For Affordable Care Act reporting, what an employer offers and how that plan is paid can significantly affect the information filed on IRS Form 1095-C.
Yes, amid the anxiety among users of Microsoft Dynamics GP Payroll over which data points to line up for generation of the new yearly form for IRS reporting, there is a glimmer of ACA simplicity:
In some cases, you’re not going to need as many data points as anticipated, and the process of pulling them together isn't going to be as elaborate as expected.
Let's examine, from the standpoint of penalty risk, the three situations where this is true. Then, keeping in mind what the IRS will need for cross-referencing employer returns with returns from other Affordable Care Act data feeds, we’ll look at how the offers of coverage in these situations will simplify the respective setup for their reporting.
Following are the scenarios that do not require submission of the employee’s share of the lowest-cost monthly premium in Box 15 of IRS Form 1095-C:
- Employer’s offer of coverage meets the requirement of being a qualifying offer
- Employer’s offer of coverage provides minimum essential coverage only and does not provide minimum value
- Employer offers no coverage
The first scenario, a qualifying offer, puts the employer in the catbird seat.
A qualifying offer comprises minimum essential coverage that provides minimum value which was offered to a full-time employee with the employee contribution for self-only coverage equal to or less than 9.56% of the mainland single federal poverty line ($92.97 per month in CY 2015). As part of this offer, minimum essential coverage – at least – is offered to the spouse and dependent(s).
The second and third scenarios will trigger a penalty when, during the IRS data crunching of ACA returns in 2016, it’s shown that just one employee who was eligible for job-based health insurance claimed a premium tax credit or subsidy on an exchange.
Though there are other scenarios that trigger penalties, these two situations are seen as
Relevance for spouse/dependent setups
In reporting for all three of these scenarios, the employer does not have to separate deduction codes for an employee’s contribution to self-only coverage and to family coverage.
There’s no need to isolate what the employee pays for coverage of his or her spouse and dependents from what the employee pays for self-only coverage.
So, for these scenarios, an employer will not need to make any adjustment in how they currently process deductions for the employee share of health coverage.
Offers of coverage: Foremost for IRS Form 1095-C
In reporting for all other cases, however, the employer will be submitting the amount of the employee share of the lowest-cost monthly premium for self-only minimum essential coverage that provided minimum value.
This doesn’t necessarily mean that the plan is not affordable; it just means the employee is paying more than $92.97 per month for the lowest-cost monthly premium for coverage offered that meets minimum value. The submission of the employee share of premium for self-only coverage would be applied not only to employees paying more than $92.97 per month, but also to offers of coverage that are only offered to the employee – not to their spouse or dependents.
It’s important to note here that IRS Form 1095 is about offers of coverage, not necessarily selections of coverage.
When selection of coverage is a moot point
To understand this distinction, let’s review what would need to be reported for a company that offers two plans, both of which meet the requirements of minimum essential coverage that provides minimum value.
One plan has a high deductible. It would be considered as a bronze plan – lowest premium, but with the highest out-of-pocket costs. (Typically with a bronze plan, insurance companies pay 60% of expenses, leaving 40% for the enrollee.)
The other plan is a gold plan, which covers 80% of expenses, leaving 20% for the enrollee. Gold plans usually have lower deductibles.
If an employee opts for the gold plan, that selection would not make the classification for “affordable.” But the employer would be sheltered from the penalty for offers of non-affordable coverage because the employee had been offered a lowest-cost plan that was affordable.
The takeaway here is that the affordability threshold is not based on the employee’s selection of coverage.
Affordability reporting need-to-know
Affordability is based on the lowest-cost health coverage offer that meets minimum value standards.
In this case, submission of employee’s share will not be based on what the individual employee actually paid for their coverage, but on what the employee’s contribution would have been had they elected the lowest cost plan.
Again, if that contribution was less than or equal to $92.97 for CY2015, the coverage is a qualifying offer and no contribution amount would need to be submitted.
Best practices: A suggestion and an alert
These circumstances prompt questions about best practices in meeting the requirements of data collection and submission for legislation that’s new and bound for evolution.
Although an employer may not have to submit a contributing amount for one year, that does not mean that, when the plan is renewed, the employee share would meet the deduction limit for classification as a qualifying offer.
For this reason, isolating the employee’s share for self-only coverage from the employee’s share for spouse and dependent coverage is a good practice. This separation will provide you the flexibility to meet different reporting scenarios in requirements of financial information about the employee’s share.
For lowest-cost health coverage where the employee’s contribution is greater than $92.97 and the employer is using either the W-2 or rate of pay safe harbor, separating the deductions between self-only and spouse/dependent coverage is a must.
Among employees, these costs can differ. The W-2 safe harbor is based on the individual’s gross wages while the rate of pay safe harbor is based on the individual’s hourly wage rate.
Many predict that as the ACA is fully implemented, health coverage contributions by employees will become much like taxes – the more you make, the more you will pay. For this reason, isolating these two contributions is critical.
ACA reporting from the front lines
Although it’s understandably annoying to switch gears, flexibility is key in the ever-changing ACA world. Know that what’s recommended here comes from the front lines of ACA reporting overall, and from the front lines of ACA reporting with Dynamics GP.
The GP Payroll enhancement that Sypnio offers to optimize ACA data management in Great Plains has been in commercial release since February 2014, just weeks after the final ACA regulations to the Internal Revenue Code were released.
Before February 2014, our ACA optimizer for GP had been in beta testing for more than a year.
Since February 2014, its ACA tracking muscle has gotten beefier and beefier. By July 2014, Sypnio ACA Reporting had functionality for
We are the ISV whose only business is simplifying the tracking and reporting requirements of the Affordable Care Act for companies that run payroll with Microsoft Dynamics GP.
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For immediate technical help with production of Form 1095-C from Great Plains, click
By Helen Karakoudas | Sypnio Software