August 3, 2020
Beginning on January 1, 2020 California residents were subject to the State’s individual mandate. The State’s individual mandate closely resembles the federal Affordable Care Act (ACA) individual mandate which was neutered beginning in 2019 when its penalty was reduced to $0. Similar to other States which have enacted an individual mandate, California’s individual mandate includes employer reporting responsibilities. The remainder of this article explains what employers need to know regarding their reporting responsibilities related to California’s individual mandate.
To date the most detailed document California has released regarding employer reporting for the State’s individual mandate is the draft copy of publication 3895C. The State wisely decided to allow employers to use the same Forms the employer submits to the federal government to satisfy the California employer reporting requirement. Applicable large employers (ALEs) who sponsor a self-insured health plan that is offered to California residents will be required to submit the Forms 1094-C and 1095-C to the State’s Franchise Tax Board. Additionally, these ALEs will have to furnish a Form 1095-C to California residents. As of the date of this publication, employers are still required to furnish a Form 1095-C to employees under federal law so every ALE should already be complying with this portion of the California law.
An employer only needs to complete part I of the Form 1094-C for the State of California. However, an employer does not need to complete line 19 of Part I as it is irrelevant for California reporting purposes. Parts II, III, and IV of the Form 1094-C should not be completed for the State of California as these sections are not relevant to the State’s enforcement of its individual mandate. An employer will complete Parts I, II, and III of the Form 1095-C to submit to the State of California. In other words, the Form 1095-C submitted to the State of California should mirror the Form 1095-C submitted to the federal government.
One potentially burdensome aspect in regards to California reporting that is highlighted by the draft publication 3895C is in regard to the due date for furnishing the Form 1095-C to California residents. California’s draft publication incorrectly states that Notice 2019-63 automatically extends the federal due date for furnishing the federal Form 1095-C from January 31, 2021 to March 2, 2021. In reality, the Notice extended the due date from January 31, 2020 to March 2, 2020 for the 2019 reporting season. As of the date of this publication, the IRS has not provided a similar extension for the 2020 reporting season. However, it is fair to presume, because it has happened every year of reporting, that the IRS will again extend the due date to furnish the Form 1095-C to the requisite employees to March 2, 2021 (it was extended longer for the 2015 reporting year). What some employers may find worrisome is the draft publication states the California due date to furnish the Form 1095-C to California residents will remain January 31, 2021 regardless of any federal extension.
This could be problematic for some employers. If California remains rigid on its due date to furnish the Form 1095-C by January 31, 2021, employers with California residents will have to comply with the more restrictive California standard compared to the presumed March 2, 2021 federal deadline to furnish the Form 1095-C. Many employers have struggled to meet the January 31 furnishing deadline in the past which is the reason the IRS has always provided at least an automatic 30 day extension. California may not be so generous as the information provided on the Form 1095-C may be necessary for Californians to complete their State tax returns. Accord Systems has had no issue meeting the January 31 furnishing deadline so regardless of California’s deadline decision we anticipate being able to meet the deadline.
Finally, and importantly, it is vital that employers only report to the State of California the requisite employees who were residents of California for one or more months in 2020. The Form 1095-C includes sensitive and personal data. Therefore, non-California residents should not be submitted to the State of California. Accord’s software allows it to sort data based on geographic location. Accord plans to only report the information necessary for California compliance in order to protect its clients from unnecessary data breach exposure.
ALEs with California residents will have to file the Forms 1094-C and 1095-C with the State’s Franchise Tax Board. These employers will have to continue to monitor the due date of furnishing the Form 1095-C to the requisite employees. If the California deadline is more burdensome, the employer will have to prepare and furnish the Form 1095-C for California residents prior to the federal deadline. We will provide an update on the California reporting requirements as more details are disclosed. Please contact us if you have any questions regarding your ACA reporting needs.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorneys P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
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