House Ways & Means Committee Issues Report on Employer Reporting Improvement Act

WASHINGTON, Aug. 9 -- The House Ways and Means Committee issued a report (H.Rpt. 118-111) on the Employer Reporting Improvement Act (H.R. 3801), which aims to amend the Internal Revenue Code of 1986 to streamline and improve the employer reporting process relating to health insurance coverage and to protect dependent privacy. The report was advanced by Rep. Jason Smith, R-Missouri, on June 13, 2023.

Here are excerpts:

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I. SUMMARY AND BACKGROUND

A. Purpose and Summary The bill, H.R. 3801, the "Employer Reporting Improvement Act," as ordered reported by the Committee on Ways and Means on June 7, 2023, to streamline health care reporting requirements.

B. Background and Need for Legislation

The Patient Protection and Affordable Care Act (ACA) required that employers must annually report health insurance coverage data to the IRS during the year-end tax filing season. This information is used to determine if an employee's health coverage offer is affordable. In 2023, employer sponsored coverage is considered affordable if an individual's share of the monthly premium in the lowest cost plan offered by the employer is less than 9.12% of your household income. If it is not affordable, employees may purchase an exchange plan and be eligible for premium tax credit.

During this reporting process, employers are required to submit tax identification (TIN) or Social Security numbers of the plan enrollee and a spouse or dependent who is enrolled in the health coverage. If an employer incorrectly submits this information, if they do not offer affordable coverage, or if the IRS believes that the employee is incorrectly claiming a premium tax credit, the employer may face financial penalties. Employers are restricted to a narrow penalty appeal window with no statute of limitations.

The Committee believes legislation is needed to give employees flexibility to report names and dates of birth for employee's spouses and dependents if the TIN or Social Security Number is inaccessible. The Committee also believes it is necessary to provide employers with relief by extending the appeal window for a potential penalty to 90 days and establishing a 6-year statute of limitations on assessing penalties.

C. Legislative History

Background

H.R. 3801 was introduced on June 5, 2023, and was referred to the Committee on Ways and Means.

Committee hearings

On Thursday, March 23, 2023, the Ways and Means Subcommittee on Health held hearing on "Why Health Care is Unaffordable: The Fallout of Democrats" Inflation on Patients and Small Businesses".

Committee action

The Committee on Ways and Means marked up H.R. 3801, the "Employer Reporting Improvement Act," on June 7, 2023, and ordered the bill, as amended, favorably reported (with a quorum being present).

D. Legislative History

Pursuant to clause 3(c)(6) of rule XIII, the following hearings were used to develop and consider H.R. 3801: (1) Committee on Ways and Means Subcommittee on Health "Why Health Care is Unaffordable: The Fallout of Democrats" Inflation on Patients and Small Businesses".

II. EXPLANATION OF THE BILL

A. TIN Reporting Flexibility (sec. 2 of the Bill and sec. 6055 of the Code)

PRESENT LAW

Under the Patient Protection and Affordable Care Act ("PPACA"),/1/ persons (including health insurance issuers and employers that self-insure) that provide minimum essential coverage/2/ to any individual during a calendar year ("reporting entities") must report certain health insurance coverage information to both the covered individual and to the Internal Revenue Service ("IRS")./3/

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/1/Pub. L. No. 111-148, March 23, 2010, as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, March 30, 2010.

/2/As defined in section 5000A.

/3/Sec. 6055.

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The information required to be reported includes: (1) the name, address, and taxpayer identification number ("TIN") of the primary insured, and the name and TIN of each other individual obtaining coverage under the policy; (2) the dates during which the individual was covered under the policy during the calendar year; (3) whether the coverage is a qualified health plan offered through an Exchange;/4/ (4) the amount of any premium tax credit or cost-sharing reduction received by the individual with respect to such coverage; and (5) such other information as the Secretary of the Treasury ("Secretary") may require.

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/4/An Exchange established under section 1311 of the PPACA.

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If health insurance coverage is provided through an employer-provided group health plan, the reporting entity is also required to report the name, address and employer identification number of the employer, the portion of the premium, if any, required to be paid by the employer, and any other information the Secretary may require to administer the tax credit for eligible small employers./5/

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/5/Under section 45R.

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The reporting entity is required to report the above information, along with the name, address and contact information of the reporting insurer, to the IRS on or before February 28 (March 31 if filing electronically) of the year following the calendar year to which the information relates./6/ The reporting entity is required to report the above information, along with the name, address and contact information of the reporting entity, to the covered individual on or before January 31 of the year following the calendar year for which the information is required to be reported to the IRS./7/ The IRS has generally designated Form 1094-B, Transmittal of Health Coverage Information Returns, and Form 1095-B, Health Coverage, for reporting entities to meet these requirements. However, an applicable large employer that offers coverage through a self-insured health plan generally reports this information using Part III of the Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, which is the form that is also used by applicable large employers for the separate requirement (described in part B of this document) of reporting offers of health insurance coverage for their employees./8/

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/6/Treas. Reg. sec. 1.6055-1(f)(1).

