If you’re using a vendor for 1095 reporting, you may have received other strange questions about how you are complying with the employer shared responsibility (pay-or-play) mandate. (Here's our first blog post on strange 1095 reporting questions.) These questions are often not explained very well, and most times they're not explained at all. Even if you’re not using a vendor, you may have looked at the instructions for Forms 1094-C and 1095-C and wondered about:
  • Non-Calendar-Year Transition Relief
  • Plan Start Month
  • First Year as ALE Period or First-Year Relief
  • No Dependent Coverage Transition Relief.
Here's what those references mean.

Non-Calendar-Year Transition Relief 

Way back when the IRS issued some of its first guidance on the employer shared responsibility rules (pay-or-play mandate), it cut non-calendar-year plans a bit of a break. The mandate would kick in with the first plan year beginning on or after January 1, 2014. So a plan with a plan year of July 1 to June 30 would start complying July 1, 2014, whereas calendar year plans had to begin complying January 1, 2014. The IRS did not, however, give employers with non-calendar-year plans the same break on employer reporting. So how does an employer with a non-calendar year plan (a/k/a "fiscal year plan") tell the IRS that it doesn’t owe a penalty for the part of the 2014-15 plan year that falls in calendar year 2015?

The answer from the IRS was to report accurate offer and coverage information to employees on the 1095-C but waive a magic wand over the months from the 2014-15 fiscal year as they are reported on Form 1094-C. If you are subject to the pay-or-play mandate and your plan is a non-calendar-year or fiscal year plan, then for the months of the 2014-15 plan year that fall in calendar year 2015, check “Yes” in column column (a) in Part III of Form 1094-C. You’ll also need to use code 2I on line 16 of the Form 1095-C of any affected employee for those months. Otherwise, the IRS won’t know that you aren’t subject to penalties for those months, and you may be assessed a penalty when you shouldn’t have. So if you qualify for this relief, claim it.

Plan Start Month 

This box in Part II of Form 1095-C simply asks for the two-digit number corresponding with the first month of the plan year, as shown on Form 5500 (or your plan documentation if a 5500 isn’t required for your plan). It’s not entirely clear why the IRS needed this, but we think it’s to provide the IRS some context for why the employer is reporting offer of coverage codes (lines 14-16 of Form 1095-C) the way that it is. It also tells the IRS whether an employer is eligible for the non-calendar-year transition relief, discussed above. 

The box is optional for 2015, but employers with non-calendar-year or fiscal year plans should fill it out. 

First Year as ALE Period, or “First-Year Relief” 

The terms, “first year as ALE period” and “first-year relief ” refer to a free pass the IRS gave employers for the months of January through March for the first year an employer becomes an applicable large employer (meaning it crossed the full-time equivalent threshold and becomes subject to the pay-or-play mandate). Applicable large employer status is determined based on the prior year headcount, as explained in this post, and of course an employer won’t know its status until the that year has closed and its potential first year as an applicable large employer has started. The IRS recognizes it will take some time to get coverage in place or make coverage changes, so it cut employers in this situation a break until April 1 of the first year the employer becomes an applicable large employer.

Claiming this relief is as simple as using code 2D on line 16 of Form 1095-C for those months. (The technical term for those months is a “limited non-assessment period.”) 

No Dependent Coverage Transition Relief 

The actual name for this relief is “2015 Section 4980H(a) Transition Relief for Certain Arrangements that do not Offer Health Coverage for Dependents”—far too long for a blog post header, so we shortened it. Most employers have long offered coverage to children of employees and thus have no use for this transition relief. However, some employers terminate coverage on the dependent child’s 26th birthday, not the end of the month in which the child turns 26. It’s not clear from the instructions whether this transition relief can be used for this sort of mid-month termination of coverage, but you should consider claiming it (and discuss it with counsel).

All you do to claim this relief is ignore the lack of dependent coverage (or possibly the plan's mid-month termination provision) when deciding to check “Yes” or “No” in column (a) of Part II on Form 1094-C. Then you should immediately change your plan’s coverage termination documentation and procedures to permit coverage of adult children through the end of the month in which they turn 26.