Representatives Of Applicable Large Employers Meet IRS Resistance At Hearing On Information Reporting Regulations

On November 18, representatives at an Internal Revenue Service hearing on the proposed regulations under Code Sec. 6056 concerning information reporting requirements for applicable large employers under the Patient Protection and Affordable Care Act (ACA) applauded the one-year delay of the shared responsibility requirements until 2015 before quickly introducing suggestions. Several suggestions, which were intended to reduce the reporting burden on employers by limiting the number of forms to be filled out and the number of employees for whom reporting would be necessary, received support from all three speakers representing large employers that provided health benefits to their millions of employees.

However, IRS officials including Victoria Judson, associate chief counsel, IRS Tax Exempt and Government Entities (TE/GE), and Stephen Tackney, deputy associate chief counsel, TE/GE, expressed concern that these suggestions would only increase the burden on software programmers, violate employees’ privacy rights with respect to disclosure of the amount of their total household income, or leave certain employees uncertain as to their eligibility for the premium tax credit under Code Sec. 36B.

Background. Code Sec. 6056, as enacted by the ACA, requires applicable large employers to report to the IRS information about their compliance with the employer shared-responsibility provisions under Code Sec. 4980H. Applicable large employers also are required to report information about the health care coverage they have offered to their employees. In addition, Code Sec. 6056 requires applicable large employers to furnish related statements to employees so that employees may use the statements while determining whether they are eligible for a premium tax credit under Code Sec. 36B.

Reducing necessary documents. Speakers at the hearing suggested, notably, that the IRS reduce the reporting burden on applicable large employers by combining the reporting requirements for Code Sec. 6055 (affecting insurers, self-insuring employers and other parties that provide health coverage) and Code Sec. 6056 so that employers need only report via one, single document. “The ability for employers to use a single, combined return and statement for purposes of Code Secs. 6055 and 6056 reporting should help reduce some of the burdens on employers,” said Seth Perretta, partner, Crowell & Moring LLP, Washington, D.C., on behalf of the American Benefits Council. “It should also help reduce the possibility for the issuance of inconsistent returns and lessen potential participant confusion.”

In response, Tackney stated that most employers are not in a position to have to complete reporting under both Code Sec. 6055 and Code Sec. 6056. He stated that he is unsure whether combined reporting would provide an effective solution for all employers.

The hearing speakers also suggested that the IRS expand the ability of employers to use the Form W-2 as a conduit for reporting health care coverage they provided to each employee. “The proposed method, however, would only be available if the full-time employee is employed for the entire calendar year, and if the individuals to whom the offer is made, as well as the extent of any employee contribution for the lowest cost self-only coverage option, remain unchanged for the full calendar year,” Perretta explained.

Tackney asked whether Perretta’s approach would require the addition of new data fields on Form W-2. If so, expanding the Form W-2 could make it run over onto a second page. “A second sheet is not that different from a separate form,” Judson said. She and Tackney stated that expanding the W-2 to allow more health coverage reporting might simply necessitate the creation of many more codes, which would prove complicated for software programmers.

Amount of reporting. Perretta also advocated for a reduced reporting burden on an employer if an employee’s wages are high enough such that coverage can be expected “in nearly all instances to be affordable.” Perretta suggested that an appropriate threshold for this purpose would be $150,000 of taxable wages, per employee, an amount he stressed is four times the 2013 federal poverty line for a family of seven.

Tackney, however, questioned whether an employee with $150,000 would, necessarily, be ineligible for a premium tax credit. Whether or not the employee was eligible for the Code Sec. 36B tax credit, Tackney asked how the employer would know without the employee needing to disclose household income. Judson questioned whether this would be a violation of privacy, since employees would need to disclose to their employer that they are “in worse financial shape than the employers thought.”

Another speaker, Richard Stover, principal and consulting actuary at Buck Consultants, testified on behalf of the ERISA Industry Committee (ERIC). Stover stated that the proposed regulations had introduced redundant and burdensome reporting provisions. He suggested that large employers be allowed to certify to the IRS that they have provided minimum essential coverage to 95 percent of their full-time equivalent employees. This would eliminate the need for employers to report health care information to each individual employee, Stover explained. “We suggest that, instead of this elaborate, expensive and cumbersome reporting structure, that the government shift its focus from individualized reporting to one that will permit large employers merely to certify that they have covered 95 percent of their full-time employees, thus satisfying their obligations under Code Sec. 6056,” Stover said.

Judson asked Stover how the IRS would know who the remaining 5 percent of employees were. Tackney questioned Stover on whether there was some predictable correlation between income reported on a W-2 and household income that could indicate to employees whether they are eligible for a premium tax credit under Code Sec. 36B.

Tackney and Judson questioned Stover on how employees would know, under his proposed system, whether or not they are eligible for a Code Sec. 36B tax credit. Stover explained that employers would be required to provide information about health coverage to their employees upon request, and also to disclose to employees how they should go about submitting that request.

Other suggestions. Perretta suggested a simplified reporting method for employers who are able to accurately represent that they do not offer coverage only to employees who are not full-time equivalents. “Many employers may utilize their own full-time employee definition that differs from the definition provided in Code Sec. 4980H, but at the same time provide minimum value, affordable coverage broadly to their employee populations—including with respect to employees who work less than 30 hours per week on average,” Perretta explained. “The contemplated simplified reporting method would save these employers from having to engage in costly and time-consuming reporting on the front-end.”

Another suggestion was that the IRS should clarify that it would not require employers to file or issue amended information returns solely to reflect new information learned following filing and issuance of the returns and statements.

Finally, representatives supported an expansion of employers’ ability to use electronic delivery of documents to their employees. This would not only save significant printing and postage costs, but also would enable employees to access their information at any time. Debbie Harrison, senior manager at the National Business Group on Health, suggested that it would be more cost-effective to allow electronic delivery of important returns and statements to employees under the default rule, from which employees could opt out. She also suggested that, where employees have previously authorized their employers to electronically deliver their Forms-W-2 and/or other information forms, the IRS could allow employers to also electronically deliver statements relating to health coverage under Code Secs. 6055 and 6056.

Stover testified concerning printing and mailing costs of paper disclosures. The cost to mail paper disclosures, he said, would be approximately $0.87 per individual for a one-page document. Another member of the ERIC group predicted that its annual costs for distributing the disclosures to employees would be approximately $40,000 to $50,000 once the systems have been developed. Stover stated such disclosures essentially require employers to spend hundreds of thousands on something that “creates no tangible benefit for that company…. Money that must be used to comply with these reporting requirements is money that cannot be spent on employee benefits.”

Software programming. Harrison thanked the IRS for the extra time to implement the reporting requirements under Code Sec. 6056. She stated that the members of the National Business Group on Health would require that extra year to understand and implement all the requirements and pleaded for more definite guidance as soon as possible. She stated that it required six to nine months to prepare a single reporting system, assuming that all guidance was clearly stated.

A fourth speaker, Karen Settembrino, payroll functional lead at Oracle, expanded upon Harrison’s statement. She stated that, before clients ever installed and began to test their payroll software, the payroll software programmers had to ensure that it complied with the regulations and otherwise functioned properly. “Time is crucial to us,” she said. “When the IRS makes decisions on final guidance, the sooner we can get information that we know to be true, the better off we will be.”

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