/7/Treas. Reg. sec. 1.6055-1(g)(4)(i).

/8/Treas. Reg. sec. 1.6055-1(f)(2).

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A reporting entity that fails to comply with these reporting requirements is subject to the penalties for failure to file an information return and failure to furnish payee statements, respectively./9/

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/9/Sec. 6724(d)(1)(B)(xxiv), (d)(2)(GG); Treas. Reg. sec. 1.6055-1(h).

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Under Treasury regulations,/10/ the IRS permits reporting entities to submit names and birthdates (instead of TINs) for both the primary insured and each other individual insured under the same policy if the reporting entity is unable to collect such individuals' TINs through "reasonable efforts."/11/ Reasonable efforts generally include three solicitations (one initial and two annual solicitations during the two years following enrollment) to collect the individual's TIN./12/

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/10/Treas. Reg. sec. 1.6055-1(e)(ii), (iii).

/11/See T.D. 9660, 79 Fed. Reg. 13220, March 10, 2014.

/12/Ibid.

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REASONS FOR CHANGE

The Committee believes that the Treasury regulations permitting reporting entities to submit names and dates of birth when reporting information about minimum essential coverage, if the reporting entity is unable to collect covered individuals' TINs, has reduced burdens and provided certainty for reporting entities.

EXPLANATION OF PROVISION

Under the provision, the Secretary may allow for any covered individual's full name and date of birth to be substituted for the individual's name and TIN if the reporting entity is unable to collect information on the TIN of such individual. The provision thus generally codifies the current Treasury regulations permitting this practice.

EFFECTIVE DATE

The provision is effective for returns for which the due date is after December 31, 2024.

B. Electronic Statements (sec. 3 of the Bill and secs. 6055 and 6056 of the Code)

PRESENT LAW

For a description of the reporting requirements generally applicable to persons that provide minimum essential coverage, see part A of this document.

Employer shared responsibility for health coverage

In general

An applicable large employer may be subject to a tax, referred to as the employer-shared responsibility payment ("ESRP") for a month if one or more of its full-time employees is certified to the employer as receiving for the month a premium tax credit ("PTC") for health insurance purchased on an Exchange or reduced cost-sharing for the employee's share of expenses covered by such health insurance./13/ Whether an applicable large employer owes an ESRP and the amount of any penalty depend on whether the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under a group health plan sponsored by the employer and, if the employer offers such a group health plan, whether the coverage offered is affordable and provides minimum value.

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/13/Sec. 4980H. PTCs for health insurance purchased on an Exchange are provided under section 36B. Reduced cost-sharing for an individual's share of expenses covered by such health insurance is provided under section 1402 of PPACA.

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Definition of applicable large employer

"Applicable large employer" generally means, with respect to a calendar year, an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year./14/ In addition, in determining whether an employer is an applicable large employer, members of the same controlled group, group under common control, and affiliated service group are treated as a single employer./15/

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/14/Sec. 4980H(c)(2). Additional rules apply, for example, in the case of an employer that was not in existence for the entire preceding calendar year. Ibid.

/15/The rules for determining controlled group, group under common control, and affiliated service group under section 414(b), (c), (m) and (o) apply.

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Employer shared responsibility payments

If an applicable large employer does not offer its full-time employees and their dependents minimum essential coverage under an employer-sponsored plan and at least one full-time employee is certified as benefiting from PTCs or reduced cost-sharing, the employer may be subject to an ESRP of $2,880 (for 2023)/16/ (divided by 12 and applied on a monthly basis) multiplied by the number of its full-time employees minus 30, regardless of the number of full-time employees so certified.

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/16/Sec. 4980H(a), (c). Pursuant to Notice 2015-87, the IRS publishes annual updates to these values at https://www.irs.gov/ affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act.

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Generally, an employee who is offered minimum essential coverage under an employer-sponsored plan is not eligible for a PTC or reduced cost-sharing unless the coverage is unaffordable or fails to provide minimum value./17/ However, if an employer offers its full-time employees and their dependents minimum essential coverage under an employer-sponsored plan but at least one full-time employee is certified as being allowed PTC or reduced cost-sharing (because the coverage is unaffordable or fails to provide minimum value), the employer may be subject to an ESRP of $4,320 (for 2023) (divided by 12 and applied on a monthly basis) multiplied by the number of such full-time employees. The ESRP in this case is capped at the amount that would apply if the employer failed to offer its full-time employees and their dependents minimum essential coverage./18/

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/17/Under section 36B(c)(2)(C), coverage under an employer-sponsored plan is unaffordable if the employee's share of the premium for self-only coverage exceeds 9.12 percent (for 2023) of household income (this percentage is updated as needed to reflect cost-of-living changes, see Rev. Proc. 2022-34, 2022-33 I.R.B. 143), and the coverage fails to provide minimum value if the plan's share of total allowed cost of provided benefits is less than 60 percent of such costs.

