The
IRS delays the information reporting requirements and the employer shared
responsibility penalty
King & Spalding LLP
Kenneth A. Raskin and Mark Kelly
September 3 2013
On
July 9, 2013, Notice 2013-45 (the "Notice") was issued to provide
transition relief during 2014 from the requirements of Sections 6055, 6056 and
4980H of the Internal Revenue Code ("Code"). Code Section 6055
requires annual information reporting by insurers, self-insured employers and
certain other providers of minimum essential coverage. Code Section 6056
requires annual information reporting requirements by large employers (i.e.,
those with 50 or more full-time equivalent employees) relating to the health
insurance that the employer offers (or does not offer) to its full-time
employees. Code Section 4980H requires employers to provide a minimum level of
health care coverage to full-time employees or risk a shared responsibility tax
penalty (otherwise known as the pay-or-play penalty).
The
Notice states that information reporting requirements under Sections 6055 and
6056 will be optional for 2014, and that for 2014, no penalties will be applied
for failure to comply with these information reporting requirements. This
one-year delay is intended to provide employers, insurers and other reporting
entities additional time to develop their systems for reporting the needed
data. During this transition year, the IRS is encouraging employers, insurers and
other reporting entities to voluntarily comply with the information reporting
requirements (once the rules have been issued). Voluntary compliance may help
entities test their systems in preparation for when reporting becomes required
in 2015. Proposed rules for the Section 6055 and 6056 information reporting
requirements are "expected to be published this summer."
The
Notice further provides that the IRS will not assess the pay-or-play penalty
under Code Section 4980H for 2014. As a result of the information reporting
delay discussed above, the IRS will not have the data necessary to identify
which individuals do/do not have the required minimum coverage. Since the IRS
will have no efficient mechanism for determining which employers may owe a
penalty for a failure to offer affordable minimum essential coverage, no
employer shared responsibility payments will be assessed for 2014. However, as
with the information reporting requirements, the IRS encourages employers to
maintain or expand health coverage in 2014, as real-world testing of reporting
systems and plan designs will contribute to a smoother transition to full implementation
in 2015.
The
transition relief discussed above will not delay the requirement that
individuals obtain health care coverage, beginning January 1, 2014, or pay a
penalty for each month they do not have coverage (the individual "shared
responsibility" mandate). Nor will the transition relief affect
individuals' eligibility for the premium tax credit. To receive the premium tax
credit, an individual must have household income within a specified range, not
be eligible for other minimum essential coverage under an eligible
employer-sponsored plan that is affordable and provides minimum value, and
apply for the credit by completing an application form through the state or
federal health insurance "exchanges."
In
addition, the Notice also makes clear that the transition relief outlined above
for 2014 will have "no effect" on the effective date or applicability
of other Affordable Care Act ("ACA") provisions. Thus, employers will
still need to comply with the following insurance reforms and mandated benefits
that are otherwise effective for 2014:
effective as of January 1, 2014, compliance
with the new cost-sharing requirements and the prohibition on waiting periods
greater than 90 days
provide a notice to employees regarding
their coverage options available through health insurance marketplaces by
October 1, 2013;
pay the various new ACA fees. For example,
the first year's fee for the Patient Centered Outcomes Research Institute
(PCORI) is still due July 31, 2013, and the first year's transitional
reinsurance fee applicable to health insurance issuers and self-funded health
plans will still be measured based on covered lives as of November 15, 2014;
and
report the cost of employer-sponsored
health coverage on an employee's W-2 by January 31, 2014.
K&S
INSIGHT: While the transition relief relieves the immediate pressure of
year-end compliance, employers should not stop preparing for 2015 when full
implementation will be required. For employers who have already made plan
design decisions for 2014, they should consider whether, and to what extent, to
voluntarily comply with the reporting requirements. As the IRS noted, voluntary
compliance could help identify problems in the employer's administrative
processes and will contribute to a smoother transition to full implementation
in 2015. For employers who have not yet decided whether to
"pay-or-play," the transition period gives them a little additional
time to weigh their options.
But,
employers need to recognize that the Notice 2013-45 transition relief does not
postpone other administrative requirements related to the employer mandate. For
example, if an employer intends to use a 12-month measurement period for
purposes of determining whether variable hour employees are considered full-time
employees, the employer will need to start tracking hours in just a few short
months. Further, the Notice 2013-45 transition relief does not extend the
transition rules for 2014 that were previously announced in the proposed
regulations. These include the special rules with respect to non-calendar year
plans, use of a shorter measurement period in connection with the variable hour
employee safe harbor, employers contributing to multiemployer plans,
determination of large-employer status based on a six consecutive month period
instead of the entire 2013 year, and the extension of coverage to dependents.
Without further guidance, it is not clear whether any of these transition rules
will be extended during 2015.
