Out-of-state employers may have new 2019 Form 1095-B and 1095-C filing requirements for both New Jersey and the District of Columbia. New Jersey and the District recently implemented individual mandates requiring residents to obtain minimum essential health coverage or pay a penalty. As a result, certain employers with employees who are residents in New Jersey or the District will need to file their employees’ Forms 1095-B or 1095-C with the state/district.
This article highlights the general filing concerns for New Jersey and the District for 2019.
Several additional states enacted or are expected to enact similar individual health insurance mandate laws. Massachusetts, California, Rhode Island and Vermont also have enacted such legislation. The mandates in California, Rhode Island and Vermont are effective for the 2020 calendar year with reporting due in 2021. The following states are considering their own state healthcare mandate: Hawaii, Washington, Connecticut, Minnesota and Maryland.
The 2017 tax reform had a significant impact on the Affordable Care Act (ACA) by lowering the ACA’s individual mandate penalty to zero. As an unintended consequence, young and healthy individuals may not enroll into the states’ insurance marketplaces, resulting in higher member premiums and making the marketplaces unstable. In general, if the state’s insurance marketplaces are filled with older and less healthy members, medical premiums will be more expensive. If younger and healthier members are added to the risk pool, medical premiums should decrease.
New Jersey and the District adopted individual mandates to stabilize their insurance marketplaces and, as a result, both require their residents to have health coverage or pay a penalty.
In general, both New Jersey and the District impose a reporting requirement on every entity that provides medical coverage to a resident during a calendar year, similar to the ACA’s reporting requirement under IRC Section 6055. This reporting requirement applies to employers, other plan sponsors, and insurance carriers of employment-based health plans that provide employment-based minimum essential coverage.
Generally, employers that are self-insured are required to file Forms 1095-C. Thus, a self-insured employer that has employees who are residents in New Jersey or the District may need to do three separate filings for 2019 – with the IRS, with New Jersey and with the District. In contrast, employers that are fully insured are not required to file because the insurance carrier or issuer should file Forms 1095-B. But employers should not automatically assume that the insurance carrier will file any required forms with New Jersey and/or the District, and should confirm this with their carriers.
Current guidance is not clear about which employees’ forms should be filed with New Jersey and the District. The individuals who may be subject to an individual mandate penalty may differ from the individuals who need to be reported to New Jersey and the District. In addition, there is confusion about the terminology used in the guidance – for example, defining employees as either “taxpayers” or “residents” appears to delineate a different set of employees.
Lastly, employers should be concerned with privacy requirements. Although there are no privacy concerns for an employer to file a required form with the IRS, New Jersey or the District, there may be concerns if an employer sends one or more employee forms that are not required to be filed.
New Jersey’s requirement
Starting with the tax year 2019, the New Jersey Health Insurance Market Preservation Act implemented the individual mandate and requires third-party reporting to verify medical coverage for New Jersey taxpayers. New Jersey updated their website’s guidance for employers and providers on Jan. 21, 2020.
The New Jersey individual mandate penalty is generally based on income and family size and is capped at the statewide average annual premium for Bronze Health Plans in New Jersey. The minimum penalty is $695 per individual. Any individuals who are not required to file a New Jersey Income Tax return are automatically exempt from the penalty.
Employers and insurance carriers must file with the New Jersey Division of Taxation on or before March 31, 2020, with these two steps:
- Send Form 1095 coverage verification to each primary enrollee (employee or purchaser of insurance policy) by March 2, 2020. This applies to both part-year and full-year New Jersey residents. For 1095-filing purposes, a part-year resident is a primary enrollee who lived in New Jersey for at least 15 days in any month.
- By March 31, 2020, employers must provide a Form 1095 for each primary enrollee or insurance purchaser who was provided minimum essential coverage in 2019. For 1095 filing purposes, a part-year resident is a primary enrollee who lived in New Jersey for at least 15 days in any month.
New Jersey will accept the same Form 1095 data file format that was submitted to the IRS. New Jersey requires only Part I and III of Form 1095-C, but it will still accept a fully completed form.
The District requirement
Effective for the 2019 plan year, the Individual Taxpayer Health Insurance Responsibility Requirement Amendment Act of 2018, effective Oct. 30, 2018, (D.C. Law 22-168) implemented the individual mandate and requires third-party reporting to verify medical coverage for the District taxpayers. The District’s Office of Tax and Revenue (OTR) Notice 2019-04 provided clarification.
The District’s individual mandate penalty is generally based on income and family size. The penalty is $695 for each adult and $347.50 for each child, up to $2,085 per family or 2.5% of family income that is over the tax filing threshold, whichever is greater.
The District’s law requires the “applicable entity that provides minimum essential coverage to an individual during a calendar year” to submit information to OTR. For the tax year ended Dec. 31, 2019, the employer and insurance carriers must file by June 30, 2020. For later tax years, the deadline is 30 days after the IRS deadline for submitting Forms 1095-B and 1095-C, including any extension by the IRS.
For filing purposes, OTR Notice 2019-04 states that an individual is deemed to be a resident of the District “if that individual is an employee for whom wages were withheld and paid to the District for any period during the applicable calendar year.” Insurance issuers and carriers have a similar filing requirement.
The District will accept the same Form 1095 data file format that was submitted to the IRS.
Employers may have some confusion and risk for incorrectly filing with New Jersey or the District.
- Both New Jersey and the District use certain defined terms interchangeably – for example, “taxpayer,” “resident taxpayer” and “nonresident taxpayer” – and therefore further clarification is needed.
- The requirements for the individual mandate penalty assessment do not necessarily align with the filing requirements for individuals.
- Although some employers may elect to e-file “all employees’ forms” to New Jersey and the District for ease of administration, they may create privacy concerns with respect to those employees who have no nexus to New Jersey or the District.
- Employers who offer only fully-insured medical coverage cannot rely on the insurers to provide any required Forms 1095-B – they should confirm with the insurers.
- Employers that offer coverage to non-employees should ensure the proper information is submitted to New Jersey and the District either on Form 1095-B or 1095-C.
Employers should consult with their tax accountants and legal counsel to determine which employees should be filed with New Jersey and the District.
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