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We've answered some frequently asked questions regarding health care reform below. As always, please contact us if you do not see what you're looking for or have more questions!

Affordable Care Act Tax Provisions - Employer Health Care Arrangments

Q1. What are the consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace)?
Under IRS Notice 2013-54, such arrangements are described as employer payment plans. An employer payment plan, as the term is used in this notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation. As explained in Notice 2013-54, these employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms. Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code.

Q2. Is there transition relief available from the excise tax under § 4980D for certain employers who offered their employees health coverage through arrangements that would constitute an employer payment plan as described in Notice 2013-54?
Yes. On February 18, 2015, the IRS issued Notice 2015-17, which provides transition relief from the excise tax under § 4980D for failure to satisfy the market reforms in certain circumstances. The transition relief applies to employer healthcare arrangements that are (1) employer payment plans, as described in Notice 2013-54, if the plan is sponsored by an employer that is not an Applicable Large Employer (ALE) under Code § 4980H(c)(2) and §§ 54.4980H-1(a)(4) and -2 of the regulations; (2) S corporation healthcare arrangements for 2-percent shareholder-employees; (3) Medicare premium reimbursement arrangements; or (4) TRICARE-related health reimbursement arrangements (HRAs).

Notice 2015-17 provides temporary relief from the § 4980D excise tax for failure to satisfy the Affordable Care Act market reforms such as the prohibition on annual limits. Under the notice, small employers with employer payment plans get relief for 2014 and up to July 1, 2015. Small employers are employers that are not Applicable Large Employers under § 4980H (generally less than 50 full time and full time equivalent employees in prior year).

Notice 2015-17 also clarifies that S corporations may continue to report reimbursements of health insurance of 2 percent shareholders pursuant to Notice 2008-1. Until further guidance is issued, and in any event through the end of 2015, the excise tax under Code § 4980D will not be asserted for any failure to satisfy the market reforms by a 2-percent shareholder-employee healthcare arrangement.


Q3. Where can I get more information?
On Sept. 13, 2013, the IRS issued Notice 2013-54, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. On February 18, 2015, the IRS issued Notice 2015-17, which reiterates the conclusion in previous guidance addressing employer payment plans, including Notice 2013-54, that employer payment plans are group health plans that will fail to comply with the market reforms that apply to group health plans under the Affordable Care Act. Notice 2015-17 also provides transition relief from the assessment of the excise tax under § 4980D for failure to satisfy market reforms in certain circumstances.

DOL has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03. On Jan. 24, 2013, DOL and HHS issued FAQs that address the application of the Affordable Care Act to HRAs. On Nov. 6, 2014, DOL issued additional FAQs that address the application of the Affordable Care Act to HRAs and other payment arrangements.

Affordable Care Act Tax Provisions - Basics Of Employer Shared Responsibility

Q1. What are the employer shared responsibility provisions?
The employer shared responsibility provisions were added under section 4980H of the Internal Revenue Code by the Affordable Care Act. Under these provisions, certain employers (called applicable large employers or ALEs) must either offer health coverage that is “affordable” and that provides “minimum value” to their full-time employees (and offer coverage to the full-time employees’ dependents), or potentially make an employer shared responsibility payment to the IRS, if at least one of their full-time employees receives a premium tax credit for purchasing individual coverage on a Health Insurance Marketplace (Marketplace), also called the Exchange.

Whether an employer is an ALE and is therefore subject to the employer shared responsibility provisions depends on the size of its workforce. In general, employers employing at least a certain threshold number of employees (generally 50 full-time employees including full-time equivalent employees, which means a combination of part-time employees that count as one or more full-time employees) are ALEs. The vast majority of employers fall below the ALE size threshold and therefore are not subject to the employer shared responsibility provisions.


Q2. When did the employer shared responsibility provisions go into effect?
The employer shared responsibility provisions generally were first effective in 2015 but several forms of transition relief were available for 2015. Only certain forms of transition relief apply in 2016, and those forms of transition relief apply only for certain employers and only for certain periods in 2016. No transition relief has been provided for 2017 and future years. For more information see Limited Transition Relief in 2016.

Q3. Are there information reporting requirements related to the employer shared responsibility provisions?
Yes. Employers that are subject to the employer shared responsibility provisions (that is, ALEs) are required to report information about whether they offered coverage to employees and if so, information about the offer of coverage. ALEs are required to send this information to the IRS on Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. ALEs are also required to send the Form 1095-C for each employee to that employee. The information on these forms is used to determine whether an ALE owes a payment under the employer shared responsibility provisions and whether employees are eligible for the premium tax credit. For additional information, see the section 6056 final regulations, the Instructions for Forms 1094-C and 1095-C, the Questions and Answers about Information Reporting by Employers on Form 1094-C and Form 1095-C, and the IRS Q&A page for offers of health insurance coverage by employers (Section 6056).

