On June 25, the U.S. Supreme Court ruled yet again on the Affordable Care Act, finding that tax credits are available to individuals in states that utilize a federally facilitated exchange.
What does this mean for employers? It means business as usual.
The decision provides certainty that ACA is here to stay, and, the Pay or Play rules remain unchanged. Most importantly, it means that upcoming reporting deadlines are still intact — and failure to comply with the reporting requirements can put employers (and their employees) at major risk.
The ACA requires employers that provide self-insured coverage to deliver Form 1095, an annual statement containing monthly details on the health care coverage offered and provided in 2015, to each employee by February 1, 2016. It’s important that organizations get these forms right, because the IRS will use Form 1095-C to determine whether employers and employees are subject to fines. Employers are also required to file Forms 1095 along with a 1094 transmittal form to the IRS by March 31, 2016.
Many employers are behind the curve
To add to the urgency of submitting forms on time, on June 29, 2015, President Obama signed into law the Trade Preference Extension Act of 2015. The Trade Preference Extension Act, which applies to Forms 1094 and 1095, significantly increases the penalties for failing to file correct information on returns and provide correct payee statements on time.
While the reporting deadlines may seem far away, many employers have not yet started preparing and may be way behind the curve.
Because the data needed to populate the forms goes back to January 2015 and obtaining it will take collaboration between departments and systems, including HRIS, payroll, benefits and HR, employers should have already started tracking the necessary information. To add to the complexity, the ACA requires employers to track “net new” data that may not have existed before, such as employee designations and measurement periods.
It appears that the majority of employers are not prepared. A survey of employers published by Equifax and PricewaterhouseCoopers, L.L.P in May showed that only 10 percent of respondents have implemented a solution for ACA reporting, while 16 percent haven’t yet considered a solution or do not know what solutions they should consider.
In addition to not being prepared for reporting, many employers are still trying to decide which department will ultimately be responsible for reporting requirements. The survey results show that 62 percent of participants deem the HR department responsible for ACA IRS reporting, while 14 percent rely on their legal department and 12 percent are unsure who will be responsible.
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So what is an employer to do?
Employers will be able to request an extension of the information return filing deadline, but this does not put them in a position to hold off on preparing for the reporting deadlines. In other words, employers are encouraged to get a plan in place as soon as possible. They should decide whether they want to handle IRS reporting internally or look to a third-party vendor and define ownership of reporting responsibilities accordingly.
No matter the direction they take, there is one thing that often catches employers off guard – the amount of time it takes to make sure that their ACA data is “clean” and reportable.
Another best practice that is often recommended is to educate employees on the forms. Because this will be the first time that most employees receive a 1095, employers are likely to see a flood of questions about the information reported on their forms.
Managers are encouraged to begin educating employees as soon and as often as possible. They should also have a plan in place for handling the inquiries they can count on receiving from employees.
The bottom line is that the Supreme Court has ruled to uphold the Affordable Care ActHR. Employers that were holding out for a decision must get busy and prepare now or face a significant amount of risk down the road. Determining ownership, preparing data, and educating employees about the forms they’ll receive will play an important role in preparing for 2016.