If you’re using a vendor for 1095 reporting, you may have received strange questions about how you are complying with the employer shared responsibility rules (a/k/a pay-or-play mandate). These questions are often not explained very well, and many times they're not explained at all. Even if you’re not using a vendor, you may have looked at Form 1094-C and wondered about the four checkboxes on line 22.
These questions ask the employer about the following:
- Qualifying Offers
- Qualifying Offer Transition Relief
- Section 4980H Transition Relief
- The 98% Offer Method
These four bullets merely offer optional (and in most cases largely worthless) safe harbor shortcuts to ACA reporting. There is generally no downside for failing to use or satisfy any of these safe harbors, and any upside is, for the most part, not worth the effort required to demonstrate or document that the employer is eligible for the safe harbor in the first place.
Here's what those references mean.
Qualifying Offers
Typically, there is at least one question on vendor on-boarding questionnaires concerning whether the employer is using the “qualifying offer method” or has made a “qualifying offer” to one or more full-time employees as reflected on the employees' Forms 1095-C. Only the most generous of employers can use the qualifying offer method, and generally there is no relief given for it.
A “qualifying offer” is an offer of minimum-value (60% actuarial value) health coverage to the employee, spouse and children, the employee-only premium for which qualifies for the federal poverty line safe harbor. That means the employee end of the employee-only premium must be less than roughly $93 per month or less. The “reward” is that the employer uses code 1A on line 14 of Form 1095-C instead of code 1E and skips line 15, which reports the cost of coverage. For self-insured employers, that’s it. That’s all a qualifying offer does.
For employers with fully insured health plans, there’s an additional bonus, though for all practical purposes the benefit is…dubious, to say the least. If a fully insured employer made a qualifying offer for all months in 2015 for which the employer had an employer mandate obligation regarding the employee in question (and the employee was never enrolled in self-insured coverage provided by the employer that year), the employer is permitted to forego the Form 1095-C and give the employee a letter or other abbreviated statement regarding the employer’s coverage offer.
But here’s why most folks are not using this so-called “relief.” The employer must still send the actual 1095-C to the IRS! That means you have to go through the exercise of generating the proper Form 1095-C codes and data anyway. So you might as well just send the 1095-C to the employee and not worry about creating a different form.
Qualifying Offer Transition Relief
This “relief” is very similar to the qualifying offer method: The employer isn’t required to use or report this method, and it doesn’t offer much in the way of a reward. It has one big difference from the qualifying offer method, though: it’s extremely complicated! Most employers are not using the qualifying offer method transition relief.
Here’s why. The qualifying offer transition relief is available if, with respect to one or more full-time employees, the employer did not make a qualifying offer for all 12 months of the calendar year, but for the months with respect to which the employee did not receive a qualifying offer, the employer in fact made a qualifying offer to at least 95% of its full-time employees with respect to whom the employer had an employer mandate obligation. Think just for a second about how many reports you’d have to generate to show that this “relief” is available in the first place.
Now, for all that effort, here’s what you’ve won. Instead of using code 1H (no offer) on line 14 and a penalty escape code on line 16 (like 2D), you get to use code 1I on line 14 and skip line 15. Hooray! This is only useful when a penalty escape code like 2A (not employed), 2B (part-time) or 2D (limited non-assessment period) won’t work. And remember, to use code 1I the employer must provide coverage to 95% of all full-time employees, so it’s extremely rare that this would provide any real relief, and that relief is temporary because it’s only available for 2015. (Fully insured employers who qualify for this relief can also skip the 1095-C and send an alternative statement, but again, you’re still sending the 1095-C forms or data to the IRS anyway.)
The Only Real Relief: 4980H Transition Relief
This relief comes in two forms, and the one you qualify for depends on the size of the employer or controlled group of which the employer is part. If it applies, claim it, but don’t expect there to be much of a benefit. Here are the two alternatives for claiming 4980H transition relief:
- The employer’s controlled group or affiliated service group (we’ll just use “controlled group” for simplicity’s sake) had between 50 and 99 (inclusive) full-time equivalent employees—which is different than full-time employees, mind you—on the average business days in 2014. The relief provided is real relief: an exemption from the ACA’s employer shared responsibility/pay-or-play mandate. Checking this box is how an employer takes advantage of the delay in the employer mandate for mid-sized employers (50-99 full-time equivalents). So if it applies, check the box, even if you provided coverage. It’s a safety net, just in case something goes wrong.
- The employer’s controlled group had at least 100 full-time equivalent employees on the average business days in 2014, and there’s a possibility of paying the no-coverage penalty ($2,000 times all full-time employees) because coverage was offered to less than 70% of full-time employees. The relief the employer receives is avoiding the $2,080 per year “nuclear” penalty with respect to its first 80 full-time employees instead of the first 30. There’s no downside to claiming this relief, so if it applies, check the box, just in case.
98% Offer Method
This one is pretty rare, but it provides a tiny modicum of relief, so if the shoe fits, wear it—or check the box, as the case may be. To qualify for the 98% offer method, an employer must have offered minimum value coverage to at least 98% of its full-time employees and it offered at least minimum essential coverage to the employees’ children through the month they attain age 26. The employer may disregard employees in a “limited non-assessment period,” such as the month of hire and ACA-compliant waiting periods, as long as the new full-time employee receives an offer of coverage by the first day of the fourth full calendar month.
The reward for going to the trouble of documenting the employer’s eligibility for this relief is that the employer will not have to report the number of full-time employees on a month-by-month basis in column (b) of Form 1094-C—a number, by the way, your software will probably have because you have to give a 1095 to any full-time employee employed during the calendar year (like for Form W-2) and the data is tracked monthly. If the capabilities of your software make it difficult to report this number and you qualify, however, then claim it and check the box.