Also, an employer that sponsors self-insured health coverage – whether or not the employer is an ALE – has information reporting responsibilities as a provider of minimum essential coverage. In general, an ALE that sponsors self-insured health coverage will use the same form it uses to report about offers of coverage (Form 1095-C) to satisfy this requirement by filling out an additional section (Part III) for employees and family members who enroll in the coverage. See the Instructions for Forms 1094-C and 1095-C. For additional information, including for employers that are not ALEs but that sponsor self-insured health coverage, see the section 6055 final regulations, the Instructions for Forms 1094-B and 1095-B, and the IRS Q&A page for information reporting by coverage providers (Section 6055).

Affordable Care Act Tax Provisions - Health Flexible Spending Arrangments (FSA)

Q1. How are the rules changing for reimbursing the cost of over-the-counter medicines and drugs from health flexible spending arrangements (health FSAs) and health reimbursement arrangements (HRAs)?
Section 9003 of the Affordable Care Act established a new uniform standard for medical expenses. Effective Jan. 1, 2011, distributions from health FSAs and HRAs will be allowed to reimburse the cost of over-the-counter medicines or drugs only if they are purchased with a prescription. This new rule does not apply to reimbursements for the cost of insulin, which will continue to be permitted, even if purchased without a prescription.

Q2. How are the rules changing for distributions from health savings accounts (HSAs) and Archer Medical Savings Accounts (Archer MSAs) that are used to reimburse the cost of over-the-counter medicines and drugs?
In accordance with Section 9003 of the Affordable Care Act, only prescribed medicines or drugs (including over-the-counter medicines and drugs that are prescribed) and insulin (even if purchased without a prescription) will be considered qualifying medical expenses and subject to preferred tax treatment.

Q3. When will the changes become effective?
The changes are effective for purchases of over-the-counter medicines and drugs without a prescription after Dec. 31, 2010. The changes do not affect purchases of over-the-counter medicines and drugs in 2010, even if they are reimbursed after Dec. 31, 2010.

Q4. How do I prove that I have purchased an over-the-counter medicine or drug with a prescription so that I can get reimbursed from my employer's health FSA or an HRA?
If your employer’s health FSA or HRA reimburses these expenses, you would provide the prescription (or a copy of the prescription or another item showing that a prescription for the item has been issued) and the customer receipt (or similar third-party documentation showing the date of the sale and the amount of the charge). For example, documentation could consist of a customer receipt issued by a pharmacy that reflects the date of sale and the amount of the charge, along with a copy of the prescription; or it could consist of a customer receipt that identifies the name of the purchaser (or the name of the person for whom the prescription applies), the date and amount of the purchase and an Rx number.

Q5. How does this change affect over-the-counter medical devices and supplies?
The new rule does not apply to items for medical care that are not medicines or drugs. Thus, equipment such as crutches, supplies such as bandages, and diagnostic devices such as blood sugar test kits will still qualify for reimbursement by a health FSA or HRA if purchased after Dec. 31, 2010, and a distribution from an HSA or Archer MSA for the cost of such items will still be tax-free, regardless of whether the items are purchased using a prescription.

Q6. Will I need a prescription to use my health FSA, HRA, HSA or Archer MSA funds for insulin purchases after Dec. 31, 2010?
No. You can continue to use your health FSA, HRA, HSA or Archer MSA funds to purchase insulin without a prescription after Dec. 31, 2010.

Q7. I use health FSA funds for my co-pays and deductibles. Will I still be able to reimburse those expenses with health FSA funds after Dec. 31, 2010?
Yes. Co-pays and deductibles continue to be reimbursable from a health FSA after Dec. 31, 2010. Similarly, funds from an HRA can continue to be used for these expenses and a distribution from an HSA or Archer MSA for these purposes will be tax-free.

Q8. My company gives me two extra months beyond the end of the year to submit claims for health FSA expenses incurred during the year. What happens if I purchase over-the-counter medicines or drugs without a prescription in 2010 but do not submit the claim for those expenses until January 2011? Will they qualify for reimbursement?
Yes. The new restriction on plan reimbursements for the cost of over-the-counter medicines or drugs without a prescription applies only to purchases that are made after 2010.

Q9. My company’s health FSA includes a provision for a grace period, so that if I don’t spend all of the money in my health FSA by Dec. 31 in a given year, I can still use the amount left in my health FSA at the end of the year to reimburse expenses I incur during the first 2 ½ months of the following year. If I buy over-the-counter medicines or drugs without a prescription during the 2 ½ month grace period of 2011, can I still use the amount left in my health FSA at the end of 2010 to reimburse those expenses?
No. The change applies to purchases made on or after Jan. 1, 2011. Thus, even if your employer’s plan includes the 2 ½ month grace period provision, the cost of over-the-counter medicines and drugs purchased without a prescription during the first 2 ½ months of 2011 will not be eligible to be reimbursed by a health FSA.

