Question: When can an employer use the “Qualifying Offer Method” or “98% Offer Method” for streamlined ACA reporting, and what are the advantages?
Compliance Team Response:
There are two streamlined ACA reporting methods available for employers that qualify:
- Qualifying Offer Method
Requirements to Utilize
Employers must meet two requirements to utilize the Qualifying Offer Method:
- The employer offers minimum essential coverage (any major medical coverage) that meets the federal poverty line affordability safe harbor for mainland U.S.; and
- The employer’s offer of minimum essential coverage includes an offer to the employee’s spouse and children to age 26.
- In order to meet the federal poverty line affordability safe harbor, the employee-share of the premium for the lowest cost plan option (which provides minimum value) at the employee-only coverage tier cannot exceed 9.56% (2018) or 9.86% (2019) of the continental U.S. federal poverty line for a single individual that is in effect within six months before the first day of the plan year, divided by 12.
The 2018 federal poverty line for a single individual in the continental U.S. is $12,140. Accordingly, the federal poverty line affordability safe harbor applies where the lowest possible monthly employee contribution for the major medical plan (that provides minimum value) does not exceed $96.08 (2018) or $99.75 (2019).
Under the Qualifying Offer Method, the employer does not complete Line 15 of the full-time employee’s Form 1095-C. This streamlined reporting option is available because the monthly employee-share of the premium for the lowest cost plan at the employee-only tier is not relevant for B Penalty purposes where coverage is deemed affordable for all employees under the federal poverty line affordability safe harbor.
The employer must check the “Qualifying Offer Method” box in Line 22 (Box A) of the Form 1094-C to take advantage of this approach. For full-time employees who are offered coverage, the employer will list Code “1A” (qualifying offer) in Line 14 of the full-time employee’s Form 1095-C.
If the employee waives coverage, the employer generally will enter Code “2G” (federal poverty line affordability safe harbor) in Line 16 to confirm that no B Penalty could apply for the full-time employee. The Forms 1094-C and 1095-C Instructions state the employer “may, but is not required to, enter an applicable code on line 16 for any month for which code 1A is entered on line 14,” generally recognizing that the qualifying offer code in Line 14 already embeds the federal poverty line affordability report that is redundant in Line 16.
Employees who enroll in the offer of coverage will generally have Code “2C” (enrolled in offer of health coverage) because the enrolled code takes precedence over the affordability safe harbor codes for Line 16.
Action Item: Employers that meet the federal poverty line affordability safe harbor should take advantage of the Qualifying Offer Method for streamlined ACA reporting via Forms 1094-C and 1095-C.
(Note that the Qualifying Offer Method also permits ALEs to provide a substitute form—in place of the standard Form 1095—to full-time employees who received a qualifying offer for all 12 months of the calendar year and were not enrolled in self-insured coverage. We generally do not recommend this substitute form approach because the employer is still required to provide the standard Form 1095-C to the IRS.)
2. 98% Offer Method
Requirements to Utilize
Employers must meet two requirements to utilize the 98% Offer Method:
- For all months during which individuals were employees and not in a limited non-assessment period, the employer offered affordable minimum essential coverage that provided minimum value to at least 98% of its employees for whom it files a Form 1095-C; and
- Such offers of minimum essential coverage included an offer to those employees’ children to age 26.
Employers utilizing the 98% Offer Method are not required to complete the full-time employee count section of the Form 1094-C, Part III (Column (b)). That section reports the number of full-time employees for each month in the calendar year. The employer is still required to complete a Form 1095-C for each full-time employee.
Generally Not Recommended
We generally do not recommend utilizing the 98% Offer Method because there are many situations where a small handful of full-time employees (e.g., interns, temps, contingent workforce) may not be offered coverage for a number of reasons, and the benefit of the 98% offer method is so minimal that there is almost no reason to take the risk of having incorrectly completed the Form 1094-C.
If the company is very confident that all full-time employees were offered coverage (including interns, temps, contingent workforce, etc.), then it would not hurt to select the 98% Offer Method. However, the employer should be aware that this method provides only a very minimal streamlined reporting advantage.
