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ACA Employer Reporting - Why 2020 May Be Complicated

July 23, 2020

According to Malcolm Gladwell, you need at least 10,000 hours of practice doing something to become an expert. In one way or another, both of us have been working on the Affordable Care Act's (ACA) employer reporting requirements since the release of the proposed reporting rules in 2013. You'd think by now—five years into the actual reporting process—we would have it down. Why should we be nervous about how an upcoming employer reporting season will go? Well, friends, the curse of 2020 has us anxious. We predict that ACA reporting for the current tax year is going to be trickier than ever before. 

Here’s why:

Pandemic Mayhem

COVID-19 makes everything worse, employer reporting included. The pandemic upended our economy, which means that many businesses have laid people off, furloughed workers, reduced hours, and so on. Meanwhile, some industries are going bonkers due to coronavirus demand. (Wine.Com, Amazon, and all the manufacturers of hand sanitizer, yeast, and toilet paper, we are looking at you!) Add in the impact of new rules for special election periods, COBRA elections, Section 125 plan changes, and the result is a year of benefit status changes like no other.  If there is one thing we've learned through our years of reporting experience, most issues trace back to a status change.    

Beyond the multitude of coding questions we see in our future, we’re also worried about the pandemic’s effect on human capital. Lots of companies have downsized. The individual who handled ACA reporting last year may no longer be around this year. People still working are juggling many responsibilities (and possibly also a child on their lap). Employees may be in different locations, perhaps with fewer resources than before. They certainly will have limited patience for Zoom calls dedicated to what amount goes in Line 15 for August or if employee furloughs are considered protected leave (no, they are not). The bottom line—we’ll need to dedicate even more time than usual to helping frazzled clients this year.   

Further out, we guess that the chaos of 2020 will translate into the assessment of more employer shared responsibility penalties than ever before. Millions of people lost access to employer-sponsored coverage this Spring. While many may be taking advantage of the bananas COBRA election situation, others went right to the health insurance exchange marketplaces and exercised their special enrollment period rights. When an employee of an applicable large employer (ALE) goes to the exchange and gets subsidized coverage, it's a penalty trigger.  We'd wager that pandemic confusion is going to extend to the exchanges and employees with special enrollment rights. Lots of employers will be flagged for penalties that they may or may not deserve. Accurate record-keeping is always essential, but now more than ever.

New Codes

The IRS recently released the draft versions of Forms 1094 and 1095-C for the 2020 tax year. Form 1094-C is the same as prior years, but Form 1095-C changed significantly. The IRS added eight new codes (1L-1S), and a line 17 (zip code) to account for the information needed to assess coverage offers related to individual coverage health reimbursement arrangements (ICHRAs). These changes will require alterations to existing employer reporting systems. Plus, as drafted, the 1095-C statement for employees will print on two pages. Even though we don’t know too many ALEs that went with the ICHRA option, we’re going out on limb and predicting that those who did are going to find the new codes a bit baffling. And when we asked our Magic 8 Ball if employers that never considered offering an ICHRA will still worry if the new codes apply to them, it replied, "signs point to yes."    

By the way, we already complained to the IRS about the increased costs for employers related to a two-page 1095-C.  We asked them to reduce the margins or something to squeeze it all onto one page again. You can ask them to save some trees as well through the IRS forms comment page.

State Individual Mandate Requirements

The first round of New Jersey’s individual mandate reporting last year was…let’s just say harder than it needed to be.  We’re hoping that the Garden State makes improvements for businesses with New Jersey-based employees in 2020. Also, California and Rhode Island will be rolling out their new employer reporting requirements this year. Companies with employees in Massachusetts and Washington, DC, have to think about state-specific reporting obligations too.  Don’t even get us started on how much fun it is to electronically submit forms to the District—short answer, it is NOT FUN AT ALL!! Vermont also has an individual mandate, but as of today, the state is not asking employers to provide them with any coverage information.

The Great Unknowns

We know that obsessing over unknowns is both unproductive and unhealthy, but what can we say? Employee benefits and health policy nerds also like to ruminate, (and more importantly, we like to plan).  Until the Forms 1094/1095 B and C and their instructions are final, we will be imagining what they might contain and fearing they will provide even more questions than answers.  We can't help but wonder if the IRS will continue its annual trend of giving last-minute employer-reporting timing relief and what form it might take? 

Historically, with the filing deadline extensions, the IRS provides good-faith compliance relief too. Is that going to continue? On the one hand, it would seem to be a no-brainer. On the other, who knows what will happen this year.  With our luck, the IRS employee in charge of that will get distracted watching Tiger King or stung by a murder hornet, and it won't happen.  

What do you think, friends?  Are we nerdy Debbie Downers again (always a possibility)? Or, do you agree that now is the time to gear up for potential employer reporting challenges?  Let us know how you feel about this Fall and if there is any way we can help (or commiserate)!