Q10. If my health FSA or HRA issues a debit card that I use to pay for over-the-counter medicines or drugs, will I still be able to use the card to purchase over-the-counter medicines or drugs after Dec. 31, 2010?
Generally, yes, if you have a prescription for the medicine or drug. For expenses incurred in 2010, you may continue to use an FSA or HRA debit card to purchase over-the-counter medicines or drugs (whether or not you have a prescription) at pharmacies and from mail order and web-based vendors that sell prescription drugs. Starting after Jan. 15, 2011, you may continue to use an FSA or HRA debit card to purchase over-the-counter medicines or drugs at these vendors, so long as you obtain a prescription for the medicine or drug, the prescription is presented to the pharmacist, and the medication is dispensed by the pharmacist and given an Rx number.

For further information, including guidance on purchases of over-the-counter medicines and drugs from health care providers other than pharmacies and mail order and web-based vendors (such as physicians or hospitals), see IRS Notice 2011-5. For guidance on debit card purchases at “90 percent pharmacies,” see IRS Notice 2010-59.


Q11. The ACA removed over-the-counter medicines and drugs from the list of reimbursable qualified medical items if purchased without a prescription. If you have an HSA, Archer MSA, health FSA, or HRA, how will the change in the law affect reporting on Form W-2? Do the reimbursements for items that are not qualified medical expenses need to be included as taxable wages on employees’ Forms W-2?
If you have an HSA or an Archer MSA, distributions for expenses that are not qualifying medical expenses (including over-the-counter medicines and drugs purchased without a prescription) will be included in your gross income and subject to an additional tax of 20%. The income tax and additional tax are reported on Form 8889 for an HSA distribution and on Form 8853 for an Archer MSA distribution. You complete these forms and attach them to your Form 1040 when you file your income tax return. Distributions from an HSA or an Archer MSA are not included as taxable wages and do not affect your Form W-2.

Affordable Care Act Tax Provisions - Basics Of Information Reporting By Employers On Form 1094-C And Form 1095-C

Q1. What forms must an ALE Member file with the IRS to report the required information under sections 6055 and 6056?
The section 6056 regulations provide that, under the general method of reporting, an ALE Member must file a separate Form 1095-C for each of its full-time employees, and must file a transmittal (Form 1094-C) for all of the returns filed for a given calendar year. An ALE Member may file one or more Forms 1094-C, but regardless of the number of Forms 1094-C the ALE Member files, the ALE Member must file one (and only one) Form 1094-C that is an Authoritative Transmittal, reporting summary information about the ALE Member and its employees. These forms must be filed whether or not the ALE Member offers coverage, or the employee enrolls in any coverage offered.

To meet the section 6055 requirement, an ALE Member that offers health coverage through a self-insured health plan must report information about enrollment in the coverage on Form 1095-C, Part III, for any employee who is enrolled in coverage (and any enrolled family members).

A more complete discussion of the information that must be reported to the IRS (including simplified methods of reporting) can be found in the final section 6056 regulations, the final section 6055 regulations, and the Instructions for Forms 1094-C and 1095-C, which include a definition of ALE Member.


Q2. For which employees must an ALE Member file Form 1095-C?
Generally, an ALE Member must file Form 1095-C for each employee who was a full-time employee of the ALE Member for any month of the calendar year, including any employee who was treated as a full-time employee for one or more months of the calendar year under the look-back measurement method for determining full-time employee status under the employer shared responsibility provisions. (See later questions in Basics of Employer Reporting for exceptions.) For guidance on how to determine who is a full-time employee, including rules on the look-back measurement method, see Identification of Full-Time Employee sections in the Employer Shared Responsibility FAQs.

Also, an ALE Member that sponsors a self-insured health plan must generally file Form 1095-C for each employee who enrolls in the self-insured health coverage or enrolls a family member in the coverage, regardless of whether the employee is a full-time employee for any month of the calendar year.


Q3. What information must an ALE Member furnish to its employees?
An ALE Member must furnish a completed Form 1095-C to each employee who was a full-time employee of the ALE Member for any month of the calendar year (that is, the same group of employees for whom the ALE Member is required to file a Form 1095-C with the IRS). The parts of the form that relate to section 6056 (Parts I and II) must be completed and furnished regardless of whether the ALE Member offers coverage, the employee enrolls in any coverage offered, or the employee waived any coverage offered. Also, an ALE Member that sponsors a self-insured health plan must furnish Form 1095-C with Part III completed for each employee and family member who enrolls in the self-insured health coverage, regardless of whether the employee is a full-time employee for any month of the calendar year.

