IRS reporting requirements under the Affordable Care Act (“ACA”)



Christian Brothers Services (“CBS”) and certain employers participating in the Christian Brothers Employee Benefit Trust (“CBEBT”) will be subject to certain IRS reporting requirements under the Affordable Care Act (“ACA”) for 2020.  These reports will be used by the IRS to determine: (i) whether employees are exempt from the individual mandate under the ACA because they have employer-provided health coverage; (ii) whether an employee that purchased coverage through a state exchange is ineligible for a government subsidy because the employee was offered affordable coverage through his or her employer; and (iii)  whether an “applicable large employer” or “ALE” is subject to the employer mandate with respect to a full-time employee.

The purpose of this letter is to describe which reporting obligations CBS will handle and which ones will need to be completed by employers.

Because of the complexity of these reporting requirements, this letter is for general informational purposes only.  It does not constitute legal or tax advice.

I. Reporting By CBS

CBS intends to report with respect to coverage provided under the CBEBT to employees or former employees covered under the CBEBT during 2020.  This reporting will indicate the periods of coverage and the individuals covered (e.g., employee, spouse and dependents).  CBS will report this information to each covered employee on Form 1095-B and to the IRS on Form 1094-B.  For your reference, here are the links to these Forms and Instructions:

Form 1094-B

Form 1095-B

Instructions for Forms 1094-B and 1095-B

II. Reporting by ALE Members (large employers)

Each ALE Member (as defined below) participating in the CBEBT will be required to report to the IRS and each of its employees with respect to the coverage offered to its employees.  These reports will need to be made on Form 1095-C for employees and Form 1094-C for the IRS.  Here are links to these Forms and Instructions:

Form 1094-C

Form 1095-C

Instructions for Forms 1094-C and 1095-C

The Form 1095-C is normally required to be distributed to employees by January 31 of the following year.  However, in Notice 2020-76 the IRS extended the deadline for furnishing copies of the 2020 Form 1095-C to employees to March 2, 2021. 

The IRS did not extend the deadline for the filing of the 2020 Form 1094-C with the IRS, which remains at February 28, 2021, if not filed electronically, or March 31, 2021, if filed electronically.  An ALE Member can get an automatic 30-day extension to file the Form 1095-C.  See the instructions linked above for additional information about getting such an extension.

Employers may wish to begin gathering certain information now so that they can complete the forms by the deadline date.  This section will highlight information many employers participating in the CBEBT will need to gather employee-by-employee and month-by-month for 2020 in order to be able to properly prepare the forms by the deadline date for coverage through the CBEBT.  (Note: Different rules could apply if an employer provides coverage other than through the CBEBT, particularly insured coverage.)

Before we begin, here are several terms to keep in mind:

“Applicable Large Employer” or “ALE”

This is an employer that is subject to the employer mandate, generally because it has 50 or more full-time equivalent employees.  A full-time employee generally includes any employee who was employed on average at least 30 hours of service per week and any full-time equivalents (for example, 40 full-time employees employed 30 or more hours per week on average plus 20 employees employed 15 hour per week on average are equivalent to 50 full-time employees).  An ALE can consist of a single entity or may consist of a group of related entities (the “Aggregated ALE Group”).  In either case, the large employer reporting obligations apply to each separate entity and each separate entity is referred to as an “ALE Member.”

 

Aggregated ALE Group

This is a group of employers that are treated as a single ALE under sections 414(b), 414(c), 414(m) and 414(o) of the Internal Revenue Code.  These sections are commonly referred to as the “controlled group rules.”

 

“minimum essential coverage”

This is coverage that meets certain minimum requirements under the Affordable Care Act.  Individuals that do not have minimum essential coverage no longer are assessed a federal penalty, but some states have imposed their own individual mandates.  All of the coverages under the CBEBT meet the minimum essential coverage requirement.

 

“minimum value”

This is coverage that provides a certain required level of benefits under the Affordable Care Act.  All of the coverages under the CBEBT meet the minimum value requirement.

 

“affordable”

In order to avoid a penalty with respect to a full-time employee, an ALE must offer health coverage that is affordable.  Coverage is generally affordable if the employee’s cost for self-only coverage does not exceed 9.78% of the employee’s compensation.  CBS does not know whether coverage for an employee through the CBEBT is affordable because it does not know what portion of the cost of coverage has been passed on to the employee.

          A.  Reporting to Employees (Form 1095-C)

Each ALE Member will be required to prepare and deliver to each employee a Form 1095-C detailing the type of coverage offered and provided to the employee for each calendar month of 2020.  An ALE Member may use a third party, such as a payroll administrator, to prepare and file a Form 1094-C (as well as to prepare Form 1095-Cs and distribute them to employees).  However, an ALE Member will remain responsible for the proper preparation and filing of the forms regardless of who prepares and files them.

