Defense Department Seeks Health Coverage Reporting Relief

This is comment is submitted by the Department of Defense (DoD) in response to IRS Notice 2020-76 explaining why relief from furnishing requirements under Sections 6055 and 6056 is necessary.

The DoD requests the following:

1. 1095-B: That the IRS consider as long as the individual responsibility payment is zero, the DoD to have met its requirement to furnish a written statement under Internal Revenue Code (IRC) § 6055 by either:

2. 1095-C: That the IRS consider the DoD to have met its requirement to furnish a written statement under Internal Revenue Code (IRC) § 6056 by the DoD's electronically providing Form 1095-C to:

as long as the DoD provides a paper copy of the Form 1095-B or 1095-C when requested by the taxpayer, as detailed in Notice 2020-76.

The rationale and reasons for each item of requested relief are separately stated below.

BACKGROUND

This comment relates specifically to the furnishing of statements required under §§ 6055 and 6056 of the Internal Revenue Code. As discussed in Notice 2020-76: “Section 6055 requires health insurance issuers, self-insuring employers, government agencies, and other providers of MEC to file and furnish annual information returns and statements regarding coverage provided. Section 6056 requires applicable large employers (generally those with 50 or more full-time employees, including full-time equivalent employees, in the previous year) to file and furnish annual information returns and statements relating to the health insurance, if any, that the employer offers to its full-time employees.” The required information reporting is completed on forms prescribed by the IRS.

The form that must be provided to responsible individuals under § 6055 is the Form 1095-B, Health Coverage. The form that must be provided to employees under § 6056 is Form 1095-C, Employer-Provided Health Insurance Offer and Coverage.

Form 1095-B details what health coverage an individual maintained throughout the calendar year and whether that coverage qualified as MEC. Prior to revisions contained in the Tax Cuts and Jobs Act of 2017, Form 1095-B was important to a taxpayer so they could demonstrate to the IRS that they maintained the requisite health coverage during the calendar year, and thus avoid liability for the “individual shared responsibility payment.” This payment was reduced to zero for months beginning after December 30, 2018. P.L. 115-97, § 11081 (December 22, 2017). As a result, Form 1095-B is no longer required to be filed with an individual's tax return for the 2019 calendar year and subsequent years. See https://www.irs.gov/affordable-care-act/questions-and-answers-about-health-care-information-forms-for-individuals, Question 4.

Whereas Form1095-B is utilized to show that an individual had required coverage under the Affordable Care Act (ACA), Form 1095-C is furnished to employees to show that their employer offered MEC. 26 U.S.C. § 6056. Ultimately, the IRS uses the information provided on the corresponding information return, the Form 1094-C, to administer the employer shared responsibility provisions of IRC § 4980H. 26 U.S.C. §§ 4980H, 6056. The employer shared responsibility payment is a penalty the employer pays to the government for failing to offer MEC to employees as required by the ACA. 26 U.S.C. § 4980H. The primary purpose of Form1095-C, from the employee's perspective, is to allow an employee who does not enroll in employer-provided coverage to potentially to use Form 1095-C to apply for the premium tax credit (PTC). See https://www.irs.gov/affordable-care-act/questions-and-answers-about-health-care-information-forms-for-individuals, Question 4.

The DoD is a reporting entity under IRC § 6055 due to its TRICARE coverage of active duty service members, reserve component service members on active duty for more than 30 days, and military retirees. TRICARE is defined by law as being minimum essential coverage. See 26 U.S.C. § 5000A(f)(1)(A). Every service member on active duty is automatically covered under TRICARE. See 10 U.S.C. § 1074. Military retirees are also entitled to retain coverage under TRICARE and nearly 100% retain such coverage.² Id.

As an applicable large employer, the DoD is subject to the reporting requirements under § 6056. For service members, the DoD is required to provide TRICARE coverage to all active duty service members. See title 10, U.S.C., Chapter 55. For civilian employees, the DoD offers MEC to employees through the Federal Employee Health Benefits Program (FEHB) administered by the Office of Personnel Management (OPM). See title 5, Chapter 89. Both TRICARE and FEHB are defined as meeting the requirements of MEC under federal law. See 5 U.S.C. 26 U.S.C. § 5000A(f)(1)(A),(B),(f)(2)(A), 42 U.S.C.S § 300gg-91(d)(8)(B).