See Reporting Offers of Coverage and other Enrollment Information below for further information about simplified employee statements that may be used under the Qualifying Offer reporting method.


Q4. May an ALE Member furnish a substitute statement to the recipient and file a substitute return with the IRS?
Yes, a substitute Form 1095-C may be furnished to the recipient, and if the ALE Member is filing with the IRS using paper, substitute Forms 1094-C and 1095-C may be filed with the IRS. The substitute form must include all of the information required on Form 1094-C and Form 1095-C, as applicable, and satisfy all form and content requirements as specified by the IRS. A substitute Form 1095-C may be furnished to the recipient in a portrait format. However, substitute Forms 1094-C and 1095-C filed with the IRS must be in landscape format. (The same rules apply if the ALE Member sponsors a self- insured health plan and is filing a return to satisfy section 6055.) For more information, see Publication 5223, General Rules and Specifications for Affordable Care Act Substitute Forms 1095-A, 1094-B, 1095-B, 1094-C, and 1095-C.

Q5. What are the due dates in 2017 for furnishing to the recipient and filing with the IRS calendar year 2016 Forms 1094-C and 1095-C?
Furnishing: For reporting in 2017 (for offers of coverage and coverage in 2016), an ALE Member must furnish the Form 1095-C to each full-time employee on or before March 2, 2017. This due date reflects a 30-day extension from the general due date (that is, January 31 of the year immediately following the calendar year to which the information relates); the extension was provided by the IRS in Notice 2016-70 on November 18, 2016.

The extension applies automatically and does not require the submission of any request or other documentation to the IRS. In view of this automatic extension, the rules allowing the IRS to grant extensions of time of up to 30 days to furnish Form 1095-C will not apply to the extended due date. Also, because the 30-day extension of the due date to furnish applies automatically and is as generous as the permissive 30-day extensions of time to furnish 2016 information statements under section 6056 that have already been requested by some reporting entities in submissions to the IRS, the IRS will not formally respond to those requests.

Under Notice 2016-70, the extended furnishing due date also applies for purposes of section 6055 reporting for 2016 (Forms 1094-B and 1095-B).

Filing: For 2016 reporting, Forms 1094-C and 1095-C must be filed with the IRS by February 28, 2017 if filing on paper, or March 31, 2017 if filing electronically. Regulations under section 6081 address extensions of time to file information returns.

Although the IRS extended the due date for furnishing Form 1095-C for 2016, the due date for filing Forms 1094-C and 1095-C with the IRS was not extended. But note that Notice 2016-70 does not affect the normal provisions regarding automatic extensions of time for filing information returns, which can be obtained by submitting a Form 8809, Application for Extension of Time To File Information Returns, and it also does not affect the provisions regarding additional extensions of time to file.


Q6. For which employees is an ALE Member not required to file or furnish a Form 1095-C?
Form 1095-C is not required for the following employees (unless the employee or the employee’s family member was enrolled in a self-insured plan sponsored by an ALE Member):
  • an employee who was not a full-time employee in any month of the year; or
  • an employee who was in a limited non-assessment period for all 12 months of the year (for example, a new variable hour employee still in an initial measurement period). For more information, see the definition of limited non-assessment period in the Instructions for Form 1094-C and 1095-C.

Q7. Is an ALE Member required to file or furnish a Form 1095-C for a full-time employee who has coverage under TRICARE or a Veterans Administration health program?
Yes, a Form 1095-C must be filed for (and furnished to) every full-time employee, including a full-time employee who has coverage under TRICARE or a Department of Veterans Affairs health program. The rule that employees covered under TRICARE or a Veterans Administration health program are not counted in determining whether an employer is subject to the employer shared responsibility provisions, otherwise known as an applicable large employer, does not change the rule that if an employer is an applicable large employer or ALE Member, a Form 1095-C must be filed for and furnished to every full-time employee. For more information, see Employer Shared Responsibility FAQs.

Q8. How does an ALE Member complete the Authoritative Transmittal?
Although an ALE Member may file multiple Forms 1094-C to transmit Forms 1095-C to the IRS, each ALE Member must file one (and only one) Authoritative Transmittal with the IRS reporting summary information about that ALE Member and its employees. When filing its Authoritative Transmittal, Form 1094-C, the ALE Member reports its name, address, EIN and contact information on Form 1094-C lines 1-8, and on line 19 the ALE Member checks the box to indicate that this is its Authoritative Transmittal. The ALE Member then continues to complete Parts II, III, and IV of the Form 1094-C, as applicable. For additional details on completing Forms 1094-C, see the Instructions for Forms 1094-C and 1095-C.

