January 26, 2016
As we have reached the inauguration year for the new IRS Form 1095-C submissions, one of the most-asked questions from our clients is: Why is Part II of a 1095-C conflicting with Part III?
This question is faced by employers who offer self-insured coverage.
With this type of policy, the employer assumes the reporting responsibility for Section 6055 of the Internal Revenue Code in addition to the reporting responsibility for Section 6056 (both defined below). If an employer offers coverage that is fully funded, Part III does not apply.
Two different sections, two different reporting requirements
For employers, the relevant ACA reporting requirements can be found in Section 6056 of the Internal Revenue Code. Section 6056 requires Applicable Large Employers to file information returns with the IRS after furnishing statements to their full-time employees about the health insurance coverage that was offered to them.
For providers of insurance – be they insurers OR employers who offer self-funded coverage – the relevant ACA reporting requirements can be found in Section 6055. Section 6055 requires every provider of Minimum Essential Coverage to file information returns with the IRS after furnishing statement to all recipients of that coverage. The information is used by the IRS to administer – and individuals to show compliance with – the individual shared responsibility provision in Section 5000A.
Seek to understand Part II and Part III separately
The best way to understand both sections is to view them as two totally separate reports that happen to be combined onto one page.
- Part II, Employee Offer and Coverage, is to inform the employee and IRS that the employer did or did not comply with the employer shared responsibility mandates of the ACA.
- Part III, Covered Individuals, is used to validate the individual mandate for coverage verification.
So that employers who offer self-insured health coverage would not have to produce both the 1095-C and 1095-B, the IRS modified Form 1095-C to contain parts for both reporting requirements.
But the compression of the two parts into one form means can result in Part II of a 1095-C conflicting with Part III.
Example of conflicting information: Terminated employee
A good illustration for the confusion of how Part II and Part III do not relate side-by-side is the IRS guidance concerning how employees terminated with a month are handled in Part II.
In the Tax Year 2015 instructions for Form 1095-C, under the Line 14 code of 2B (not a full-time employee), the IRS says: “Enter code 2B also if the employee is a full-time employee for the month and whose offer of coverage (or coverage if the employee was enrolled) ended before the last day of the month solely because the employee terminated employment during the month (so that the offer of coverage or coverage would have continued if the employee had not terminated employment during the month).”
So if the employee terminated coverage on June 29, then Line 14 would be 1H and Line 16 would be 2B. However, if that employee was covered for any day of the month they were terminated in, that month would have a check box indicating that they had coverage in Part III.
This also extends to other areas.
Example of conflicting information: Retired employee
A retiree continues to be on an employer-sponsored health plan that is self-insured. They could have a 1H (no offer of coverage) on Line 14 and a 2A (Employee not employed during the month) in Part II, while on Line 16 of Part II, they would have every month checked that they did have coverage.
There are many examples of where these two reports provide different (and what would appear to be) conflicting information. They serve two totally different purposes and understanding what each Part represents separately will go a long way in eliminating the confusion.
Related post in our Knowledge Base: Why do I have a 1H/2D when I was offered coverage and took coverage during my first few months of employment?
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