The Affordable Care Act’s reporting requirements are difficult enough to navigate. Now add to the mix additional requirements imposed by states with individual mandates regarding health insurance, and you have a recipe for complete confusion. Many employers have questions on which employees to include. For example, is reporting required for an employee who resided in the state for part of the year? Is reporting required only for employees who are residents as of December 31? C2 recently had the opportunity to help a client navigate through some of these challenges.
Background: The ACA individual Mandate and State Law
The ACA individual mandate (also known as the “individual shared responsibility provision”) requires most Americans to have qualifying health insurance (minimum essential coverage), either through their employer on secured on their own in the marketplace. The individual mandate is part of The Affordable Care Act (ACA) which became law in March 2010. If individuals didn’t have proof of health insurance when they filed their taxes, the IRS assessed penalties. In December 2017 (effective January 1, 2019), the Tax Cut and Jobs Act of 2017 removed the penalty for individuals not having health insurance, but the requirement to have health insurance remains in place.
Although the ACA individual mandate is gone (in terms of the penalty), to keep their healthcare marketplaces stable, several states have enacted their own state version of the ACA individual mandate, requiring taxpayers to provide proof of health coverage to avoid financial penalties imposed under state law. Those jurisdictions (one of which is the District of Columbia) are requiring employers to file their 2019 1095-Cs with the respective state tax agency, in addition to filing them with the IRS.
Breakdown of State Penalties for Individuals and Employers
Fortunately, not many states have enacted their own ACA-type reporting laws. However, the trend to do is likely to continue, particularly as federal enforcement and monitoring of compliance with the ACA grows weaker amid changed political priorities under the Trump administration. To date though, here is a breakdown of jurisdictions that have enacted their own “individual mandate” style laws.
California
The mandate requires state residents to maintain minimal essential coverage for themselves and dependents. Failure to maintain coverage could result in an annual penalty of 2.5% of household income or a per person charge, whichever is higher. The per person penalty is $695 per adult and $375.50 per child. The penalty is capped at the state average premium for a bronze level plan on the California Exchange for the applicable household size. The Individual Mandate goes into effect January 2020.
The law will require “applicable entities”, including insurance carriers and employers that sponsor health coverage to comply with reporting obligations. While the details of such additional reporting obligations have not yet been determined the reporting information is expected to be the same information reported to the IRS under IRC § 6055 and must be filed annually with the Franchise Tax Board by March 31, starting in 2021. Failure to comply may result in a penalty to the reporting entity of $50 per applicable individual.
Washington D.C.
Under District law, most DC resident must have minimal essential coverage for themselves and their dependents or face a penalty of $695 per uninsured adult, or 2.5% of household income, whichever is greater, with a cap on the penalty equaling the average cost of a bronze plan on the D.C. exchange. The District of Columbia’s Individual Mandate went into effect January 2020.
Employers also face reporting obligations under the city’s individual health coverage mandate. Applicable entities include plan sponsors with at least 50 employees and at least one DC resident, as well as health insurers providing MEC to DC residents during the coverage year. These entities must sign up and file information returns with the DC Office of Tax and Revenue (OTR). All information returns must be uploaded through MyTax.DC.gov. For coverage year 2019, the filing deadline is June 30, 2020. For later repotting years, the filing deadline will be thirty (30) days after the federal deadline, which includes any extensions.
Massachusetts
For state residents, the penalty is up to 50% of the minimum monthly premium payment the person would have qualified for through the state’s Health Connector site. The penalty only applies to adults (18 and up).
Employers must furnish Form MA 1099-HC to employees by January 31st each year. Failure to distribute the form may result in a penalty of $50 per employee, up to a maximum of $50,000. Also, Employers must file the applicable reports electronically using their MassTaxConnect (MTC) account.
New Jersey
Individuals who do not comply with the individual mandate are assessed penalties based on the higher penalty amount calculated from either 2.5% of gross household income or $695 per individual and $347.50 per child. There is a cap on the penalty equaling the average cost of a bronze plan. If it is a per-person charge, the maximum penalty is $2,085. If the penalty is based on income, the maximum penalty is the average yearly premium of a New Jersey bronze plan. The individual mandate went into effect January 2020.
In addition, employers will be required to report the previous year’s health coverage information for covered employees and their dependents residing in the state. Health coverage returns must contain information required for IRS Forms 1094-C and 1095-C by March 31st of each year through New Jersey’s e-file system for W-2 forms.
Rhode Island
Effective January 2020, individual penalties apply to residents based on 2.5% of their household income or $695 per adult, whichever is greater. The penalty is capped at the average cost of the state exchange’s bronze plan.
Employers may satisfy the new state reporting requirement by submitting their federal Forms 1095-B and 1095-C, which currently require information on which employees have been offered, or received, employer-provided health insurance. The filing deadline and procedure has yet to be determined.
Vermont
Vermont’s state level mandate also goes into effect January 2020. No individual penalties have been established. Residents will be required to self-report when filing individual income tax returns. The state will use the data to assist uninsured individuals with obtaining health insurance coverage. Currently, the law does not impose any reporting requirements for employers.
Employer Takeaway
If you are currently using a payroll company or tax professional for assistance with the ACA-required reporting, it is important to contact them to ensure compliance with state-level reporting that may be required for some or all of your employees. If your company handles its own reporting, be sure to determine a method of reporting and an electronic interface with each state well in advance of deadlines. Some jurisdictions, such as DC, require reporting entities to jump through several administrative hoops to be able to file the applicable reports (and paper filing is not permitted). Additional states such as Hawaii, Washington, Connecticut, Minnesota, and Maryland are considering enacting their own individual coverage mandates. So, employers should definitely stay abreast of this issue for those states in which they have employees.
C2 provides strategic HR outsourcing to clients who want to develop optimal workforce strategies and solutions to allow them to be more competitive and profitable. C2 blog posts are intended for educational and informational purposes only.