Q9. Do ALE Members that are combined to form a single employer (an “Aggregated ALE Group”) file one Authoritative Transmittal reporting summary information for all ALE Members in the Aggregated ALE Group?
No. Even though employers that have a certain level of common or related ownership are treated as a single employer for purposes of determining status as an applicable large employer, the requirement to file Forms 1094-C and to file and furnish Forms 1095-C applies separately to each ALE Member in the Aggregated ALE Group. Therefore, each ALE Member in the Aggregated ALE Group must file its own Authoritative Transmittal and file and furnish Forms 1095-C for its own full-time employees. Each ALE Member in the Aggregated ALE Group must have its own Employer Identification Number (EIN) and no Authoritative Transmittal should be filed for an Aggregated ALE Group.

For example, if Company A and Company B together make up an Aggregated ALE Group, Company A must file one Form 1094-C Authoritative Transmittal, reporting its name, address and EIN on lines 1-8, and reporting on line 19 that it is the Authoritative Transmittal. Company A would then complete Parts II, III and IV, as applicable, reporting information only about Company A and its employees. Company A would also complete Forms 1095-C for full-time employees of Company A. In addition, if Company A sponsors a self-insured health plan, it would also complete Form 1095-C, including Part III for any employees, whether or not they are full-time employees, and family members enrolled in the coverage.

Company B must file a separate Form 1094-C, Authoritative Transmittal, reporting its name, address, and EIN on lines 1-8, reporting on line 19 that it is the Authoritative Transmittal, and completing the remainder of the Form, as applicable. Company B would also complete Forms 1095-C for full-time employees of Company B. In addition, if Company B sponsors a self-insured health plan, it would also complete Form 1095-C, including Part III for any employees, whether or not they are full-time employees, and family members enrolled in the coverage.

For more information on the terms Aggregated ALE Group, ALE Member, and applicable large employer, see Reporting of Offers of Health Insurance Coverage by Employers (section 6056).


Q10. Which ALE members should complete Part III of Form 1095-C?
An ALE Member that sponsors a self-insured health plan should complete Part III of Form 1095-C for employees and family members who enroll in the self-insured coverage. An ALE Member that sponsors a health plan that includes self-insured options and insured options should complete Part III of Form 1095-C only for employees and family members who enroll in a self-insured option. An employer who participates in a multiple employer welfare arrangement (MEWA) is considered to offer that coverage to its employees, so if the employer participates in a self-insured MEWA, that employer would be required to complete Part III for its employees and family members who enroll in the MEWA. For information on how to complete Form 1095-C for an employee who is enrolled in self-insured coverage but who is not a full-time employee, see the Instructions for Forms 1094-C and 1095-C.

An ALE Member that offers coverage to an employee other than under its own self-insured health plan or a self-insured MEWA, such as through an employer-sponsored insured health plan or a multiemployer health plan, should NOT complete Part III. Instead, information about the coverage will be filed with the IRS and furnished to employees on Form 1095-B, Health Coverage, by the insurance provider or the sponsor of the plan providing the coverage.

Affordable Care Act Tax Provisions - Basics Of Information Reporting Of Offers Of Health Insurance Coverage By Employers (Section 6056)

Q1. What are the information reporting requirements for employers relating to offers of health coverage under employer-sponsored plans?
The Affordable Care Act added sections 4980H and 6056 to the Internal Revenue Code. Under section 4980H, the employer shared responsibility provisions, certain employers, called applicable large employers, or ALEs, are required to offer qualifying health coverage to their full-time employees (and their dependents) or potentially be liable for an assessable payment, if at least one full-time employee receives the premium tax credit for coverage in the Marketplace. Section 6056 requires employers that are ALEs under the employer shared responsibility provisions to file information returns with the IRS about whether they offered health coverage to their full-time employees (and their dependents) and, if so, information about the offer of coverage. ALEs must also provide a copy of the information to the employee. For definitions of ALE and full-time employee, see Employers Subject to the Employer Shared Responsibility Provisions and Identification of Full-Time Employees sections in the Employer Shared Responsibility FAQs.

Under the regulations implementing section 6056, an ALE may be a single entity or may consist of a group of related entities (such as parent and subsidiary entities or other related/affiliated entities). This group of related entities is referred to as an Aggregated ALE Group. In either case, these reporting requirements apply to each separate entity, and each separate entity is referred to as an applicable large employer member (ALE Member). For more information about the treatment of related entities see Who is Required to Report and the definition section in the Instructions for Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage.

The IRS will use the information provided on Form 1094-C and Form 1095-C to administer the employer shared responsibility provisions. In addition, the IRS and the employees of an ALE Member will use the information provided as part of the determination of whether an employee and his or her family are eligible for the premium tax credit under section 36B.

