Sections 6055 and 6056: IRS Reporting Compliance
Originally published April 20, 2015: content updated below for 2018.
What is IRS 6055 and 6056 Reporting?
The Affordable Care Act (ACA) identifies employers who are subject to its provisions using the term Applicable Large Employers (ALEs). The simplest definition of an ALE is an employer who employed an average of at least 50 full-time employees on business days during the previous calendar year.
ALEs are required to self-report their compliance with the ACA to the Internal Revenue Service (IRS) on an annual basis. Sections 6055 and 6056 of the IRS code describe the related reporting requirements.
Most ALEs subject to the ACA will have completed three annual cycles of 6055 and 6056 reporting thus far and should be well along in preparing for the upcoming 2018 filing season.
Early on, the IRS released final regulations that explain the health plan sponsor and ALE reporting requirements under IRS Sections 6055 and 6056 of the ACA.
We will go through who, what, when, how, and why for both IRS Section 6055 and Section 6056 reporting below. You will see that forms 1094-C and 1095-C perform double duty for self-insured ALEs, satisfying the reporting requirements of both Section 6055 and Section 6056. For ALEs who utilize a fully-insured health plan with a third-party sponsor (think insurance company, government, or multi-employer trust), the health plan sponsor is responsible for Section 6055 reporting and the ALE will only be responsible for Section 6056 reporting.
1. Who must report under Section 6055 and to whom?
Section 6055 applies to plan sponsors – anyone who issues “Minimum Essential Coverage, “ including health plan issuers, government employers, multi-employer plan sponsors (multi-employer plans under collective bargaining agreements). 1 In addition, employers who sponsor self-insured group health plans must meet Section 6055 requirements. If an ALE is self-insured it must report under both sections 6055 and 6056.
Much like W-2 reporting, these providers must file the information statements to the IRS, and in addition, provide statements to the individuals who were enrolled in the plan during the calendar year. It is this information that individuals will use to corroborate that they had health insurance as required by the ACA.
2. What must be reported under IRS Section 6055?
The information requirements for Section 6055 IRS reporting are fairly basic:
1. The Employer Identification Number, together with the name and address of the plan sponsor;
2. The Taxpayer Identification Number (usually SSN) for all individuals covered by “Minimum Essential Coverage.2 ”
3. The plan sponsor must report, for each full-time employee, all months for which the individual is enrolled in “minimum essential coverage” and is, for at least one day in such month, entitled to receive benefits.
Of course, this means that the plan sponsor must track when covered individuals enroll and are benefits eligible, and when they drop off of the plan. It is important to note that “covered individuals” includes not only employees but all dependents and family members also covered under the plan.
While it is permissible to substitute a birthdate for the Taxpayer Identification Number (TIN), reasonable efforts must be made to obtain the TIN. Additionally, TINs should be truncated so as not to pose an unreasonable risk of identity theft for the persons whose information is reported.3
One additional item of information that must be provided to covered individuals is the name, address and contact phone number for the person required to file the returns; it is important to note the IRS allows a plan sponsor to designate an agent or third-party representative to be the contact for the purposes of responding to covered individuals.
3. When must 6055 reporting be filed with the IRS?
If filing electronically, the information returns must be transmitted to the IRS before April 1. If filing by paper, then the returns must be postmarked before March 1.
These are the same filing deadlines for W-2 statements. And accordingly, the annual deadline for providing the information statements to employees/covered individuals is the 31st of January. In each of the first three years of reporting requirements, universal relief has been granted on the deadline for providing information statements to individuals. We expect the same to occur for the 2018 tax year, but there is no guarantee that will happen.
4. How must this information be reported?
For employers (self-insured plan sponsors), the information will be filed on forms 1094-C and 1095-C. The 1094-C is a transmittal form and the 1095-C is an informational form.
For other plan sponsors (such as multi-employer plans, health plan issuers, etc.) similar forms, designated 1094-B and 1095-B, will be utilized. It is important to note that any pentity who must file at least 250 individual returns of any specific form (not counting the transmittal forms) must do so electronically.
Additionally, the information must also be provided to the enrolled individuals by the plan sponsor.
The statements must be sent to the last known permanent address of the covered individual, but if it is not known, then sent to the last known temporary address. Doing so discharges the requirement to provide the statement, even if the statement gets returned. The IRS will allow employers to provide the statements in the same envelope as the W-2, which can cut down on administrative costs of compliance.
