1 | A Su m m a r y of C h a nges f or t h e 2016 For ms 1094- C , 1095- C a n d R e l a t e d I ns t ruc t ions

On October 3, 2016, the IRS released the Final 2016 Instructions for Forms 1094-C and 1095-C, as well as the 2016 Forms 1094-C and 1095-C. These instructions and forms are relevant for Applicable Large Employers (ALEs) with 50 or more full-time employees, including equivalents, for 2016 (determined using 2015 employee counts). Employers must report information about offers of health coverage and enrollment in health coverage for their employees in order to comply with the Employer Shared Responsibility Reporting.

Note that the IRS previously finalized the 2016 Instructions for Forms 1094-B and 1095-B, and related 2016 Form 1094-B and 2016 Form 1095-B, which are used by small employers (fewer than 50 full-time employees, including equivalents) who sponsor self-insured coverage (including level-funding).

Overall, the IRS made attempts to simplify the 2016 instructions and forms (compared to the 2015 versions) and included a wide range of specific examples in the new final instructions. In particular, the 2016 instructions include new “tips” sections, additional examples, and specifically clarify that Line 14 may never be left blank. The instructions clarify when to issue a 1095-B (for a small, self-insured employer) versus issuing a 1095-C (for ALEs).

Due DatesGiven the nature of these forms and instructions and the complex topic of Employer Shared Responsibility Reporting, we were hopeful that the IRS would take this opportunity to grant an extension for filing for 2016, as they did for 2015 last year. Unfortunately, no broad extension was provided. Thus, absent future relief, the filing and distribution deadlines will revert to the original filing deadlines, which are as follows:

Furnishing Forms 1095-C to Employees: January 31, 2017 (same as Form W-2 deadline) Filing Form 1094-C and 1095-C to the IRS: February 28, 2017 (if filing on paper) or March 31, 2017 (if filing electronically)

As a reminder, employers filing 250 or more information returns are required to file electronically, unless a waiver is requested by submitting Form 8508 in advance of the due date of the return. A failure to file electronically when required to do so may subject an employer to a penalty of $260 per return unless reasonable cause is established.

Are extensions available?ALEs may be granted an automatic 30-day extension of time to file with the IRS by completing Form 8809 and filing this request on or before the due date of the returns (see page 3 of the Instructions). ALEs who request this extension will have a deadline of March 30, 2017 (if filing on paper) or May 1, 2017 (if filing electronically, since April 30, 2017 is a Sunday). Last year, this extension request was not necessary, as Notice 2016-4 provided for a broad extension for all filers.

A separate 30-day extension is available if employers need additional time to furnish statements to employees (pushing that deadline to March 2, 2017), but the process is different and is explained on page 6 of the Instructions.

These deadlines will certainly put pressure on employers and vendors who are now within the home stretch of getting the filings completed by the deadlines reflected above.

Frost Insurance Client Compliance Tip: A Summary of Changes for the 2016 Forms 1094-C, 1095-C and Related Instructions

o c t o b e r 1 1 , 2 0 1 6

2 | A Su m m a r y of C h a nges f or t h e 2016 For ms 1094- C , 1095- C a n d R e l a t e d I ns t ruc t ions

Overview of changesThe final forms and instructions appear to have no substantial changes from the draft forms and instructions that were released earlier this year. However, some changes are worth pointing out.

u Page 2–the IRS provided clarification that former employees who terminated employment in the previous year and are on COBRA for a self-insured plan could be reported on either Form 1094-B/1095-B or Part III, Form 1095-C.

u Pages 2 and 4–the IRS provided clarification that substitute 1095-C statements to taxpayers may be in portrait format, but substitute statements to the IRS must be in landscape format.