Form 1095-C consists of three Parts: Part I – Identification, Part II – Employee Offer and Coverage and Part III – Covered Individuals.

                1. Part I – Identification

This Part has two components, one identifying the employee and another identifying the ALE Member.

                     a.  Employee Identification

CBS will make available to each employer the information the employer will need to complete the employee identification component of this Part, at least for employees covered by the CBEBT.  CBS will not be able to provide information regarding employees not covered by the CBEBT, e.g., employees that were not offered coverage or were offered coverage but did not accept it.

                     b. Employer Identification

Each ALE Member will be responsible for completing this portion of the Form 1094-C.  CBS cannot provide the information to complete this component because CBS’s records do not show the employer of each covered employee.  For example, some Dioceses provide coverage for all employees covered by parishes and schools within the Diocese without identifying to CBS who exactly employs each employee.

               2. Part II – Employee Offer and Coverage

The month-by-month reporting portion of Form 1095-C consists of Lines 14, 15 and 16, which track:

  • the type of coverage offered to an employee (Line 14)
  • the employee’s required contribution for coverage offered (Line 15)
  • whether the employer may be exempt from the employer responsibility provision of the ACA (Line 16)
  • employers sponsoring Individual Coverage Health Reimbursement Arrangements need to indicate employee’s location to determine affordability.

The box for the plan start month is required for 2020, this box was optional in prior years.  Complete the box by entering the two-digit number (01 through 12) indicating the calendar month during which the plan year begins.

                     a.  Line 14 – Offers of Coverage

The information on this Line is used to determine what type of coverage, if any, was offered to an employee.  Keep in mind that an ALE Member may avoid a penalty with respect to a full-time employee if the ALE Member offers the employee affordable coverage even if the employee does not accept it.  For example, an employee may decline employer-provided coverage because the employee is covered under a plan sponsored by the employer of the employee’s spouse.  For purposes of this Line, an employee is treated as being offered spousal and dependent coverage even if the employee doesn’t have a spouse or dependent, so long as the employee would have been able to elect such coverage if the employee had a spouse or dependents.

Code

Coverage Offered Through CBEBT

1A

employee + spouse + dependents

and employee’s monthly cost for self-only coverage did not exceed $101.79.  This is called a “Qualifying Offer” for a calendar year plan.  (This amount is 9.78% of the 2019 federal poverty line for United States, excluding Alaska and Hawaii.  This amount will increase to $104.53 in 2021.

 

1B

employee only

 

1C

employee + dependents (not spouse)

 

1D

employee + spouse (not dependents)

 

Do not use code 1D if the coverage for the spouse was offered conditionally. Instead use code 1J.  A conditional offer is an offer of coverage that is subject to one or more reasonable, objective conditions (for example, an offer to cover an employee’s spouse only if the spouse is not eligible for coverage under Medicare or a group health plan sponsored by another employer).

 

1E

employee + spouse + dependents

 

Do not use code IE if the coverage for the spouse was offered conditionally. Instead use code 1K.

 

1F

coverage offered that did not provide “minimum value” (not applicable to CBEBT coverage)

 

1G

coverage offered to employee who was not a full-time employee during any portion of 2020 and who enrolled in coverage for one or more months during the year (e.g., terminated or retired employees) This code will be entered in the “All 12 Months” box on Line 14

 

1H

no coverage offered

 

1I

Reserved

1J

employee + conditional coverage for spouse (not dependents)

 

1K

employee + dependents + conditional coverage for spouse.

1L-1S

Relates to Individual Coverage Health Reimbursement Arrangements (ICHRA)

1T-1Z

Reserved for future use

                     b.  Line 15 – Cost of Coverage Offered

The information on this line will be used to determine whether the coverage offered to an employee was affordable.  Complete this Line only if Code 1B, 1C, 1D, 1E, 1J, 1K 1L, 1M, 1N, 1O, 1P, OR 1Q was entered on Line 14 for “All 12 months box” or in any of the monthly boxes. 

For each month indicate the lowest cost to the employee for self-only coverage under the CBEBT.  Disregard costs charged to an employee for spousal or dependent coverage, but include as employee payments any employee pre-tax contributions through a cafeteria plan.  If the employee cost is zero, enter “0.00” (do not leave blank).

If the employee’s lowest monthly cost was more than $101.79 and therefore was not a Qualifying Offer, you may want to keep track of the employee’s compensation for the month so that you can establish whether the coverage was “affordable.”  (See discussion of Codes 2F, 2G and 2H under Line 16, below.)

                     c. Line 16 – Section 4980D Safe Harbor Codes 

This line, if applicable, will be used to determine whether an ALE may be subject to a penalty for failure to provide affordable coverage.  In instances in which there is no offer of coverage for a particular month, Line 16 provides the ALE Member with the opportunity to explain why it is not subject to a penalty.