While the statements may be provided to covered individuals electronically, the IRS requires that the covered individual provide affirmative consent to receiving the specific form electronically. If consent is acquired with other electronic consents, the specific form must be listed in the request. Additionally, employers must continuously track consent revocation status.
5. The Purpose of Section 6055: Why does the IRS need this information?
The purpose of Section 6055 reporting is to give the IRS sufficient information to be able to identify individuals who have obtained Minimum Essential Coverage, and the source of that coverage.
The information helps determine which individuals would be qualified to obtain a premium tax credit if such individuals purchased health coverage through the state or federal marketplaces instead of through their employers. It also helps the IRS determine which individuals do not have Minimum Essential Coverage.
While recent legislation claims to have “repealed” the ACA’s Individual Mandate that all people have insurance, the legislation left that requirement intact and instead zeroed out the penalty for not having insurance.
Since information reporting under Section 6055 is an obligation for plan issuers and sponsors, most ALEs with under 300 employees will not have to comply with Section 6055 unless they sponsor a self-insured plan. As we will discuss below, however, all ALEs are responsible for reporting under Section 6056, meaning self-insured ALEs are required to report under both sections. The information required for 6056 reporting is somewhat more involved, but you may notice similarities in the information and process.
IRS Section 6056
1. Who must report under Section 6056 and to whom?
IRS Section 6056 requires reporting by ALEs. Note: For complex organizations with shared ownership made up of multiple EINs there is a concept of an ALE members rolling up and referencing each other in their reporting. That topic is substantial enough for its own dedicated blog. For the purposes of this discussion we will just use the term “ALE member”, which will mean either a stand-alone ALE or one of several ALEs that are related.
As with Section 6055 reporting, informational statements must be filed with the IRS and the ALE must provide statements to individual employees. Because the purpose of Section 6056 is to determine if the ALE is meeting it obligations under the ACA, the information provided to both the IRS and the individual under Section 6056 is more detailed.
2. What must be reported under Section 6056?
This is the list of all items the 1095-C will cover, and it is a lot of information. First, the easy items:
- Name, address and EIN of the ALE member reporting
- The calendar year for the report
- Whether the ALE is a member of a Section 414 group and, if applicable, the name and EIN of the aggregated group for any day of the calendar year for which information is reported
- Whether or not a designated person is reporting on behalf of an ALE member that is a government unit or agency, including their name, address and identification number
- The name and telephone number of a contact person (may be a third party, agent or rep) acting on behalf of the ALE for purposes of 6056 reporting
- If a third party is reporting for an ALE member, include the name, address and EIN of the third party in addition to the ALE member information
The following items will require tracking through the calendar year, which is greatly complicated by the requirement to track who are full-time employees on a monthly basis. For most companies, this means gathering and parsing the required information out of various systems – payroll, HRIS, enrollment platforms, etc. in order to provide complete and accurate information. For most companies, this will require access to multiple systems to gather and analyze the necessary data.
- Certification that the ALE member offered to its full-time employees (FTEs) and their dependents the opportunity to enroll in minimum essential coverage under an employer-sponsored plan, by calendar month
- The number of FTEs for each calendar month of the calendar year, by month
- For each FTE, include the months during which minimum essential coverage was available under the plan
- For each FTE, include the employee’s share of the lowest cost monthly premium for the self-only coverage providing minimum value offered to that employee under an employer-sponsored plan, by calendar month (in dollars)
- The name, address and TIN for each FTE during the calendar year and the months during which the employee was covered under the employer-sponsored plan (the TIN is not necessary for dependents or spouses, however it is for Section 6055 reporting)
- Information as to whether the coverage offered to FTEs and dependents under employer-sponsored plan provides minimum value, and whether or not the employee had the option to enroll their spouse in the coverage
- Whether FTE’s effective date of coverage was affected by a permissible waiting period.
- Whether the ALE member had no employees or otherwise credited any hours of service during a month, by month
- If the ALE member is a contributing employer to a multiemployer plan, whether, with respect to a FTE, the employer is not subject to a penalty due to the employer’s contributions to a multiemployer plan
3. When must 6056 reporting be filed with the IRS?
The filing deadlines for Section 6056 are the same as for Section 6055 and therefore the same as for W-2 reporting.
To recap, if filing electronically, the information returns must be reported to the IRS for compliance before April 1. If filing by paper, then the returns must be postmarked before March 1. And accordingly, the deadline for providing the information statements to employees/covered individuals is January 31, again matching the W-2 provision deadline (a 30-day extension may be allowed for good cause). In each of the first three years of reporting requirements, universal relief has been granted on the deadline for providing information statements to individuals. We expect the same to occur for the 2018 tax year, but there is no guarantee that will happen.