u Page 5–explains that the void box (above the corrected box) on Form 1095-C should not be used.u Page 9–clarifies that for Part III of Form 1094-C, column (b), an employee should be counted as a full-time employee

for the purposes of the column if the employee satisfies the definition of a full-time employee under the monthly measurement period or the look-back measurement period. Previous versions of the instructions did not clarify whether the look-back measurement period could be used for determining the full-time employee count, so this was welcomed clarification.

u Page 10–“Plan Start Month” continues to be optional in 2016, but the IRS anticipates making this field mandatory in 2017.

u Page 10–multiemployer interim relief is still available for employers who are required to contribute to the cost of a multiemployer plan on behalf of an employee due to a collective bargaining agreement. The employer would enter 1H on Line 14 of the Form 1095-C with 2E on Line 16 regardless of whether the employee was actually eligible to enroll or enrolled in the multiemployer plan.

u Page 11–the reporting of COBRA coverage remains unchanged. If an employee has terminated employment, COBRA is not considered an offer of coverage for Form 1095-C, Line 14 purposes (Code 1H, No Offer of Coverage) and Code 2A (Employee not employed during the month) on Line 16. However, if an employee is still employed, but no longer eligible for coverage (e.g., a part-time employee who has lost eligibility according to the terms of the plan), COBRA would be reported as an offer of coverage on Line 14. A new example illustrates the application of COBRA coverage.

u Page 12–includes a note to clarify that Code 1G should only be used for “All 12 Months” or not at all. If Code 1G is inserted on Line 14 for “All 12 Months,” neither Lines 15 nor 16 should be completed.

u Page 13–includes a note to clarify that none of the affordability safe harbor codes (2F, 2G or 2H) should be used for any month in which the employer failed to offer coverage to at least 95 percent of its full-time employees and their dependents.

u Page 14–government entities and churches may continue to apply a reasonable good faith interpretation of employer aggregation rules.

As proposed in the draft version of the 2016 Instructions, Code 1I has been removed as an option from Line 14. Similarly, Code 2I for Line 16 (“Non-calendar year transition relief”) was removed and is now reserved. That means small employers with 50 to 99 full-time equivalent employees and a non-calendar year plan will now need to complete Lines 14 through 16 with whatever offer was made or not made– the transition relief would be claimed on Form 1094-C, Line 22.

The 2016 Form 1095-C has two new codes on the Form 1095-C, Line 14 which were first introduced in the draft instructions, and remain in the finalized instructions and forms. They are 1J and 1K and apply to an employer who makes an offer of coverage to spouses which is subject to one or more reasonable conditions. An example would be an employer who allows enrollment of spouses only if the spouse is not eligible for other coverage, such as Medicare or other employer sponsored coverage. (Note- due to Medicare Secondary Payer Regulations, which prohibit an employer from taking into account an employee’s or spouse’s eligibility for Medicare, it is recommended that an employer with a conditional offer only consider other employer sponsored coverage unless the employer has fewer than 20 employees.) The difference between 1J and 1K is that 1J would be used by employers who do not offer coverage to dependent children.

3 | A Su m m a r y of C h a nges f or t h e 2016 For ms 1094- C , 1095- C a n d R e l a t e d I ns t ruc t ions

The instructions also clarify the reporting of post-employment coverage other than COBRA (e.g., retiree coverage). Such coverage should not be reported as an offer of coverage on Line 14. An employee who has terminated employment and who is eligible for retiree coverage would have 1H (No Offer of Coverage) reported on Line 14 with 2A (Employee not employed during the month) reported on Line 16 of the Form 1095-C.

Who does this requirement apply to?As a reminder, the ACA requires employers (including self-insured, fully insured and uninsured) with 50 or more full-time equivalent employees to file Forms 1094-C and 1095-C with the IRS and to provide statements to employees to comply with IRC Section 6056 (meant to help the IRS enforce the employer mandate). Specifically, large fully insured employers will need to complete and submit Forms 1094-C and 1095-C (Parts I and II). Large self-insured employers subject to both Sections 6055 and 6056 may combine reporting obligations by using Form 1094-C and completing all sections of Form 1095-C (Parts I, II and III). Small self-insured employers would need to file Forms 1094-B and 1095-B. Note, employers with grandfathered plans must comply with the reporting requirements as well.