/18/Sec. 4980H(b).

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Employer reporting of offers of health insurance coverage

Each applicable large employer subject to the ESRP must report certain health insurance coverage information to both its full-time employees and to the IRS./19/

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/19/Sec. 6056.

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The information required to be reported includes: (1) the name, address and employer identification number of the employer; (2) a certification as to whether the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; (3) the number of full-time employees of the employer for each month during the calendar year; (4) the name, address and TIN of each full-time employee employed by the employer during the calendar year and the number of months, if any, during which the employee (and any dependents) was covered under a plan sponsored by the employer during the calendar year; and (5) such other information as the Secretary may require.

Applicable large employers that offer employees and dependents the opportunity to enroll in minimum essential coverage also must report: (1) the length of any waiting period with respect to such coverage; (2) the months during the calendar year during which the coverage was available; (3) the monthly premium for the lowest cost option in each of the enrollment categories under the plan; and (4) the employer's share of the total allowed costs of benefits under the plan.

The employer is required to file the return and transmittal to the IRS on or before February 28 (March 31 if filing electronically) of the year succeeding the calendar year to which it relates./20/ The employer is required to report to each full-time employee the above information required to be reported with respect to that employee, along with the name, address and contact information of the reporting employer, on or before January 31 of the year following the calendar year for which the information is required to be reported to the IRS./21/ The IRS generally has designated Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, for employers to meet these requirements.

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/20/Treas. Reg. sec. 301.6056-1(e).

/21/Employers have an automatic extension of 30 days after January 31 to furnish this information to individuals. Treas. Reg. sec. 301.6056 1(g)(1).

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An employer that fails to comply with these reporting requirements is subject to the penalties for failure to file an information return and failure to furnish payee statements, respectively./22/

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/22/Sec. 6724(d)(1)(B)(xxv), (d)(2)(HH); Treas. Reg. sec. 301.6056-1(i).

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Electronic furnishing of statements

Provided certain conditions are met, the IRS allows both applicable large employers fulfilling reporting requirements related to offers of health insurance coverage and reporting entities fulfilling reporting requirements related to minimum essential coverage to furnish the required statements to individuals electronically./23/ Recipients must consent to receiving electronic statements and must be permitted to withdraw consent. /24/

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/23/Treas. Regs. secs. 1.6055-2; 301.6056-2. The applicable conditions generally relate to consent and withdrawal of consent, notice requirements, and access periods.

/24/Ibid.

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REASONS FOR CHANGE

The Committee believes the Treasury regulations permitting applicable large employers and reporting entities to furnish required statements electronically has reduced administrative burdens and expenses related to these reporting responsibilities. The Committee intends that applicable large employers and reporting entities have confidence that they may continue to furnish these statements electronically.

EXPLANATION OF PROVISION

Under the provision, applicable large employers/25/ and reporting entities/26/ are permitted to furnish statements to an individual electronically if the individual has previously consented at any prior time, to the employer of the individual during the relevant calendar year or relevant reporting entity, to receive such statement in electronic form, so long as the individual has not revoked consent in writing. The provision thus generally codifies the existing regulations permitting electronic furnishing of Forms 1095-B and 1095-C.

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/25/With regard to section 6056.

/26/With regard to section 6055.

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EFFECTIVE DATE

The provision is effective for statements for which the due date is after December 31, 2024.

C. Time for Response (sec. 4 of the Bill and sec. 4980H of the Code) PRESENT LAW For a description of the employer-shared responsibility payment ("ESRP"), see part B of this document.

Generally, when the IRS has made an initial finding that an applicable large employer may be liable for an assessment of the ESRP, the IRS sends the employer a letter (currently, Letter 226-J), which typically provides that the employer has 30 days to respond regarding the proposed assessment.

REASONS FOR CHANGE

The Committee believes that 30 days may not be enough time for applicable large employers to respond to a Letter 226-J. The Committee intends that the IRS be required to provide employers more time to respond to these letters before taking any further steps in the assessment process.

EXPLANATION OF PROVISION

Under the provision, the Secretary is required to allow applicable large employers at least 90 days from date of the first letter which informs the employer of a proposed assessment of the ESRP (currently, Letter 226-J) to respond to the proposed assessment before taking any further action with respect to such proposed assessment.

