s comment letter, but some of the “minor” changes were made. Some confusion for employers involved in multi-employer arrangements remains. Additional language was added to the instructions regarding HRA reporting. Covered employers include applicable large employers (ALEs) with third-party major medical plans and self-funded HRAs. Reporting of the HRA is not required if the HRA is only available to employees who participate in the major medical plan. If an employee is not participating in the employer’s major medical plan but is part of the HRA, reporting is required by the ALE.
The APA does not expect to declare that future revised instructions are awesome, but they should be clear, concise, and meaningful for payroll and tax professionals.