Does the good faith effort still apply?No.Unfortunately,theIRSonlyprovidedtemporaryrelief(throughNotice2016-4)andemphasizedthatemployerswouldqualifyforrelieffromthepenaltiesundersections6721and6722aslongastheymadea“goodfaitheffort”tocomplywiththereportingrequirements,eveniftheyfurnishedandfiledincorrectorincompleteinformationsuchasdatesofbirth,andTaxpayerIdentificationNumbers.However,thiswasreliefwasonlyavailableforthe2015reportingyear.TheIRShasnotextendedthissamereliefforthe2016reportingyear.Thus,accuracywillbeofutmostimportancefor2016reporting.

Will taxpayers have to attach to their tax returns?TherehadbeensomespeculationthattaxpayerswouldberequiredtosubmitacopyoftheForm1095-Cwiththeirindividualfederalincometaxreturns.Thisquestionwasansweredwithacaptiononthe2016Form1095-Cthatstates:“Do not attach to your tax return. Keep for your records.”Basedonthat,taxpayersmayusetheinformationfromtheformtocompleteandfiletheirreturns,butwillnotberequiredtoattachacopyoftheform.

Employer Type 6055 6056 IRS Report Employee Statement

Small Fully Insured No No N/A N/A

Small Self-insured Yes No Form 1094-B Copy of Form 1095-B or Form 1095-B Substitute Large Fully Insured No Yes Form 1094-C Copy of Form 1095-C or Form 1095-C Substitute Parts I & II Only Large Self-insured Yes Yes Form 1094-C Copy of Form 1095-C or Form 1095-C Substitute Parts I, II & III

4 | A Su m m a r y of C h a nges f or t h e 2016 For ms 1094- C , 1095- C a n d R e l a t e d I ns t ruc t ions

Contact with questionsMostemployershaveretainedvendorstoassistwiththisfilingrequirement,andthoseemployersshouldexpecttohearmoreinformationfromvendorsasfinalpreparationscanbeginfortheupcomingfilingseasonnowthattheseformsandinstructionshavebeenreleased.Employerswhodonothaveavendortoassistwiththisreportingoremployerswithquestionsrelatingtotheissuanceofthefinal2016instructionsandrelatedformsshouldfeelfreetocontactyourdedicatedFrostInsuranceadvisororcallusat(866)227-2099forquestionsaboutthisrequirement.

Helpful Links:

InstructionstoForm1094-Cand1095-C:https://www.irs.gov/pub/irs-pdf/i109495c.pdf

2016Form1094-C:https://www.irs.gov/pub/irs-prior/f1094c--2016.pdf

2016Form1095-C:https://www.irs.gov/pub/irs-prior/f1095c--2016.pdf

InstructionstoForm1094-Band1095-B:https://www.irs.gov/pub/irs-pdf/i109495b.pdf

2016Form1094-B:https://www.irs.gov/pub/irs-pdf/f1094b.pdf

2016Form1095-B:https://www.irs.gov/pub/irs-pdf/f1095b.pdf

Our advisors are skilled in assisting clients on how to meet compliance with federal and state health and welfare requirements. If you are interested in learning more about the compliance services offered by the Frost Insurance Employee Benefits practice, give us a call. We’d love to earn your business.

www.frostinsurance.com(866)227-2099

Please note that the above “Tip” is provided to you at no cost as it is for informational purposes only. This “Tip” cannot replace the professional advice of your legal or tax counsel whom you must consult regarding your specific situation.

IRS CIRCULAR 230 DISCLOSURE:A U.S. Treasury regulation requires us to inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to any party, who is not the original and intended recipient of this communication, any transaction or matter addressed herein.