EFFECTIVE DATE

The provision is effective for assessments proposed in taxable years beginning after the date of the enactment.

D. Statute of Limitations on Penalty Assessment (sec. 5 of the Bill and 6501 of the Code)

PRESENT LAW

For a description of the employer-shared responsibility payment ("ESRP"), see part B of this document.

Generally, the IRS may assess a tax or additional amount with respect to a tax within three years of the filing of a tax return./27/ Numerous exceptions to this limitations period are provided, including expanded periods based on substantial omissions or failure to file a required tax return. In 2019, the IRS Office of Chief Counsel opined in advice to a field office that there is no statute of limitations regarding whether an applicable larger employer may be liable for the ESRP payment because there is no tax return filed to report an employer's liability for the ESRP./28/

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/27/Sec. 6501.

/28/Office of the Chief Counsel Memorandum, Statute of Limitations for IRC Sec. 4980H, 20200801F, December 26, 2019, available at https://www.irs.gov/pub/irs-lafa/20200801f.pdf.

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REASONS FOR CHANGE

Because the IRS is of the view that there is no statute of limitations applicable to the ESRP, applicable large employers may be assessed an ESRP for any previous year during which the employer was potentially liable, potentially leading to assessments long after the year in question.

The Committee believes that, in the interests of fairness and finality, assessments of the ESRP should be subject to a statute of limitations, similar to other excise taxes, and subject to appropriate exceptions. The Committee also understands that the ESRP is a complex excise tax to administer, however, and that therefore the applicable limitations should be set at six years.

EXPLANATION OF PROVISION

Under the provision, a six-year limitations period is added for assessments of the ESRP under section 4980H. The statute of limitations begins on the due date of the applicable large employer's return under section 6056 (relating to the requirement that applicable large employers subject to the ESRP report certain information related to offers of health insurance coverage), or the date the return is filed, if later.

EFFECTIVE DATE

The provision is effective with respect to returns which are due after December 31, 2024.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

IV. BUDGET EFFECTS OF THE BILL

A. Committee Estimate of Budgetary Effects

In compliance with clause 3(d) of rule XIII of the Rules of the House of Representatives, the following statement is made concerning the effects on the budget of the bill, H.R. 3801, as reported.

The estimated effect of the bill on Federal fiscal year budget receipts is a loss of less than $500,000 for the period 2023-2033.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget Authority

In compliance with clause 3(c)(2) of rule XIII of the Rules of the House of Representatives, the Committee states that the bill involves no new or increased budget authority. The Committee states further that the bill involves no new or increased tax expenditures.

C. Cost Estimate Prepared by the Congressional Budget Office

The Committee has requested but not received from the Director of the Congressional Budget Office a statement as to whether this bill contains any new budget authority, spending authority, credit authority, or an increase or decrease in revenues or tax expenditures.

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

A. Committee Oversight Findings and Recommendations

With respect to clause 3(c)(1) of rule XIII of the Rules of the House of Representatives, the Committee made findings and recommendations that are reflected in this report.

B. Statement of General Performance Goals and Objectives

With respect to clause 3(c)(4) of rule XIII of the Rules of the House of Representatives, the Committee advises that the bill does not authorize funding, so no statement of general performance goals and objectives is required.

C. Information Relating to Unfunded Mandates

This information is provided in accordance with section 423 of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-4).

The Committee has determined that the bill does not contain Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental mandate on State, local, or tribal governments.

D. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff Benefits

With respect to clause 9 of rule XXI of the Rules of the House of Representatives, the Committee has carefully reviewed the provisions of the bill, and states that the provisions of the bill do not contain any congressional earmarks, limited tax benefits, or limited tariff benefits within the meaning of the rule.

E. Tax Complexity Analysis

Pursuant to clause 3(h)(1) of rule XIII of the Rules of the House of Representatives, the staff of the Joint Committee on Taxation has determined that a complexity analysis is not required under section 4022(b) of the IRS Reform Act because the bill contains no provisions that amend the Internal Revenue Code of 1986 and that have "widespread applicability" to individuals or small businesses, within the meaning of the rule.

F. Duplication of Federal Programs

In compliance with clause 3(c)(5) of rule XIII of the Rules of the House of Representatives, the Committee states that no provision of the bill establishes or reauthorizes: (1) a program of the Federal Government known to be duplicative of another Federal program; (2) a program included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111-139; or (3) a program related to a program identified in the most recent Catalog of Federal Domestic Assistance, published pursuant to the Federal Program Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 98-169).

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The report is posted at: https://www.congress.gov/congressional-report/118th-congress/house-report/111/1

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