ALE Members that sponsor self-insured group health plans also are required to report information about employees (including former employees) and their spouse, dependents, and other family members who enroll in the self-insured coverage; these information reporting requirements for providers of minimum essential coverage apply under section 6055. ALE Members that sponsor self-insured group health plans generally provide the information required under both sections 6055 and 6056 on Form 1094-C and Form 1095-C. The IRS and individuals will use the information provided under section 6055 to verify compliance with the individual shared responsibility provisions under section 5000A.

For more information see the section 6055 FAQs and for details about the section 6056 information reporting requirements and additional guidance on how to complete Form 1094-C and Form 1095-C, see the Questions and Answers about Information Reporting by Employers on Form 1094-C and 1095-C.


Q2. When did the information reporting requirements first go into effect?
Information reporting under section 6056 was first required with respect to coverage offered (or not offered) in 2015. For information on transition relief, see How and When to Report the Required Information and Extended Due Dates and Transition Relief for 2015 and 2016 Reporting.

Affordable Care Act Tax Provisions - Reporting Value of Employer-Provided Health Coverage On Form W-2

Q1. Does the cost of an employee’s health care benefits shown on the Form W-2 mean that the benefits are taxable to the employee?
No. There is nothing about the reporting requirement that causes or will cause excludable employer-provided health coverage to become taxable. The purpose of the reporting requirement is to provide employees useful and comparable consumer information on the cost of their health care coverage.

Q2. When will employers have to start reporting the cost of health care coverage on the Form W‑2?
Reporting for the 2011 calendar year (meaning the Form W-2 generally required to be furnished to employees in January 2012) was optional. For the 2012 calendar year and for future years, employers generally are required to report the cost of health benefits provided on the Form W-2. Transition relief is available for certain employers and with respect to certain types of coverage, as explained in Q&A-4, below. Reporting for employers covered by the transition relief, and with respect to the types of coverage covered by the transition relief, is not required until future guidance is provided, and in no event will such reporting by these employers and with respect to these types of coverage be required on any 2012 Forms W-2 or on a Form W-2 for a subsequent year until future guidance is issued.

Q3. Which employers are subject to this reporting requirement?
Except as provided in the transition relief described in the next Q&A, all employers that provide "applicable employer-sponsored coverage" (see Q&A-5 below) under a group health plan are subject to the reporting requirement. This includes federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families), churches and other religious organizations, and employers that are not subject to the COBRA continuation coverage requirements, but does not include federally recognized Indian tribal governments or, until further guidance, any tribally chartered corporation wholly owned by a federally recognized Indian tribal government.

Third-party sick-pay providers that provide the Forms W-2 to the employees of the employers with which they have contracted do not have to report the cost of coverage. However, a Form W-2 provided by the employer to the employee must report the cost of coverage regardless of whether that Form W-2 includes sick pay or whether a third-party sick pay provider is furnishing a separate Form W-2 reporting the sick pay.


Q4. What transition relief is being provided by Notice 2012-9? To which employers and types of coverage does it apply and how long does it last?
For certain employers and with respect to certain types of coverage listed below, the requirement to report the cost of coverage will not apply for the 2012 Forms W-2 (the forms required for the calendar year 2012 that employers generally are required to provide employees in January 2013) and will not apply for future calendar years until the IRS publishes guidance giving at least six months of advance notice of any change to the transition relief. However, reporting by these employers and for these types of coverages may be made on a voluntary basis.

The transition relief applies to the following:
    1. employers filing fewer than 250 Forms W-2 for the previous calendar year (for example, employers filing fewer than 250 2012 Forms W-2 (meaning Forms W-2 for the calendar year 2012, which generally are filed with the SSA in early 2013) will not be required to report the cost of coverage on the 2013 Forms W-2 (which generally are filed with the SSA in early 2014). For purposes of this relief, the number of Forms W-2 the employer files includes any forms it files itself and any filed on its behalf by an agent under § 3504 (see Q&A-3 of Notice 2012-9 for more information). In addition, for purposes of this relief, the employer is determined without the application of any aggregation rules;
    2. multi-employer plans;
    3. Health Reimbursement Arrangements;
    4. dental and vision plans that either
      • are not integrated into another group health plan or
      • give participants the choice of declining the coverage or electing it and paying an additional premium (see Q&A-20 of Notice 2012-9 for more information)
    5. self-insured plans of employers not subject to COBRA continuation coverage or similar requirements;
    6. employee assistance programs, on-site medical clinics, or wellness programs for which the employer does not charge a premium under COBRA continuation coverage or similar requirements; and
    7. employers furnishing Forms W-2 to employees who terminate before the end of a calendar year and request a Form W-2 before the end of that year.

For more information on the additional transition relief for certain employers and with respect to types of coverage, see Section IV of Notice 2012-9.

