The Tax Cuts and Jobs Act eliminated the Affordable Care Act (ACA) individual mandate effective in 2019. But with states bringing mandates back on their own, state-by-state reporting could be the next trend in ACA compliance.
When the new tax law dropped the requirement for individuals to carry health insurance or pay a fine, widespread speculation suggested that eliminating the mandate was an attempt to weaken the ACA. The disappearance of the mandate led to conjecture that the law itself might not survive. However, the ACA is still in place, and reporting is still a requirement for compliance with the IRS—with penalties for non-compliance.
New Jersey and Vermont enact individual mandates
Now, ACA reporting could become immensely more complicated if states follow the example set by New Jersey and Vermont, which recently passed individual mandates of their own. The two states are the second and third to approve an individual mandate. There has been a mandate in place since 2006 in Massachusetts, the state that passed the first such health-care law in the nation, which provided a basic outline for the ACA.
According to the New Jersey bill, information to be reported will be the same as is required under the federal individual mandate. New Jersey will require insurance beginning in 2019, leaving no gap between the end of the federal mandate and the beginning of the state mandate.
The penalty for not complying with the New Jersey mandate will be the greater of 2.5 percent of income or $695 per adult and $347 per child. There will also likely be penalties for failure to report by both individuals and employers.
Vermont’s law isn’t fleshed out as well at this point, with some steps still required for implementation. The Vermont mandate will take effect in 2020.
The complexities of state-by-state ACA reporting
If state-by-state mandates become a trend, companies will face a challenge exponentially greater than the federal reporting that has already begun to cause problems with compliance. Although it’s highly unlikely that all 50 states will adopt individual mandates, even the addition of 10-15 new jurisdictions could prove to be a burden to HR departments.
Of course, state-by-state reporting wouldn’t really be ACA reporting at all, given that the ACA is federal law. But the prospect of ACA-style reporting in multiple jurisdictions, each with its own ever-changing regulations, could bring health-insurance reporting very much back to the forefront of HR concerns no matter what the ultimate fate of the ACA itself might be.
A new version of state 1099 reporting?
Take, for instance, state-by-state 1099 reporting. States generally require that filers report the same type of information, but the complexity comes in the way each state asks for it. File formats, due dates and transmission methods can differ state to state.
And then there are the state-specific hurdles, such as web browser support and firewall settings, which can frustrate tax professionals trying to file electronically. With no federal standards, establishing consistent reporting processes is difficult at best. Automating processes is even more difficult, but manual reporting processes can lead to costly processing and errors.
If state-by-state ACA reporting shakes out the same way, companies could face challenges they never imagined when the ACA was mostly a federal reporting exercise. Massachusetts, for example, has a state-specific form for health insurance reporting, form MA 1099-HC.
As states enact individual mandates one-by-one, each state could introduce its own version of the MA 1099-HC. And those reporting requirements could come with penalties attached. They do in Massachusetts, where failure to report form MA 1099-HC results in penalties of up to $50,000 per organization.
Reporting processes come to the fore
If states do indeed take that path, companies will have to respond by sharpening reporting processes. Specifically, they will need to automate processes state-by-state despite potential differences in forms, formats and delivery methods. Failure to adapt could lead to expensive inefficiencies in reporting as well as to financial penalties and frustrated customers.
Turning to a third party is the safest, most fool-proof method for developing and automating reporting processes for any number of jurisdictions. Third-party solution providers have the regulatory and technical expertise to keep organizations ahead of shifting compliance requirements.
Going it alone is risky, especially in an unpredictable regulatory environment prone to massive changes like the kind state-by-state ACA reporting could provide.
Sovos has a comprehensive ACA reporting solution and more than three decades of experience with tax information reporting in general. Discover how Sovos helps companies meet rapidly changing challenges of compliance, or contact Sovos for more information.