When Form 1095-A arrives in your employees’ mailboxes, you might find them turning to you for help in understanding what the form is all about and what they need to do with it. That’s particularly true if your small business offers a qualified small employer health reimbursement arrangement (QSEHRA) and you’re helping employees pay for the health insurance plans that they’re purchasing for themselves.
If you’re facing questions and don’t have the answers to them, here’s what you need to know to cover the basics.
What Is a 1095-A, and Why Did Your Employee Get One?
If your employee receives this form, it means they had health insurance coverage via the health insurance exchange, also known as the Marketplace, for at least one month of the previous year. The forms come from the health insurance exchange — in most states, the exchange is HealthCare.gov, although 11 states and Washington, D.C., run their own exchanges and send out their own forms. The form is sent to the person who enrolled in the plan through the exchange, and the IRS gets its own copy.
This form is essentially a place to collect information. It shows the name of the person who enrolled in the exchange plan as well as any covered family members. For each month that the plan was in effect, the form shows the total premium for the plan and the amount of premium tax credit that was paid on the enrollee’s behalf (or, in other words, sent directly to the insurance company to offset the employee’s premiums). The form also says how much the second lowest cost silver plan (SLCSP) would have cost if the person had selected that plan. If that’s actually the plan in which the person was enrolled, the premium for their plan and the premium for the SLCSP will be the same.
What Does Your Employee Need to Do With the Form?
If your employee benefited from a premium tax credit, or if they paid full price for their plan but want to claim the tax credit on their tax return, the information on this form is vital. There’s another form that then comes into play — Form 8962. Just like with other forms your employees might receive, like W-2s and various 1099s, the employee will keep the form they get from the exchange for their own records. But they’ll use the information on it to complete Form 8962, which they’ll file with their tax return.
If your employee paid full price for the plan they purchased in the exchange and they’re not eligible to claim the premium tax credit on their tax return, they don’t need to complete Form 8962. In that case, they don’t have to do anything with the information on their 1095-A. Assuming they had health coverage for the full year, they can check the box on their 1040 that says “full year health care coverage or exempt” and carry on with the rest of their return.
Have employees who are wondering whether they’re eligible for a premium tax credit to offset the cost of the plan they purchased in the exchange? Point them toward their household’s modified adjusted gross income (MAGI) — but make sure they’re using Affordable Care Act-specific calculations, since this isn’t the same as normal MAGI. To be eligible, their MAGI can’t exceed 400 percent of the prior year’s poverty level. For example, for 2018 coverage, they’d use 2017’s poverty level for comparison. They also can’t have had access to an employer-sponsored plan that was affordable and provided minimum value.
Assuming a premium tax credit was paid on the employee’s behalf — or they paid full price and wish to claim the premium tax credit on their return — they’ll complete Form 8962 using the information provided on their 1095-A. Premium tax credits that are paid throughout the year on behalf of exchange enrollees are calculated in advance based on the enrollee’s projected MAGI. However, the tax credit amount then has to be reconciled based on their actual MAGI, as determined by their tax return.
The premium tax credit is the amount necessary to keep the SLCSP at a level that’s considered affordable based on someone’s MAGI. Regardless of which plan a person actually buys, the premium tax credit is based on the price of the SLCSP — meaning premium tax credit amounts differ between enrollees, since the cost of the SLCSP varies based on age and location.
If you offered a QSEHRA and your employees used those funds to buy coverage in the exchange, they’ll receive 1095-A forms just like any other exchange enrollee. But the IRS has specific rules for premium tax credits when the person is also receiving a QSEHRA benefit, and QSEHRA benefits’ impact on premium tax credits depends on each person’s specific situation. The details are clarified in this set of IRS FAQs.
What About Forms 1095-B and 1095-C?
When your employees ask about Form 1095-A, you — and they — might wonder how these forms differ from 1095-B and 1095-C. All three forms were created as part of the implementation process for the Affordable Care Act, and they’re all designed to document the health coverage that a person had during the year. In the case of a 1095-C, it also shows the health coverage offered to the employee, even if they never ended up taking it.
Form 1095-B is sent out by insurance plans that cover people who didn’t buy their plan through the health insurance exchange. This includes government entities like Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) and commercial plans in the individual and small-group market. Form 1095-C arrives via applicable large employers (ALEs), indicating the coverage that was offered to each employee and whether the employee enrolled in the plan.
All of these forms are sent to both the plan enrollee and the IRS. In some cases, an employee will receive more than one of these forms for a given year — for example, a person would receive all three forms if they were employed by an ALE from January through June (1095-C), covered under an exchange plan from July through September (A) and then covered under a small employer’s group plan from October through the end of the year (B).
Tax season can easily become a puzzling flurry of forms, and eventually they all start to sound the same. Save your employees from confusion by ensuring they have the know-how to keep all of their papers straight.
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This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.