By: HUB’s EB Compliance Team

Health care reform requires applicable large employers (ALEs) to report to the IRS whether they offer their full-time employees and their children-dependents the opportunity to enroll in ACA compliant coverage. Generally, an employer is an ALE for a calendar year if it employed an at least 50 full-time equivalent employees who averaged 120 hours in each month of the calendar year.

The reporting requirements include a number of specific data-points. Among them is the Taxpayer Identification Number or “TIN” which refers to the Social Security Number (“SSN”) (or Individual Tax ID Number for those without an SSN) for all individuals on the employer’s group health plan (including the employee, spouse, and children).

The Solicitation Process

When the SSN is missing, or if the employer has been notified that the SSN is incorrect, it must engage in “reasonable efforts” to obtain the missing or correct SSN. “Reasonable efforts” means that employers must complete a three-step process:

  • Initial Solicitation: The employer must make an initial solicitation for TINs at the time the employer receives a substantially complete application for new coverage or to add an individual to existing coverage. This could occur at open enrollment or as part of a change in status (where a dependent is being added to the plan).
  • First Annual Solicitation: If the initial solicitation is unsuccessful, the employer must make a solicitation by December 31 of the same year (or if the initial solicitation was made in December, by January 31 of the following year).
  • Second Annual Solicitation: If the TIN still is not provided, the employer must make the next solicitation after the expiration of the First Annual Solicitation and before December 31 of the following year.

Example 1: We See Clearly, a plexiglass manufacturer holds open enrollment each year in May for its July 1st renewal. During open enrollment it engages in the the Initial Solicitation seeking dependent TINs (Step 1) (employee TINs are already contained in their employment files for payroll purposes). After an annual audit in September, We See Clearly engages in the First Annual Solicitation (Step 2) in October of the same year for the remaining missing TINs. In January of the following year, We See Clearly performs another audit and identifies remaining missing TINs. Consequently, in early February it engages in the Second Annual Solicitation (Step 3) (after the expiration of the First Annual Solicitation on December 31).

Example 2: Tough As Nails, a hardware manufacturer, holds open enrollment each year in December for a February 1 effective date. During open enrollment it it engages in the Initial Solicitation letter seeking dependent TINs (Step 1) (employee TINs are in their employment files). At the beginning of January, it performs an audit and identifies any missing TINs. As a result, on January 20th of every year Tough As Nails engages in its First Annual Solicitation (Step 2). In February, Tough As Nails performs another audit and identifies the remaining missing TIN numbers. Consequently, In March (after the expiration of the First Annual Solicitation on January 31) it engages in the Second Annual Solicitation (Step 3).

Documentation of the solicitation process is important. Employers should document their efforts to obtain employee and dependent TINs which includes retaining records of phone calls including date, time, and what happened. Employers that mail letters may want to consider using certified return receipt mail. The IRS may waive penalties for failure to obtain the TIN when a reporting entity can demonstrate that it satisfied the three-step process to obtain the TIN.

If the TIN is not obtained after the three solicitations, employers may report the date of birth. Moreover, an employer is not required to engage in the solicitation process for the employee if it already has the employee SSN on file through other employment documents such as tax forms (i.e., W-4).

How to Engage in the SSN Solicitations

Mail/Phone

Employers may request the TIN either by mail or by phone. Each form of solicitation requires that the employer meet certain requirements:

  • The employer must inform the the individual that he/she may face a fifty-dollar ($50.00) penalty for failure to provide the TIN
  • If the employer engages in the solicitation by phone, the employer representative must speak with an adult
  • If the employer engages in the solicitation by mail, it must provide a return envelope
  • The employee and dependents may provide a W-4 or W-9 although practically speaking, most employers already have the employee’s W-4 form obtained in the hiring process

Electronic

Employers may establish an electronic process to request and receive TINs from employees and their dependents on the plan. Generally, the employer must be sure that the information is successfully sent and received. Likewise, the employer must be sure that the information being provided is accurate and authentic based on the employee’s declaration. Therefore, it is important that the employer obtains the employee’s valid electronic signature. The electronic solicitation process is robust and detailed. Employers can review the IRS guidance and rules in its eBook.

Penalties

Employers that fail to file correct information returns may face a per-return penalty. Failure to file can include a complete failure to file, filing with missing or incorrect TINs, untimely filings, filing in an incorrect format, or any combination of these issues. Only one penalty is imposed with respect to a single information return, even if there is more than one failure with respect to the return. If there are multiple failures on the same information return, only the highest penalty amount will be imposed.

However, there is some forgiveness for “de minimis” errors. Employers that meet the following conditions may be eligible for a reduction in penalties:

  1. The employer files its returns on time;
  2. The returns contain mistakes or missing information; and
  3. The employer files corrections by August 1st.

The key to compliance is to remember that the ACA forms are federal tax forms and while they relate to whether or not health coverage is offered, they are regulated by the IRS like any other federal tax filing. Employers must be sure that the these tax filings are completed accurately and timely. Failure to do so can result in penalties, and in some cases interest may accrue as well.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.