As the year comes to a close, end-of-year reporting is at the top of many employers’ to-do lists—especially for employers administering their own health benefits, like the individual coverage HRA (ICHRA).
A key feature of the ICHRA is that all reimbursements are free of payroll taxes (for employers and employees) and income tax (for employees with minimum essential coverage). So if you’re free of these taxes, what actually needs to be reported and how?
In this article we’ll answer common questions about the ICHRA reporting requirements, including:
- ICHRA W-2 reporting
- ICHRA reporting for small employers
- ICHRA reporting for applicable large employers (ALEs)
- PCORI fees
- ICHRA reporting for employees
ICHRA W-2 reporting
With an ICHRA, there aren’t any W-2 reporting requirements employers need to follow, so there’s no need to report the benefit on your eligible employees’ W-2s. However, if you offer a qualified small employer HRA (QSEHRA), there are specific W-2 reporting requirements in place for small employers.
ICHRA reporting for small employers
While there are no W-2 reporting requirements, there are still some forms you’ll need to make sure to send to the IRS to stay compliant.
If you have less than 50 full-time equivalent employees (FTEs) at your organization, these are the regulations that apply to you:
- Submit Form 1094-B and accompanying Forms 1095-B to the IRS, which provides information about the coverage they are offering employees.
- Send employees Form 1095-B, which includes codes that tell employees how the employer calculated affordability. Employers must provide this form to all employees that were full-time for one or more months during the tax year.
ICHRA reporting for applicable large employers (ALEs)
Applicable large employers, or organizations with 50 or more full-time equivalent employees, must meet the employer mandate to provide employees healthcare coverage. ALEs that meet the employer mandate with an HRA must also demonstrate that the amount they are reimbursing employees is enough to make individual health coverage affordable.
To be affordable, reimbursement allowances must be enough that the lowest cost silver tier insurance plan on the ACA marketplace or state exchange for employees is no more than 9.61% of the employee’s household income in 2022. Note that this is a decrease compared to 2021’s to 9.83%.
Employers demonstrate compliance with the mandate as follows:
- Submit Form 1094-C to the IRS, which provides information about the coverage they are offering employees.
- Send employees Form 1095-C, which includes codes that tell employees how the employer calculated affordability. Employers must provide this form to all employees that were full-time for one or more months during the tax year.
No matter your organization’s size, all employers who have self-insured plans, like an ICHRA, must pay a yearly fee for Patient-Centered Outcome Research Institute (PCORI).
The PCORI fee amount for plan years ending on or after October 1, 2020, and before October 1, 2021 is $2.66 per covered person, and $2.79 for all plan years ending on or after October 1, 2021, and before October 1, 2022.
The fee is due by July 31 of the year following the plan year. While these fees were initially set to expire in 2019, they have been extended through 2029.
ICHRA reporting for employees
Employers aren't the only ones with end-of-year reporting and tax responsibilities—there are a few things that are required from employees as well.
Employees using an ICHRA should be aware of the following:
- In order for their reimbursement to be free of income tax, they are required to have minimum essential coverage (MEC). Employees who do not have minimum essential coverage are required to pay income taxes on all reimbursements they receive.
- Employees can typically see reimbursements on their pay stub as an addition to their net earnings (wherever the employer or payroll provider typically lists such additions).
HRAs are an easy way for organizations to give employees a tax-free health benefit. Best of all, unlike with traditional group insurance plans, employers can achieve these tax savings with just a few tax forms and a small fee per covered employee.
Keep in mind that while we’re experts on HRAs here at PeopleKeep, we’re not tax professionals. If you have more specific questions about tax reporting, contact your accountant for more detailed tax information.
This article was originally published on November 22, 2020. It was last updated December 31, 2021.