Starting next year, as part of health care reform, the IRS will require anyone who has health insurance to provide the Social Security numbers of any dependents covered on their plan. As a result, insurance companies and many employers have been tasked with collecting that information.
“Typically, insurance carriers only require employees’ Social Security numbers, not those of spouses or dependent children,” says Veronica Hawkins, Medical Mutual Vice President, Government Accounts. “However, the IRS will need that information to verify that everyone in the U.S. is covered.”
Smart Business spoke with Hawkins about what the IRS reporting requirements involve, how employers can make sure they comply with the new rules, and how to help their employees avoid costly fines for not supplying the required information in a timely manner.
What are the new reporting requirements?
As part of the Affordable Care Act (ACA), the IRS added Sections 6055 and 6056 to the Internal Revenue Code. In early 2016, employers or their insurance carrier will need to collect and report a wide range of employee information to the IRS. That includes Social Security numbers for dependents of all covered employees.
The purpose is to help the federal government enforce the ACA provision that says everyone in the U.S. has to have health insurance — or qualify for an exemption. In addition, it makes sure certain employers can prove they provide ‘minimum essential coverage’ for their employees and dependents.
What do organizations have to do?
It depends. The funding structure of the organization’s health plan — whether it’s fully insured or self-funded — is the first thing to consider. Self-funded employers, which pay their own claims, are responsible for reporting everything to the IRS.
The next thing to consider is pay or play. Pay or play is a rule under the ACA that applies to employers with 50 or more full-time employees, including equivalents. When the rule applies, there are reporting requirements for both employers and their carrier. When it doesn’t, employers can rely on their insurance carrier to handle everything if they are fully insured.
However, it’s important to know that insurance companies are required by law to reach out directly to any fully insured members who are missing Social Security numbers. So it’s in the employer’s best interest to work with the carrier ahead of time.
Are there penalties involved?
Self-funded employers are subject to penalties for not submitting forms correctly. The penalties range from $100 to $250 per instance, depending on whether the IRS believes a mistake or omission was intentional. However, for 2016, the IRS has said it will not penalize those employers if they can show they made a ‘good faith effort’ to comply with the rules.
Again, fully insured employers are different. The penalties are limited because the requirements can fall on them or their insurance company. But regardless of funding, there can be consequences for employees as well, if the IRS is missing a Social Security number for them or a dependent.
Instead of a fine, those employees could see money come out of their next year’s tax return. The actual amount would vary based on the type of information that’s missing, and the year in which the violation took place.
How can organizations prepare?
There are a few things organizations should do. Those with fully insured plans should work with their insurance carrier and prepare to file their own pay-or-play reporting. Medical Mutual, for example, is reaching out to employers to collect information and minimize impact on employees.
Organizations with self-funded plans should be familiarizing themselves with the IRS forms and instructions. They need to understand what information they are missing and make sure it’s collected and submitted correctly.
It may also be a good idea to consult with a tax adviser or legal counsel.
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