4. How must this information be reported?
ALEs are required to file on form 1094-C and 1095-C, which are the same forms self-insured employers will also provide their Section 6055 reporting. The same rules as Section 6055 apply with respect to electronic reporting: any organization which has to file at least 250 individual Section 1095-C returns (not counting the transmittal forms) must do so electronically.
Many of the same rules as Section 6055 also apply with respect to providing statements to employees. In most cases, a copy of the 1095-C will be sent to the full-time employee. However, substitute statements that meet IRS requirements may be sent. In either case, the IRS allows providing the statement together in the same mailing as the W-2. The statements may also be sent electronically so long as the employee has provided specific affirmative consent to receive the particular form via electronically.
Employers will need to keep track of consents and revocations on an ongoing basis. Along with the information applicable to the particular employee, the statement must contain the name, address and Employer Identification Number of the ALE member. Employers may also use a truncated Tax Identification Number (TTIN) for increased security.
Additionally, the IRS has provided for simplified reporting methods for employers who meet certain specific requirements; please contact Tango and we will be happy to provide the additional information.
5. The purpose of Section 6056: Why does the IRS need this information?
The purpose of Section 6056 reporting is to allow the IRS to administer and assess the Section 4980H penalties applicable to large employers.
As a reminder, there are two penalties under Section 4980H (a) and (b).
- Under subsection 4980H (a), if a large employer does not offer employer-sponsored Qualified Health Plan to 95% (70% for 2015) or more of its full time employees (including their dependents), and any full-time employee is certified to the employer as having received a tax credit or cost-sharing reduction via any state or federal health care marketplace (Exchange), the employer is subject to an assessment equal to the total number of full time employees of the employer, minus 30 (80 in 2015), times 1/12 of $2000, calculated per calendar month, for every month of the calendar year for which the employee received the tax credit or cost-sharing. Employers will likely want to establish audit trails for this information in the case a response to an IRS inquiry is needed.
- If a large employer does offer a qualified health plan to 95% or more of its full time employees (and their dependents), under subsection 4980H(b), the employer is assessed a penalty of $3000 times the number of employees who actually receive a tax credit or cost-sharing subsidy through the state or federal health care marketplaces (Exchanges).
Failure to file or provide statements to employees
The applicable penalties for failure to file or provide statements to employees are the same as for failing to file or transmit W-2s and 1095s. Failure to file is $100 per individual return not to exceed $1.5 million annually, and the same for failure to provide statements. Intentional disregard of these obligations can subject employers to additional penalties.4
However, the IRS may waive or abate penalties if reasonable cause is shown. For example, IRS will not impose either penalty for ALE members who can show they made good faith efforts to comply with the reporting requirements for the 2015 year (reportable in 2016), but only for incorrect or incomplete information reported in the returns or statements, including SSNs.
There is no relief for failure to file in a timely manner or provide statements, unless the IRS standards for reasonable cause are met.
We are now three years into these reporting requirements, yet many ALEs have not applied rigor to Section 6055 and Section 6056 reporting because the political narrative has always been that repeal is coming. In the context of IRS Section 6056 Forms 1095-B and 1095-C are tax returns, yet many ALEs are submitting shoddy work to the IRS that has not been reviewed internally by the tax department. Regardless of the political rhetoric, Section 6056 reporting presents a large revenue opportunity for the IRS and the Treasury Inspector General for Tax Administration (TIGTA) has issued a report outlining the obligation of the IRS to pick up the pace on its Section 6056-related audits and collections.
The key thing to understand is that the information ALEs self-report to the IRS is then collated by the IRS with individual tax returns and subsidy information from the government health exchanges. Based on that process it becomes obvious to the IRS when there is an ALE 6056 reporting problem. We have seen a lack of rigor/accuracy on the part of ALEs in their self-reporting resulting in individual IRS Letter 226J penalty notices of over $10 million for the 2015 tax year, a year where the thresholds for compliance were significantly lower than they are in subsequent years. Once an ALE receives IRS Letter 226J they have two options: pay it or refute it. Penalty notices for 2015 were a dress rehearsal for the IRS’ internal processes, we expect IRS Letter 226J for 2016 to be more widespread and to start arriving any time now.
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1 Defined under Internal Revenue Code Section 414(f)
2 Defined under Internal Revenue Code Section 5000A
4 Internal Revenue Code – Section 6721, Section 6722, and Section 6724.
Categorized in: ACA