The IRS has released the draft instructions for Form 1094-C and Form 1095-C. For the most part, they remain consistent with the 2015 instructions, with a few key clarifications and additions.

Aggregated ALE Group

The draft instructions reiterate that all ALE members that are part of an aggregated ALE group, generally meaning members of a controlled group, must file its own Form 1094-C and Form 1095-Cs. However, there will be no authoritative transmittal filed for an aggregated ALE group. An authoritative transmittal is filed, however, if an employer is filing only a single Form 1094-C or if an employer is filing multiple Form 1094-Cs as they relate to multiple operating divisions under that employer.

The draft instructions also provide a helpful example of how to code an individual who works for multiple members of an Aggregated ALE Group. The employee should only be identified as a full-time employee for the employer they worked the most hours for in a given month. For the employer in which the employee worked the most hours, they would claim that employee for the month and code appropriately based on the offer of coverage. For the employer for which the employee worked less hours in a given month, the employer would code them as 1H (no offer of coverage), leave line 15 blank, and enter code 2A (not an employee) on line 16 for that month.

Multiemployer Plan Relief Extended

The draft instructions for Form 1095-C extend the existing multiemployer plan relief for 2016. This means that employers qualifying for the relief, for instance ALEs with union employees, who rely on the offer of coverage from the union to fulfill their requirement under the Employer Mandate, won't need to obtain eligibility and offer of coverage information for those employees. The instructions indicate that this may change for 2017 and beyond.

Conditional Offers of Spousal Coverage

As indicated in the draft reports, the draft instructions detail the two new codes, codes 1J and 1K, for Form 1095-C, Part II, line 14 that will be used to indicate a conditional offer of coverage for spouses. An example of a conditional offer would be only offering coverage to the spouse if they aren't eligible for coverage under another group health plan. 1J is used if minimum essential coverage (MEC) providing minimum value (MV) is offered to the employee, MEC is conditionally offered to spouse, and MEC isn't offered to dependents. IK is used if MEC providing MV is offered to the employee, at least MEC is offered to dependents, and at least MEC is conditionally offered to spouse. 

COBRA and Retiree Coverage

The draft instructions also include clarification on how to report an employee in the month they terminate with an ALE member and that the ALE member is treated as having made an offer of coverage to the employee’s dependents for the entire plan year if the ALE member provided an employee an opportunity to enroll dependents in coverage at least once during the plan year, even if they didn't enroll in coverage, thus resulting in no offer of COBRA to those dependents.  

If an employee is terminated in the middle of the month and their coverage as an active employee terminates as of the date of termination from employment, code 2A would be used on line 16 as opposed to 2C, even if the individual elected COBRA. 

Employer Required Contribution Definition

The draft instructions point out that full-time employee determination for purposes of filing out Form 1095-C must be based on the definition under Code §4980H, meaning 130 hours of service a month (30 hours a week). Additionally, when indicating the cost of coverage on line 15, the instructions make it clear that it's important to take into account certain employer contributions that affect the overall affordability of the plan, such as HRA contributions and opt-out payments. 

Expired 2015 Transitional Relief

As anticipated, most of the transitional relief previously provided only applied to the 2015 calendar year. The draft instructions only include the transitional relief that continued to apply from 2015 into 2016 for qualifying non-calendar year plans. 

Next Steps

If employers currently offer a conditional offer of coverage to spouses, they should verify that they have the ability to track those offers and report that information accordingly. The draft instructions also stress the importance of making sure that employers are properly identifying their full time employees using either the look-back or monthly measurement method appropriately to ensure accurate reporting for 2016. As the instructions and reports are finalized, Assurance will provide finalized updates and scenarios.

Information contained herein is not intended to constitute tax or legal advice and should not be used for purposes of evading or avoiding otherwise applicable regulatory responsibilities as issued by the federal or state government(s) and/or taxes owed under the Internal Revenue Code. You are encouraged to seek advice from your legal or tax advisor based on your circumstances.