The implementing regulations require that both Forms 1095-B and 1095-C be provided either in person or by U.S. Mail, unless the individual employee affirmatively elects to receive the documents electronically. 26 C.F.R. §§ 1.6055-2, 301.6056-2. The DoD utilizes a secure, electronic web-based program, called myPay, for all DoD employees. This program is a “one-stop shop” for users to access their pay information. Each year, the DoD furnishes all tax documents to employees in this program and employees are highly familiar with navigating the program at it houses their pay statements and other important documents. Users are requested to affirmatively consent to electronic only receipt within the myPay platform. However, if employees do not affirmatively consent, the DoD still makes the tax documents available in myPay and furnishes the tax documents by U.S. mail in compliance with the regulatory requirements.

FORM 1095-B REPORTING

In prior notices, the IRS has stated, “because the individual shared responsibility payment is reduced to zero for months beginning after December 31, 2018, it was “studying whether and how the reporting requirements under § 6055, should change, if at all, for future years.” In doing so, it has issued successive notices allowing reporting entities to avoid penalties if certain conditions were met. See Notice 2020-76. However, in Notice 2020-76, IRS stated this relief would no longer be offered in future years unless it received comments explaining why the relief continues to be necessary. The DoD believes the relief is still necessary to protect government dollars and personal identifiable information (PII) of service members.

Despite a strong information campaign, the DoD has been challenged in fully persuading service members to take affirmative steps to consent to the electronic receipt of the 1095-B — a tax document they do not need. We believe the fact that the document it is not needed for tax reporting adds to the lack of interest by service members in electing electronic delivery.

If the former requirement to furnish a paper copy of the Form 1095-B is reinstated, the cost to the DoD in printing and mailing paper forms will be substantial. More importantly, there is a high risk to the individual service member in having their PII fall into the wrong hands. In tax year 2018, the DoD was required to mail 2,749,816 Form 1095-Bs. This was at a cost of nearly 1.5 million dollars. As a result of the relief provided from penalties in IRS Notice 2019-63 and IRS Notice 2020-76, the DoD has saved over 3 million in taxpayer dollars by eliminating printing and postage. As stewards of taxpayer funds, it is our duty to be fiscally responsible.

Furthermore, one of the primary ways we can protect service members and retirees is to avoid mailing PII. It is the DoD's duty to protect service members, especially from what would be considered unnecessary risks. The mailing of documents, such as the Form 1095-B, to active duty service members and retirees unnecessarily places their PII at risk of falling into the wrong hands. Our active duty service members are deployed throughout the world. They are subject to moves and deployments as the government requires. Service members change their mailing addresses frequently and, as their employer, the DoD must rely on service members who are otherwise occupied with the security of the nation to keep their addresses up to date in the DoD systems. In many instances, a tax document is mailed to a service member's last known mailing address, which may or may not actually reach the member. As such, even if the mailing is required by the IRS, we note that furnishing the document by U.S. mail is not, in many instances, the best way to effectuate notice for a service member. On the other hand, myPay, the DoD's online payroll and accounting system, is a secure platform that is available anytime and anywhere in the world. Additionally, military retirees are likewise a population vulnerable to PII exposure. As the IRS has taken significant steps in the past few years to protect taxpayers' information, so has the DoD. However, the requirement to mail these tax documents negate the careful steps all federal agencies have taken to reduce this exposure. Military retirees also have complete access to myPay.

FORM 1095-C REPORTING

Federal law already informs the IRS that as a federal employer, the DoD is offering MEC. The DoD fully understands that the 1095-C may still be needed for some U.S. taxpayers who are seeking the PTC. However, the statute and accompanying regulations provide that only certain applicable taxpayers³ are eligible to receive the PTC. Pursuant to 26 C.F.R. § 1.36B-2(a): an applicable taxpayer . . . is allowed a premium assistance amount only for any month that one or more members of the applicable taxpayer's family (the applicable taxpayer or the applicable taxpayer's spouse or dependent) —

(1) Is enrolled in one or more qualified health plans through an Exchange; and

(2) Is not eligible for minimum essential coverage (within the meaning of paragraph (c) of this section) other than coverage described in section 5000A(f)(1)(C).

