November 2020 Update
Since publishing this article, Rhode Island has introduced ACA reporting requirements. Here are the important things to know:
- Employers will be required to report coverage information for their employees residing in Rhode Island annually beginning in 2021, unless the employer’s insurer completes the reporting requirement.
- The federal forms will be sufficient to meet the Rhode Island reporting requirement.
- The Division of Taxation will provide a webpage where employers will be able to upload file(s). A link to this webpage will be available on the Division of Taxation’s website: http://www.tax.ri.gov/healthcoveragemandate/.
- The state reporting deadline is January 31. However, for Tax Year 2020 only: The Division of Taxation will extend the state reporting deadline to individuals to March 2, 2021 and (2) to the Division to March 31, 2021.
Since it was enacted, the Affordable Care Act (ACA) has been an important part of employer reporting and regulatory compliance, with forms such as the 1095-C becoming a recent fixture of tax filing season. The passage of the Tax Cuts and Jobs Act of 2017 triggered an important change in the ACA, namely the removal of the penalty for not having health insurance.
In response, states are starting to implement their own individual mandates to control healthcare costs. New Jersey, the District of Columbia and California have enacted state-level ACA reporting, with more on the way. This development leaves employers needing to monitor state-level ACA developments like they do for state and local tax withholding regulations today.
California: The latest state to introduce ACA requirements
California passed an individual mandate (California Mandate) that required residents to maintain minimum essential coverage (MEC) starting January 1, 2020.
To complete the California Mandate reporting, self-insured employers, regardless of their Applicable Large Employer (ALE) status, are required to transmit 1094/5-B and C forms to the California Franchise Tax Board (FTB) by March 31, 2021.
Employers can also transmit the same1094/5-B or C forms that they transmitted to the IRS for ACA reporting to complete their California Mandate reporting. In order to transmit forms to the state of California, you need to register and go through a testing cycle before being approved for transmission of your final data.
Fully insured employers are not required to submit California Mandate reporting as long as their insurer reports to the FTB, which they are required to do.
All employers must provide 1095-B and C forms to their employees by January 31st following the end of the plan year, which is already required under the ACA. While the federal ACA deadline is frequently extended past January 31st, the California Mandate distribution deadline will not automatically be extended to mirror the federal deadline.
If an organization files more 250 forms, then they are required to file electronically. You can register to submit reporting electronically beginning October 5, 2020.
It is important that you work closely with your ACA reporting vendor to ensure that forms are distributed in the right format, on time. Employers who fail to submit reporting as required, are subject to $50 penalty per individual.
New Jersey: A case study in state-level ACA reporting
New Jersey’s individual mandate law took effect on January 1, 2019. Like the original ACA mandate, it requires that everyone in the state maintain qualifying coverage (officially known as minimum essential coverage) or face a tax penalty. For adults, the penalty started at either $695 or 2.5% of annual income, whichever is higher.
Employers with 50 or more employees who employ NJ residents now must report on their compliance with the New Jersey Health Insurance Market Preservation Act by:
- Completing IRS forms 1094-C and 1095-C, or 1094-B and 1095-C.
- Submitting these forms through the MFT Secure Services in a file based on the IRS XML schemas, paper filing will not be accepted.
- Deferring to New Jersey’s own forms if those federal forms are ever discontinued.
- Have filers complete their electronic filings by March 31, 2021 for tax year 2020.
These are new requirements, on top of existing reporting responsibilities to the federal government.
The required compliance-related health insurance data should ideally only be shared for employees who are based in New Jersey. While it might require additional planning time, sharing ACA information for all your employees will heighten data security risk, since it increases the amount of personally identifiable information being electronically exchanged. It also has the potential to run afoul of the complex patchwork of privacy laws and additional applicable statutes in other states.
Both New Jersey-based and out-of-state employers with employees in New Jersey must comply with the state mandate. According to the state’s official guidance, the provisions of the New Jersey Health Insurance Market Preservation Act are not limited only to those employers who withhold New Jersey payroll taxes.
The District of Columbia and ACA reporting
While not a state as of 2019, the District of Columbia (D.C.) has still enacted legislation similar to New Jersey’s, requiring its residents to carry a minimum level of coverage (or obtain an exemption) or face a penalty. The law in question, the Individual Taxpayer Health Insurance Responsibility Requirement Amendment Act of 2018, is effective for tax years ending on or after Dec. 31, 2019.
All “applicable entities’ under this statute must report their compliance information to the district’s Office of Tax and Revenue (OTR). The definition of an applicable entity includes any employer or employment-based health plan sponsor with at least 50 employees. Plus, one or more employees must be of based in D.C. Providers of minimum essential coverage and insurance carriers/issuers are also applicable entities.
For purposes of determining someone’s residency in D.C., the OTR considers any employee who had taxes withheld and remitted to D.C. during the applicable calendar year a resident. Minimum essential coverage providers should also consider any individual who had a home or mailing address in D.C. a resident.
The OTR accepts the same IRS forms that New Jersey does under its similar law but instead of an XML format the file electronic file must be created using a delimited file, with submissions going exclusively through the MyTax.DC.gov domain. Like NJ, D.C. will also not be accepting paper filing, all forms must be filed electronically. The deadline for tax year 2020 is April 30, 2021 (30 days past the IRS filing deadline of 3/31/21).
Where is state-level ACA reporting headed in the future?
New Jersey, D.C. and California are participants in a larger movement toward state-level reporting on health insurance. For example, Massachusetts has had a mandate in place since the mid-2000s and. More states will likely follow suit eventually, and employers need to be prepared.
Effectively managing these ongoing changes requires automated and scalable ACA reporting. Since laws are being passed and updated by state legislatures all the time, it can be costly and time-consuming to keep up with everything that’s going on.
CIC Plus provides automatic monitoring and updating of state-level reporting requirements, so employers are never in the dark about their compliance obligations. We are incorporating New Jersey, D.C. and California reporting requirements into our service for the 2020 tax year and will make it easy to add more states in the future.