August 7, 2019
The penalty associated with the Individual Mandate of the Affordable Care Act (ACA) was reduced to $0 beginning in 2019. As a response, the State of New Jersey enacted its own Individual Mandate beginning in 2019 to try to guard against adverse selection in the State’s Exchange. New Jersey’s Individual Mandate created more reporting obligations for employers who have employees who are New Jersey residents. New Jersey recently provided additional details regarding its Individual Mandate. To complicate an employer’s reporting responsibilities further, the State of California created its own Individual Mandate beginning in 2020. The California Individual Mandate will create additional employer reporting responsibilities beginning in 2021. The remainder of this article discusses the new details we have learned about the New Jersey Individual Mandate and the California Individual Mandate.
New Jersey Individual Mandate
The New Jersey Individual Mandate requires New Jersey resident taxpayers to carry minimum essential coverage (MEC) as defined by the ACA. If a New Jersey resident taxpayer is not covered by MEC, he/she could be subject to a penalty from the State of New Jersey. The New Jersey Individual Mandate closely mirrors the ACA with regards to exceptions and penalties for individuals residing in the State of New Jersey. From an employer’s perspective the most important part of the New Jersey Individual Mandate is the new reporting requirement. The updated requirements of the New Jersey Individual Mandate are discussed further below incorporating the updated details the State recently provided.
First, any employer who withholds or remits New Jersey Gross Income Tax for New Jersey residents will have to file with the State of New Jersey if it is an Applicable Large Employer (ALE). Employers will be required to submit the Forms 1094-C and 1095-C using the same electronic system employers use for filing the W-2 forms with the State. Why the Form 1094-C will need to be submitted to enforce the State’s Individual Mandate is confusing, but as of the date of the publication of this article the State is still requiring employers to submit the Form 1094-C.
Additionally, all employers who complete a Form 1095-C for a New Jersey resident will have to provide the Form 1095-C to the State of New Jersey. As we discussed in our previous article, we had hoped that the State would back off this requirement for fully insured employers as the State could gather the necessary information to enforce its Individual Mandate by reviewing the Form 1095-B. However, the State has yet to come to this logical conclusion. Therefore, fully insured and self-insured ALE’s with New Jersey residents will have reporting obligations due to the State of New Jersey.
The State of New Jersey did align the due date to report to the State with the Federal electronic deadline of March 31, 2020. While New Jersey took a step in the right direction to mirror the ACA’s electronic deadline, it is our continued hope that the State of New Jersey would provide employers an automatic 30 day extension which is provided by the IRS.
Finally, the State of New Jersey website specified the State will allow employers to provide the State all of the Forms 1095-C the employer is submitting to the IRS. However, the State’s website cautions employers to check other laws regarding the prudence and legality of reporting sensitive and personal data of non-New Jersey residents to the State. We believe it is too risky for any employer to report to the State of New Jersey unnecessary information (i.e. any Forms 1095-C for non-New Jersey residents). Accord’s software allows it to sort data based on geographic location. Accord Systems plans to only report the information necessary for New Jersey compliance in order to protect its clients from unnecessary data breach exposure.
California Individual Mandate
California recently enacted its own Individual Mandate which is set to begin in 2020. Therefore, California employers will not have to worry about the additional reporting obligations associated with the new California law until 2021. From an employer’s perspective the new California Individual Mandate mostly mirrors the ACA’s Individual Mandate prior to the changes made to it effective in 2019. The California law requires California residents to carry minimum essential coverage (MEC) unless one of the exemptions, which are similar to the exemptions provided by the ACA, applies. The State is going to provide subsidies for individual with a household income between 400 and 600 percent of the federal poverty line which is more generous than the standard applied by the ACA which cuts off individuals from receiving subsidies at the 400 percent of the federal poverty line threshold. However, the additional subsidies being provided by the State are irrelevant from an employer reporting perspective.
The State of California did a good job of limiting the information employers will be required to report. As of the date of this publication, an employer will only need to report to the State of California if it sponsors a self-insured plan. The State of California will receive the necessary information to enforce its Individual Mandate for fully insured employers from the insurer itself. The State will require the reporting to occur by March 31, 2021 for the 2020 calendar year. Hopefully, the State will allow an employer to receive an automatic 30 day extension that mirrors the IRS automatic extension. An employer will be able to satisfy its reporting obligations to the State of California by providing the same information (meaning the information it provide the IRS in 2018) it currently provides the IRS. As more details emerge regarding the California Individual Mandate, we plan to provide additional information.
Will Part III of the Form 1095-C Even Exist for 2019 Federal Reporting?
One question that will drastically influence the extra work an employer (or the reporting entity working on behalf of the employer) has to do with regard to the influx of new States’ Individual Mandate reporting is the Service’s decision with regard to Part III of the Form 1095-C in 2019. With the Individual Mandate being $0 at the Federal level beginning in 2019 there is no longer a need for Part III of the Form 1095-C. Therefore, the Service could nullify that Part of the Form 1095-C. However, a better alternative may be for the Service to make Part III of the Form 1095-C optional. Considering the Form 1095-C has already created mass confusion for a number of employers, making Part III of the Form 1095-C optional appears to be the better strategy. We should learn the fate of Part III of the Form 1095-C later this month when the draft instructions for the Forms 1094-C and 1095-C are released.
Employers who have employees in the State of New Jersey must be prepared to report to the State electronically for the 2019 reporting season. Employers who have employees in the State of California will need to monitor the details associated with the new California Individual Mandate over the next year. Accord Systems continues to closely monitor the latest rapidly developing trends of States enacting their own Individual Mandate. The Accord Software is capable of sorting the necessary data and only providing each State with the Forms 1095-C it requires for State compliance. Any other strategy is creating unnecessary exposure for the employer and its employees. Please contact us if you would like to learn more about how Accord Systems can assist you with your Form 1094-C and 1095-C reporting and/or hourly tracking.
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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