Obamacare tax forms: Treasury Department gives large employers two-month reprieve

Heidi Savage’s clients felt like they received an extra Christmas gift last week when the Treasury Department said large employers would have an extra couple of months to complete and file a series of complex tax forms under Obamacare.

Mrs. Savage, a human resources and benefits consultant in Detroit, said that is good news for companies she advises that have been scrambling to meet rules under the Affordable Care Act that require them to report which employees their insurance plans cover.

“I had immediate, happy responses. Now my challenge is to convince them not to rest on their laurels,” Mrs. Savage said.

The reprieve, which the Treasury Department announced Dec. 28, gives companies until March 31 — two months longer than anticipated — to report to their employees, and until June to report that information to the IRS.

The announcement served as a curtain raiser for yet another pivotal year for President Obama’s health care overhaul, which he is eager to set on firmer footing before he leaves office in early 2017.

The reporting requirement is a key part of the law’s “employer mandate,” which demands that companies with at least 50 full-time staff members offer their employees health insurance or pay a penalty to the government for failing to do so.

Although most Americans faced the “individual mandate” tax penalty beginning in 2014, the administration delayed full enforcement of the employer mandate for a couple of years.

Having both in place is supposed to help the IRS vet both businesses and employees and try to spot those attempting to cheat the system or duck their obligations under the law.

But the delay means the IRS may not have companies’ reports in hand until the middle of the year, well after most taxpayers have filed their forms and received refunds, raising the possibility of some attempting to game the system.

Taxpayer subsidies for exchange plans are supposed to be available only to those who don’t have other options, such as a job-based plan or a government-run program like Medicaid.

“I think the bigger threat is to the government than individuals,” said Caroline Pearson, senior vice president at Avalere Health, a consultancy based in the District of Columbia.

The Treasury said it delayed the reporting rules after the business community said it needs more time to compile the information and that the requirements are overwhelming human resources departments.

Many are leaning on outside vendors that have launched products to help with Obamacare compliance. But the vendors have been inundated with requests for assistance, said Katie Mahoney, executive director for health policy at the U.S. Chamber of Commerce.

“We’re heard from many, many companies that the time frame between when the rules were finalized, when the forms were finalized and when the files had to be submitted were extremely onerous and very, very troubling in terms of compliance,” she said.

Companies have never grappled with this type of reporting before, and by many accounts the process is painstaking. The IRS says part-timers and certain seasonal workers sometimes add up to full-time employees, so companies with roughly 50 employees must compute whether they are subject to the rules.

“A lot of times, they just want to wash their hands of it,” said Aaron Johnson, president of Automatic Payroll Systems in Shreveport, Louisiana, which is helping thousands of clients comply with the rules.

For companies that must report to the IRS, his company created systems that trigger alarm bells if employees with variable hours approach 30 hours in a given week. It also offered stand-alone software to help firms comply with the health care coverage rules without completely overhauling their workforce systems.

“We have customers signing up for that service every day across the country,” Mr. Johnson said.

The IRS said its decision to give employers extra time shouldn’t affect most taxpayers because the record doesn’t have to be attached to their returns.

For the 2015 tax year, with returns due in 2016, filers who might have relied on the forms as proof of coverage, or to establish their eligibility for exchange subsidies, can instead rely on insurance cards, an explanation of benefits, or W-2 and payroll statements, the Treasury said. Filers will not have to amend their returns once they receive the official forms.

“Should the IRS later contact a taxpayer because of discrepancy between the taxpayer’s income tax return and an information return filed with the IRS, the taxpayer can use the documentation to show he or she reasonably relied on the information that was available at the time of the filing of the return,” it said in an agency statement.

The IRS should be able to catch up with employers that didn’t offer adequate coverage, yet policy analysts said the agency won’t have a critical tool for verifying whether a person owed an individual mandate penalty until refunds have gone out the door.

Similar to 2014, “it does mean you could have people getting subsidies that weren’t eligible,” Ms. Pearson said.

The analysts said the IRS can rely on other compliance tools until the 1095 forms are ready, such as credit reporting from Equifax and W-2 forms that provide paper trails of health care coverage.

Also, the administration has noted that filers who lie on their returns are subject to perjury charges.