1099 Tax Software Blog

Employers with more than 50 employees, who provide insurance to their employees must file Form 1095-C and 1094-C.  1095-C details the health coverage for each employee, and 1094-C is the transmittal form to accompany all forms 1095-C sent to the IRS.  These forms correspond to the employer shared responsibility provisions as set out in the Affordable Care Act (ACA).  This mandate will not go into effect until tax year 2015, and as with the other ACA forms are all currently in draft form.

Affordable Coverage and Minimal Essential Value Requirements

The employer shared responsibility provisions of the ACA are designed to encourage employers to offer affordable coverage to their full-time employees.  According to the IRS, there is a test to determine if coverage is ‘affordable’:

If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee

The employer must also offer what is termed ‘minimal essential value’ in the coverage that meets certain criteria.  In other words, employers cannot shift the cost of coverage to employees, or offer a bare-bones policy to escape the ACA mandate.

Employer Shared Responsibility

If they fail to offer coverage, and an employee must then purchase coverage in the Health Insurance Marketplace, then the employer may be subject to an Employer Shared Responsibility Payment.  This payment would be due if one full time employee receives a Premium Tax Credit for purchasing coverage on their own.  The Premium Tax Credit is discussed in a previous article.   The employer payment is $2000 for a full calendar year, per employee.

However, there is another threshold to be met by employers.  They must provide affordable insurance to a minimum of 95% of their employees, or they will have to make a payment equal to an amount for all their employees even if some receive coverage.   This stiff payment requirement does have a 30-employee exclusion, so if an employer has 50 employees the payment would be for 20 employees after the exclusion is subtracted.  In effect, this shifts the tax credit from the government to the employer, but it is doubtful that it will be a very effective tool for encouraging businesses to offer coverage.  Interestingly, government employers at all levels are also subject to this payment.

As the ACA was unveiled many large, corporate employers took a look at these provisions and payments, and determined that is was less costly to simply pay the penalties and not offer insurance.  In effect, the employer shared responsibility payment is a subsidy to the government for employees who purchase insurance in the Marketplace, and then receive a tax credit.  One should look for the IRS to change these rules and formulas for employers in the future, as businesses find creative ways to minimize their health care expenses under Obamacare.

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Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

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