The start of a new year brings recurring compliance items for employers, employees, and individual taxpayers to consider. Here is what you need to know.
California Individual Mandate Continues
California’s state individual mandate, which began 1/1/2020, continues into 2022 and the foreseeable future. Under California’s Individual Health Care Mandate, Californians are required to have qualifying health insurance for all months of the year, obtain an exemption to have insurance, or pay a fine to the California Franchise Tax Board. Individuals must have at least Minimum Essential Coverage (MEC) – which is employer-sponsored coverage, Individual and Family Plan (IFP) coverage, Medicare, Medicaid (Medi-Cal in California), etc.
The California Franchise Tax Board released an Individual Shared Responsibility Penalty Estimator to help Californians understand their non-compliance penalty exposure. The penalty is roughly 2.5% of a person’s household income or a flat dollar amount of $750 per adult and $375 per child – though the penalty can vary based on several factors, including annual inflation and a person’s tax situation.
Currently, five states and the District of Columbia have state individual health insurance mandates: California, Massachusetts, New Jersey, Rhode Island, Vermont, and Washington, D.C.
Important Considerations for Employees When Deciding to Waive Coverage
Employers should advise their employees of the ramifications created when waiving employer-sponsored health coverage in 2022, before making an enrollment decision for the year.
If an employee has been made an offer of affordable Affordable Care Act (ACA) compliant health insurance coverage by his/her/their employer of any size, that employee is ineligible for premium assistance/Premium Tax Credits (PTCs) to help pay for coverage attained on a state exchange (Covered California, Nevada Health Link, etc.). Affordability for individuals on the exchange is based on Modified Adjusted Gross Income (MAGI), which is sometimes simply referred to as household income. Employees could be required to pay back a significant portion of monies advanced for payment of their premium on the individual exchange if they claim/receive (claimed/received) an advanced PTC for which they are/were not truly eligible.
Of course, employees in California should also be made aware of the aforementioned California Individual Mandate.
Word & Brown has developed resources to help explain such details to employees in 2022, so they can make informed benefit decisions. Check out the Important Considerations for Employees Before Deciding to Waive Coverage:
- English – California, Nevada
- Spanish – California, Nevada
- Vietnamese – California
- Korean – California
- Chinese – California
Annual ACA IRS Reporting
January marks the beginning of the prime reporting season for employers considered Applicable Large Employers (ALEs) under the ACA in 2021. ALEs are required to comply with the ACA’s employer mandate, and, per the law, must offer all eligible Full Time (FT) employees at least Minimum Essential Coverage (MEC) that is affordable and meets a Minimum Value standard (a Bronze or better metal-tiered health plan). At a minimum, MEC must also be offered to those FT employees’ dependents.
ALEs in 2021 must now demonstrate their offers of coverage, in accordance with the mandate, to the Internal Revenue Service (IRS) using IRS Forms 1094-C and 1095-C in 2022. Health insurance carriers are also required to file similar IRS Forms 1095-B with the IRS, which demonstrate the coverage held by a person for the year.
Most employees who worked for an ALE in 2021 will be receiving at least two IRS Forms 1095 – one from their employer and another from their insurance carrier. Others who worked for multiple ALEs in 2021 will likely receive more forms. Employees who worked for a small, non-ALE in 2021 will receive at least one IRS Form 1095 from their health insurance carrier.
Employees should be advised that these forthcoming IRS Forms 1095 are for informational purposes; they do not need to be filed with the employees’ tax returns. The carriers’ Form 1095-B informs the recipient whether a person and his or her family members held MEC for the year, to help them complete their tax returns. The ALE’s Form 1095-C helps an employee who enrolled in individual coverage on the federal or state Exchanges (e.g., Covered California, Nevada Health Link, etc.) to determine eligibility for a Premium Tax Credit (PTC).
Word & Brown has created a reference that explains what the varying IRS Forms 1095 are and what to do with them, in languages employees can easily understand. Employees will find information on the forms, who they are sent to, who they are sent by, when they are sent, and what to do with the forms. Check out the references in: English, Spanish, Vietnamese, Korean, and Chinese.
Employers considered ALEs in 2021 have until March 2, 2022, to release completed copies of IRS Forms 1095 to employees. They must also submit copies of the forms to the IRS by February 28, 2022, if submitting by paper, or March 31, 2022, if submitting electronically. Check out this reference to get a clearer look at these deadlines and responsibilities for ALEs, and more information on employer reporting penalties. Please also revisit our previous column for more details on employers’ additional ACA responsibilities in January 2022: Annual New Year Compliance Responsibilities for Employers.