For More Information:
- ABD Compliance Alert: 2018 ACA Reporting Deadline Extended by 30 Days (Again)
- ABD Compliance Alert: ACA Affordability for Employers
- ABD Compliance FAST: Becoming an ALE Subject to the ACA Employer Mandate
IRS Forms 1094-C and 1095-C Instructions:
A Qualifying Offer is an offer of MEC providing minimum value to one or more full-time employees for all calendar months during the calendar year for which the employee was a full-time employee for whom a section 4980H assessable payment could apply, with an Employee Required Contribution for each month not exceeding 9.5 % (as adjusted) of the mainland single federal poverty line divided by 12, provided that the offer includes an offer of MEC to the employee’s spouse and dependents (if any).
A. Qualifying Offer Method.
Check this box if the ALE Member is eligible to use and is using the Qualifying Offer Method to report the information on Form 1095-C for one or more full-time employees. Under the Qualifying Offer Method there is an alternative method of completing Form 1095-C and an alternative method for furnishing Form 1095-C to certain employees. If the ALE Member is using either of these alternative rules, check this box. To be eligible to use the Qualifying Offer Method, the ALE Member must certify that it made a Qualifying Offer to one or more of its full-time employees for all months during the year in which the employee was a full-time employee for whom an employer shared responsibility payment could apply. Additional requirements described below must be met to be eligible to use the alternative method for furnishing Form 1095-C to employees under the Qualifying Offer Method.
Alternative method of completing Form 1095-C under the Qualifying Offer Method. If the ALE Member reports using this method, it must not complete Form 1095-C, Part II, line 15, for any month for which a Qualifying Offer is made. Instead, it must enter the Qualifying Offer code 1A on Form 1095-C, line 14, for any month for which the employee received a Qualifying Offer (or in the all 12 months box if the employee received a Qualifying Offer for all 12 months), and must leave line 15 blank for any month for which code 1A is entered on line 14. The ALE Member may, but is not required to, enter an applicable code on line 16 for any month for which code 1A is entered on line 14; a Qualifying Offer is, by definition, treated as an offer that falls within an affordability safe harbor even if no code is entered on line 16.
An ALE Member is not required to use the Qualifying Offer Method even if it is eligible, and instead may enter on line 14 the applicable offer code and then enter on line 15 the Employee Required Contribution.
If the ALE Member is eligible to use the Qualifying Offer Method, it may report on Form 1095-C by entering the Qualifying Offer code 1A on Form 1095-C, line 14, for any month for which it made a Qualifying Offer to an employee, even if the employee did not receive a Qualifying Offer for all 12 calendar months. However, if an employee receives a Qualifying Offer for less than all 12 months, the ALE Member must furnish a copy of Form 1095-C to the employee (rather than using the alternative method of furnishing Form 1095-C described below).
- 98% Offer Method.
Check this box if the employer is eligible for and is using the 98% Offer Method. To be eligible to use the 98% Offer Method, an employer must certify that, taking into account all months during which the individuals were employees of the ALE Member and were not in a Limited Non-Assessment Period, the ALE Member offered affordable health coverage providing minimum value to at least 98% of its employees for whom it is filing a Form 1095-C employee statement, and offered minimum essential coverage to those employees’ dependents. The ALE member is not required to identify which of the employees for whom it is filing were full-time employees, but the ALE Member is still required, under the general reporting rules, to file Forms 1095-C on behalf of all its full-time employees who were full-time employees for one or more months of the calendar year. To ensure compliance with the general reporting rules, an ALE Member should confirm for any employee for whom it fails to file a Form 1095-C that the employee was not a full-time employee for any month of the calendar year. (For this purpose, the health coverage is affordable if the ALE Member meets one of the section 4980H affordability safe harbors.)
If an ALE member uses the 98% offer method, it is not required to complete the “Section 4980H Full-Time Employee Count for ALE Member” in Part III, column (b).
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).