Q5. What types of health care coverage must be included in the amount reported on the Form W-2?
The chart on the Form W-2 Reporting of Employer-Sponsored Health Coverage lists many types of health care coverage and various other situations, and explains whether reporting is required, prohibited, or optional.

The chart was created at the suggestion of and in collaboration with the IRS’ Information Reporting Program Advisory Committee (IRPAC). IRPAC’s members are representatives of industries responsible for providing information returns, such as Form W-2, to the IRS. IRPAC works with IRS to improve the information reporting process.


Q6. What amount should the employer report on the Form W-2 for health coverage? The amount the employer paid? The amount the employee paid? Or both?
In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. In the case of a health FSA, the amount reported should not include the amount of any salary reduction contributions. See Notice 2012-9 for more detail on the interim rules that apply to reporting contributions to a health FSA.

Q7. Where on the Form W-2 should the employer report the cost of these health care benefits?
The cost of these health care benefits will be reported in box 12 of the Form W-2, with Code DD to identify the amount.

Q8. What amount of health benefits should be reported on the Form W-2 for employees that terminated employment during the year and had employer-provided coverage both before and after termination?
Under the interim rules, the employer may use any reasonable method for inclusion of the coverage provided after termination, so long as that method is applied consistently. See Notice 2012-9, Q&A-6, for examples.

Q9. What amount of health benefits should be reported on the Form W-2 for an employee that leaves during the year and requests a W-2 before the end of the year?
If an employee makes such a request in writing, the employer must provide the W-2 within 30 days. However, under the interim rules, the employer will not be required to report any amount of health benefits in box 12, Code DD.

Q10. Will employers now be required to issue a Form W-2 to retirees or other former employees to whom the employer would not otherwise issue a Form W-2?
No.

PCORI Fees

Q1. What is the Patient-Centered Outcomes Research Trust Fund fee?
The PCORI fee is a fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans that helps to fund the Patient-Centered Outcomes Research Institute (PCORI). The institute will assist (through research, patients, clinicians, purchasers and policy-makers) in making informed health decisions by advancing the quality and relevance of evidence-based medicine. The institute will compile and distribute comparative clinical effectiveness research findings.

Q2. When did the PCORI fee go into effect?
The PCORI fee applies to specified health insurance policies with policy years ending after Sept. 30, 2012, and before Oct.1, 2019, and applicable self-insured health plans with plan years ending after Sept. 30, 2012, and before Oct. 1, 2019.

Q3. How much is the PCORI fee?
The amount of the PCORI fee is equal to the average number of lives covered during the policy year or plan year multiplied by the applicable dollar amount for the year.
  • $1 for policy and plan years ending after Sept. 30, 2012, and before Oct. 1, 2013.
  • $2 for policy and plan years ending after Sept. 30, 2013, and before Oct.1, 2014.
  • $2.08 for policy and plan years ending after Sept. 30, 2014, and before Oct. 1, 2015.
  • $2.17 for policy and plan years ending after Sept. 30, 2015, and before Oct. 1, 2016.
  • $2.26 for policy and plan years ending after Sept. 30, 2016, and before Oct. 1, 2017.
  • For policy and plan years ending after Sept. 30, 2017, and before Oct. 1, 2019, the applicable dollar amount is further adjusted to reflect inflation in National Health Expenditures, as determined by the Secretary of Health and Human Services.

Q4. How does an issuer of a specified health insurance policy or the plan sponsor of an applicable self-insured health plan determine the average number of lives covered under the policy or plan in order to calculate the PCORI fee for the year?
The PCORI fee is imposed on an issuer of a specified health insurance policy and a plan sponsor of an applicable self-insured health plan, based on the average number of lives covered under the policy for the policy year or the plan for the plan year. The PCORI fee final regulations from Dec. 6, 2012, require:
  • Issuers of specified health insurance policies to use one of four alternative methods—the actual count method, the snapshot method, the member months method or the state form method—to determine the average number of lives covered under a policy for a policy year.
  • Plan sponsors of applicable health plans to use one of three alternative methods—the actual count method, the snapshot method or the Form 5500 method—to determine the average number of lives covered under the applicable self-insured health plan for a plan year. The final regulations explain the available methods in detail.

Q5. Which individuals are taken into account for determining the lives covered under a specified health insurance policy or applicable self-insured health plan?
Generally, all individuals who are covered during the policy year or plan year must be counted when calculating the average number of lives covered for that year. Thus, for example, an applicable self-insured health plan must count an employee and his dependent child as two separate covered lives unless the plan is a health reimbursement arrangement (HRA) or flexible spending arrangement (FSA).

Q6. If an employer provides COBRA coverage or otherwise provides coverage to its retirees or other former employees, do covered individuals (and their beneficiaries) count as ‘lives covered’ for the purpose of calculating the PCORI fee?
Yes. These covered individuals and their beneficiaries must be taken into account when calculating the average number of lives covered.

