Proposed IRS Regulations Would Expand Mandatory Electronic Filing of Information Returns
The Internal Revenue Service (IRS) has released proposed regulations that would significantly expand mandatory electronic filing of most information returns.
As background, filers required to file 250 or more information returns during a single calendar year must file electronically, but, under current regulations, the 250-return threshold applies separately to each type of information return. For example, if an employer files 200 of Form W-2 and 100 of Form 1095-C during 2018, the employer is not required to file either form electronically since, considered separately, neither form crosses the 250-return threshold.
The proposed regulations would require aggregation of most information returns when calculating the 250-return threshold, removing the rule that counts the number of information returns separately by form type. Forms that would have to be aggregated include Form 1095-B and 1095-C, forms in the 1099 series and Form W-2. In addition, if information returns would have to be filed electronically under the proposed aggregation rule, then any corrected returns would also have to be filed electronically, even if fewer than 250 corrected forms are filed during the calendar year (however, corrected returns are not added to original returns when calculating the 250-return threshold). The preamble states that significant advances in technology have made electronic filing more prevalent and accessible, noting that approximately 98 percent of information returns were filed electronically in recent tax years. Thus, although a substantial number of small entities would be affected by the proposed change, the IRS determined that the economic impact would not be significant given the current prevalence of electronic filing. The IRS also points out that its waiver process, under which it waives mandatory electronic filing for filers lacking access to electronic filing at a reasonable cost, would continue to be available. The proposed regulations would be effective for information returns required to be filed, and to corrected returns filed, after Dec. 31, 2018.
The IRS has encouraged electronic filing of information returns for years. In fact, the IRS floated the aggregation rule in 2013 in its proposed regulations for 6055 and 6056 reporting under the Affordable Care Act (ACA), but ended up adopting the non-aggregation rule in the final regulations. Now, the IRS seems to be shifting from encouragement to compulsion. If finalized, the aggregation rule is likely to mean that only the smallest applicable large employers may continue to file Form 1095-C on paper. The proposed rule would also apply to Form 1099-R issued by 401(k) and other qualified retirement plans.
ACA Affordability Percentages Will Increase for 2019
On May 21, 2018, the IRS issued Revenue Procedure 2018-34 to index the contribution percentages in 2019 for purposes of determining affordability of an employer’s plan under the ACA. For plan years beginning in 2019, employer-sponsored coverage will be considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.86 percent of the employee’s household income for the year, for purposes of both the pay or play rules and premium tax credit eligibility.
These updated affordability percentages are effective for taxable and plan years beginning Jan. 1, 2019. This is a significant increase from the affordability contribution percentages for 2018. As a result, some employers may have additional flexibility with respect to their employee contributions for 2019 to meet the adjusted percentage.
On May 30, 2018, New Jersey Gov. Phil Murphy signed two bills into law that are designed to stabilize and reduce health insurance premiums in the individual market.
- The New Jersey Health Insurance Market Preservation Act is a state individual mandate requiring individuals in New Jersey to maintain acceptable health coverage or pay a penalty, effective in 2019.
- The New Jersey Health Insurance Premium Security Act establishes a health insurance reinsurance plan in the state. New Jersey intends to seek federal funding for this program through a Section 1332 State Innovation Waiver made available under the ACA.
The New Jersey Health Insurance Market Preservation Act imposes a state individual mandate that largely mirrors the ACA’s federal individual mandate requirement. The ACA’s individual mandate penalty has been effectively eliminated beginning in 2019.
New Jersey’s individual mandate requires most individuals in the state (and their family members) to be covered under minimum essential coverage for each month of the year, beginning in 2019. Individuals that don’t obtain acceptable health insurance coverage will be penalized.
Notably, the new law provides that the state individual mandate penalty will not be enforced for any tax year in which the ACA’s federal premium tax credits become unavailable. New Jersey’s individual mandate penalty is calculated in the same manner as the ACA’s individual mandate. The penalty is the greater of two amounts—the flat dollar amount ($695) or the percentage of income amount (2.5 percent of income). For purposes of calculating the penalty, income is the taxpayer’s household income minus any exemption (or exemptions, for a married couple) and standard deductions.
To help administer the individual mandate penalty, the New Jersey Health Insurance Market Preservation Act imposes a reporting requirement on every entity that provides Minimum Essential Coverage (MEC) to an individual during a calendar year, similar to the ACA’s reporting requirement under Internal Revenue Code Section 6055. This reporting requirement applies to:
- Employers or other sponsors of employment-based health plans, for employment-based MEC; and
- Carriers licensed or otherwise authorized to offer health coverage, for coverage they provide that is not described above.
These new laws are among the first state laws passed in response to changes made to the federal ACA. New Jersey is only the second state to enact its own health insurance individual mandate. Individuals in New Jersey should ensure that they are in compliance with the state individual mandate beginning in 2019.
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