Code

Description

2A

Employee not employed during any day of the month.

 

2B

Employee not a full-time employee and did not enroll in coverage if offered.

 

2C

Employee covered during each day of the month  (Use this Code even if another Code applies.)

 

2D

Limited non-assessment period

 

Set forth below are each of the six possible safe harbors that could apply under this Code.

 

 

1.         First Year as Large Employer – 2020 is the first year in which the employer is an ALE.  Use this Code only for months of January, February and March of 2020 and only if the employee was not offered affordable coverage any time during 2020.

 

2.         Waiting Period Under Monthly Measurement Method – The ALE uses the monthly measurement method to determine whether an employee is a full-time employee for the month, i.e., whether the employee has worked 130 or more hours of service during the month, and:

A.                the month is within the three-month period beginning with the first calendar month in which the employee is otherwise eligible for an offer of coverage (but for the completion of the waiting period); and

B.                 the employee is covered no later than the first day of the month immediately following the three-month period if the employee is still employed on that day.

Whether an employee is a full-time employee must be determined each month.  Employers can use either of two methods to determine this.  One, the “monthly measurement method”, is based on hours of service credited each month, and is done in real time.  The other method, which most employers will use, is called the “look-back measurement method.”  It “locks in” full-time or part-time status for future months by averaging an employee’s hours over a prior period.

 

3.         Waiting Period Under Look-Back Measurement Method – The ALE uses the look-back method to determine whether an employee is a full-time employee for a month, and:

A.                a new employee was reasonably expected to be a full-time employee on his or her start date; and

B.                 the month includes the employee’s start date or one of the three following calendar months.

 

4.         Initial Measurement Period and Associated Administration Period Under Look-Back Measurement Method – The ALE uses the look-back method to determine whether an employee is a full-time employee for the month, and:

A.                the employee is a new variable hour employee, seasonal employee or part-time employee; (i.e., the employee is NOT reasonably expected to be a full-time employee on his or her start date); and

B.                 the month is within the initial measurement period for the new employee or the following administrative period.

 

5.         Period Following Change in Status for New Variable Hour Employee, Seasonal Employee or Part-Time Employee under Look-Back Measurement Period  – The ALE uses the look-back method to determine whether an employee is a full-time employee for the month, and:

A.                the employee is a new variable hour, seasonal or part-time employee;

B.                 the employee changes to a full-time position during the applicable initial measurement period; and

C.                 the month includes the change in status date or one of the three following months.

Example:  Employer uses the calendar year as the look-back measurement period.  Employer hires an employee as a temporary secretary on February 15, 2020.  On April 15, 2020, the employee’s status changed to full-time.  This Code would be used for the months of April through July of 2020. 

 

 

6.         First month of employment. 

 

2E

Multiemployer interim relief (not applicable for CBEBT coverage)

 

2F

W-2 safe harbor (must be used for all months)  – Employee’s lowest cost of coverage offered does not exceed 9.78% of the employee’s W-2 earnings (box 1).  To qualify for this safe harbor, the employee’s required contribution must be a consistent amount or percentage of W-2 wages during 2020.

 

2G

Federal poverty line safe harbor – For a calendar year plan, the employee’s lowest cost of coverage offered does not exceed $101.79 per month or $1,221.00 per year (slightly higher in Alaska and Hawaii).  This amount is equal to 9.78% of the individual poverty line for 2019 in the continental states ($12,490), divided by 12.

 

2H

Rate of pay safe harbor – The employee is paid on an hourly basis and the employee’s lowest cost of coverage offered does not exceed 9.78% x 130 hours x the lower of: (i) the employee's hourly rate of pay on the first day of the coverage period (generally, the first day of the plan year, which is January 1, 2020); or (ii) the employee’s lowest hourly rate of pay for the month.  For 2021 this percentage will increase to 9.83%.

 

2I

Reserved

 

Code 2F, 2G and 2H should not be entered on line 16 for any month that the ALE did not offer coverage to at least 95% of its full-time employees and their dependents (i.e., any month for which the ALE checked the “No” box on Form 1094-C, Part III, column (a) – see page 11).

               3. Part III – Covered Individuals

For these reporting purposes, the relationship between an ALE Member and the CBEBT should be considered equivalent to a fully insured arrangement.  Therefore, please leave Part III blank. CBS will be reporting on Form 1095-B the information that would otherwise be provided in Part III of Form 1095-C.