Q7. Who is responsible for reporting and paying the PCORI fee?
Issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans are responsible for reporting and paying the PCORI fee.

Q8. What form will be used to report and pay the PCORI fee?
Issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans will annually file Form 720, Quarterly Federal Excise Tax Return, to report and pay the PCORI fee. Form 720 was revised to provide for the reporting and payment of the PCORI fee. The Form 720 will be due on July 31 of the year following the last day of the policy year or plan year. Electronic filing is available, but is not required. Payment will be due at the time the Form 720 is due. Deposits are not required for the PCORI fee.
  • Issuers and plan sponsors who are required to pay the PCORI fee, but are not required to report any other liabilities on a Form 720, will be required to file a Form 720 only once a year. They will not be required to file a Form 720 for the other quarters of the year.
  • Issuers and plan sponsors who are required to pay the PCORI fee as well as other liabilities on a Form 720 will use their Form 720 for the second quarter to report and pay the PCORI fee that is due July 31. Only one Form 720 should be filed for each quarter.

Q9. What exceptions to the PCORI fee apply?
The PCORI fee does not apply to exempt governmental programs, including Medicare, Medicaid, Children’s Health Insurance Program (CHIP) and any program established by federal law for providing medical care (other than through insurance policies) to members of the Armed Forces, veterans and members of Indian tribes (as defined in Section 4(d) of the Indian Health Care Improvement Act).

Also, health insurance policies and self-insured plans that provide only excepted benefits (such as plans that offer benefits limited to vision or dental benefits and most FSAs) are not subject to the PCORI fee. Further, health insurance policies or self-insured plans that are limited to employee assistance programs, disease management programs or wellness programs are not subject to the PCORI fee if these programs do not provide significant benefits in the nature of medical care or treatment.

The PCORI fee applies only to policies and plans that cover individuals residing in the United States. Thus, the PCORI fee does not apply to policies and plans that are designed specifically to cover employees who are working and residing outside the United States.


Q10. Are health insurance policies or self-insured health plans for tax-exempt organizations or governmental entities subject to the PCORI fee?
Yes. Unless the health insurance policy or self-insured health plan is an exempt governmental program described above, the policy or plan is a specified health insurance policy or applicable self-insured health plan subject to the PCORI fee, and, accordingly, the health insurance issuer or plan sponsor is responsible for the PCORI fee.

Q11. When does the PCORI fee expire?
The PCORI fee is effective for policy and plan years ending after Sept. 30, 2012, and before Oct. 1, 2019.

Q12. Does the PCORI fee apply to an applicable self-insured health plan that has a short plan year?
Yes, the PCORI fee applies to a short plan year of an applicable self-insured health plan. A short plan year is a plan year that spans fewer than 12 months, and may occur for a number of reasons. For example, a newly established applicable self-insured health plan that operates using a calendar year has a short plan year as its first year if it was established and began operating beginning on a day other than Jan. 1. Similarly, a plan that operates with a fiscal plan year experiences a short plan year when its plan year is changed to a calendar year plan year.

Q13. What is the PCORI fee for the short plan year?
The PCORI fee for the short plan year of an applicable self-insured health plan is equal to the average number of lives covered during that plan year multiplied by the applicable dollar amount for that plan year. For example, the PCORI fee for an applicable self-insured health plan that has a short plan year that starts on April 1, 2013, and ends on Dec. 31, 2013, is equal to the average number of lives covered for April through Dec. 31, 2013, multiplied by $2 (the applicable dollar amount for plan years ending on or after Oct. 1, 2013, but before Oct. 1, 2014).

Q14. What is the PCORI fee due date for the short plan year?
The PCORI fee is due July 31 of the year following the last day of the plan year (including a short plan year).

Q15. Can a plan sponsor or policy issuer that overpaid the PCORI fee due July 31 reduce the PCORI fee due the following July 31 for the amount of the prior year’s overpayment?
No. Plan sponsors and policy issuers cannot reduce the PCORI fee due July 31 for any overpayment from a prior year. If a plan sponsor or policy issuer overpaid the PCORI fee reported on a previously filed Form 720, it should file Form 720X, Amended Quarterly Federal Excise Tax Return, for an overpayment of a previously filed PCORI liability. Form 720X is available on www.IRS.gov.

Q16. How should corrections be made to a previously filed Form 720?
A plan sponsor or policy issuer should make corrections to a previously filed Form 720 by filing a Form 720X, Amended Quarterly Federal Excise Tax Return, including adjustments that result in an overpayment. Form 720X may be filed anytime within the applicable limitation period. Form 720X is available on www.IRS.gov.