Over the past couple of months employers have begun to try and understand rules and regulations concerning the Patient Protection and Affordable Care Act (“ACA”), affectionately known as “Obamacare.” Of particular concern has been trying to understand the rules with respect to full time employees and the employer mandate to provide affordable health care to full time employees by their applicable large employer. For the past two months I have written articles regarding various provisions of Obamacare. However, out of nowhere the Obama Administration, through the Treasury Department, announced on July 2, 2013 that implementation of the employer mandate and the imposition of penalties for applicable large employers that fail to provide health insurance coverage to their full time employees would be delayed until January, 2015.
Some of you may be saying it is illegal for the White House and the Treasury Department to unilaterally delay the imposition of penalties on applicable large employers who fail to provide minimum essential coverage to their full time employees because of Section 1513(d) of the ACA. Section 1513(d) of the ACA has an effective date applicable to months beginning after December 31, 2013. Accordingly, where the ACA was passed by Congress and signed by the President, wouldn’t a new law need to be passed to delay the effective date of various provisions of the ACA? One would think so.
However, within the ACA are information returns that are required to be filed pursuant to Internal Revenue Code Sections 6055 and 6056. Section 6055 requires annual information reporting by health insurance issuers, self-insuring employers, government agencies, and other providers of health coverage. Section 6056 requires annual information reporting by applicable large employers relating to the health insurance that the employer offers (or does not offer) to its full-time employees. The returns pursuant to Sections 6055 and 6056 must be filed “at such time as the Secretary may prescribe.” Section 4980H(a) imposes the assessable payment (penalty) on an applicable large employer that fails to offer minimum essential coverage to its full time employees (and their dependents) under an eligible employer-sponsored plan if at least one full-time employee enrolls in a qualified health plan for which a premium tax credit is allowed or paid. But the problem is that the Treasury Department has not released the information returns or the proposed rules relating to them yet.
In Notice 2013-45 the Treasury Department announced that the proposed rules with respect to the information returns under Sections 6055 and 6056 are expected to be published this summer. Notice 2013-45 states that the proposed rules will reflect the fact that transition relief will be provided for information reporting under Sections 6055 and 6056. The transition relief is intended to provide additional time for dialogue with stakeholders in an effort to simplify the reporting requirements consistent with effective implementation of the law. It is also intended to provide employers, insurers, and other reporting entities additional time to develop their systems for assembling and reporting the needed data. Employers, insurers, and other reporting entities will be encouraged to voluntarily comply with the information reporting provisions in 2014 (once the information reporting rules have been issued) in preparation for full application of the provisions in 2015. However, information reporting under Sections 6055 and 6056 will be optional for 2014; accordingly, no penalties will be applied for failure to comply the information reporting provisions in 2014.
Where applicable large employers will not know for 2014 which full time employees receive a premium tax credit, the employer will not have all of the information needed to determine whether it owes the assessable payment (penalty). Thus, the IRS is hoping the voluntary compliance with the reporting requirements will enable the system to assemble the necessary information so applicable large employers will know in 2015 which employees received the premium credit.
Thus, it appears the White House and Treasury Department are able to delay the effective date of the employer mandate by prescribing when the information returns are due. Practically speaking, how can a taxpayer be subject to a penalty if the taxpayer is not obligated to file a tax return with the necessary information?
It remains to be seen how the IRS is going to make all of the Obamacare rules understandable and workable. If you are an applicable large employer with more than fifty full time employees, stay tuned and start reviewing the regulations to understand your impending obligations. However, don’t get too frustrated when you finally understand the rules, they change.