         B. Reporting to IRS (Form 1094-C)

Each ALE Member will transmit copies of the Forms 1095-C to the IRS using a Form 1094-C transmittal form.  The Form 1094-C will also describe the types of coverage provided during the year and identify any members of the Aggregate ALE Group in which the ALE was a member.  Form 1094-C consists of four Parts: Part I – Applicable Large Employer Member (ALE Member), Part II – ALE Member Information, Part III – ALE Member Information – Monthly, and Part IV – Other ALE Members of Aggregated ALE Group.

               1. Part I – Applicable Large Employer Member (ALE Member)

Lines 1-8 – should be completed and identify the employer.  Each ALE Member must have a separate Employer Identification Number (EIN).

Lines 9-17 – should be left blank.

Line 18 – should indicate the number of Forms 1095-C being transmitted with the Form 1094-C.

Line 19 – An ALE Member can file multiple Form 1094-Cs.  For example, a diocese with unincorporated parishes could file a separate Form 1094-C for each parish.  However, each ALE Member must submit a Form 1094-C that is designated as an “Authoritative Transmittal” that reports aggregate employer-level data for all full-time employees of the ALE Member.  Check “Yes” if this is the Authoritative Transmittal for the ALE Member.

               2. Part II – ALE Member Information

                     a.  Line 20

Enter the total number of Forms 1095-C that will be transmitted with this Form.

                     b. Line 21

Check “Yes” if during any month of 2020 the employer was a member of an Aggregated ALE Group. If “Yes,” also complete the “Aggregated Group Indicator” in Part III, column (d), and Part IV to list the other members of the Aggregated ALE Group.  Check “No” if, for all 12 months of the calendar year, the employer was not a member of an Aggregated ALE Group, and do not complete Part III, column (d), or Part IV.

                    c. Line 22

Employers that might otherwise be liable for a penalty for not offering affordable coverage to a full-time employee might be eligible for one or more of these types of relief.

Multiple boxes may be checked because some types of relief may apply to some employees but not others.

Box A

Qualifying Offer Method

 

Employer made a Qualifying Offer to one or more full-time employees for all months during 2020 during which the employees were full-time employees.

 

Box B

Reserved.

 

Box C

Reserved.

 

Box D

98% Other Method

The employer offered, for all months of 2020, affordable coverage to at least 98% of its employees for whom it is filing a Form 1095-C and offered minimum essential coverage to those employees’ dependents.

 

 

               3. Part III – ALE Member Information – Monthly

Column (a) – Indicate the months during 2020 during which the employer offered affordable coverage to at least 95% of its full-time employees and their dependents.  Employees in a limited non-assessment period are not included in the 95% calculation. 

Column (b) – Indicate for each month the number of full-time employees, excluding any employees in a limited non-assessment period.  If the number of full-time employees (excluding employees in a limited non-assessment period) is zero, enter “0”.

Column (c) – Indicate for each month the total number of employees of the employer, including part-time, seasonal and variable employees as well as employees in a limited non-assessment period.  An employer must use one of the following days to determine the number of employees per month and must use the same day for all months of 2020: (1) the first day of each month; (2) the last day of each month; (3) 12th day of each month; (4) the first day of the first payroll period that starts during each month; or (5) the last day of the first payroll period that starts during each month (provided that for each month that last day falls within the calendar month in which the payroll period starts).

Column (d) – Indicate for each month whether the employer was a member of an Aggregated ALE Group.  If the ALE Member was a member of an Aggregated ALE Group during each month of the calendar year, enter “X” in the “All 12 Months” box or in the boxes for each of the 12 calendar months.  If the ALE Member was not a member of an Aggregated ALE Group for all 12 months but was a member of an Aggregated ALE Group for one or more month(s), enter “X” in each month for which it was a member of an Aggregated ALE Group.  If an ALE Member enters “X” in one or more months in this column, it must also complete Part IV.

Column (e) – Reserved.

                4. Part IV – Other ALE Members of Aggregated ALE Group

If the employer checked “Yes” on Line 21 indicating that it was a member of an Aggregated ALE Group, it must enter the names and Employer Identification Numbers (EINs) for all other members of the Group. 

Example:  All of the parishes within a Diocese are separately incorporated. The Diocese and its parishes are part of the same Aggregated ALE Group because they form a controlled group of corporations.  Each parish must file a separate Form 1094-C for its employees that identifies all the other members of the Aggregated ALE Group of which the parish is a member.

III. Reporting Requirements for Non-ALEs (small employers)

Non-ALEs participating in the CBEBT will not be subject to any reporting requirements.  However, as discussed above, small employers (i.e., those with fewer than 50 full-time employees) can be treated as an ALE if they are part of a Aggregated ALE Group that has 50 or more full-time equivalent employees.