Service Members

For active duty service members enrolled in TRICARE, there would be no eligibility for the PTC,⁴ and thus, no tax reason they would require the Form 1095-C. Similarly, it is highly unlikely that a Form 1095-C would be needed for DoD civilian employees.

Paragraph (c)(1) provides “[a]s described in section 5000A(f), government-sponsored programs . . . are minimum essential coverage.” Section 5000A(f)(1)(A) specifically provides that medical coverage under Chapter 55 of Title 10, including TRICARE, is MEC.

Paragraph (c)(2)(i) provides that an individual is eligible for government-sponsored MEC if they meet the criteria for coverage under a government-sponsored program described in §5000A(f)(1)(A), as of the first day of the first full month the individual may receive benefits under the program, subject to the limitation in paragraph (c)(2)(ii) of this section. Finally, an individual who meets the criteria for eligibility for government-sponsored MEC must complete the requirements necessary to receive benefits. In order for an active duty service member to receive the “government sponsored minimum essential coverage, the only requirement is they be on active duty.” In other words, every active duty service member is offered MEC through the TRICARE health care program and is automatically enrolled in that program by operation of law. 10 U.S.C. § 1074. For this reason, an active duty service member provided health coverage through their military service would not be eligible for a PTC⁵. See “Private Health Insurance Provisions of the PPACA, CRS R40942 (May 4, 2010) noting that individuals will also generally be ineligible for the PTC if they are eligible for “coverage related to military service.”

Civilian Employees

The Form 1095-C is also likely unnecessary for tax reporting by DoD civilian employees. These employees are provided MEC through their employment, specifically through the FEHB program administered by OPM. OPM has stated the coverage provided by FEHB is MEC. The DoD acknowledges that there could be instances in which a civilian employee could be eligible to receive a PTC but believe these instances would be limited. Such eligibility would be limited to taxpayers who: 1) enrolled in the health care exchange (vice FEHB); 2) have household income that is at least 100 percent, but not more than 400 percent, of the federal poverty line for the taxpayer's family size for the taxable year; and 3) were offered MEC where the employee's share of the premium for self-only coverage exceeds 9.5 percent of the household income. 26 U.S.C. § 36B. The affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. If the employer offers multiple health coverage options, the affordability test applies to the lowest-cost option available to employees that also satisfies the minimum value requirement (we note that according to OPM, all FEHB programs meet the minimum value requirement). For 2021, the lowest-cost self-only FEHB plan available to all federal employees is the Nationwide NALC Health Benefit Plan — Value Self that costs full-time employees $97.16 per month. While part-time employees would have higher monthly premiums because of the reduced government contribution, we note that according to OPM's “Profile of Federal Civilian Non-Postal Employees,” as of September 30, 2017, 95.15 percent of federal employees were on a full-time work schedule. Therefore, a full-time federal employee would need to have household income of less than $12,272.84 in order for the cost of their FEHB coverage to exceed 9.5 percent of their household income. However, a full-time employee with household income of less than $12,272.84 would be below the 100 percent federal poverty level in 2021 for a household of one, which is $12,880.00 and would therefore be ineligible for a PTC. Thus, in our estimation, it is unlikely full-time federal civilian employees would be eligible to claim a PTC, obviating the need for them to receive a Form 1095-C.

The DoD is confident it can meet those individual employees' needs for Forms 1095-C through the electronic provision of the document and by providing information on how to obtain a paper copy Form 1095-C if needed.

CONCLUSION

Federal law already informs the IRS that as a federal employer, the DoD is offering MEC. For service members, the DoD is required to provide TRICARE coverage to all active duty service members. For civilian employees, the DoD offers MEC to employees through the Federal Employee Health Benefits Program (FEHB) administered by the Office of Personnel Management (OPM). Both TRICARE and FEHB are defined as meeting the requirements of MEC under federal law.

The DoD is requesting that the IRS consider it to have met its requirement to furnish Forms 1095-B electronically to service members who are on active duty in the Armed Forces and retirees covered by the TRICARE health care program unless the taxpayer requests a paper copy. The DoD requests that the IRS consider it to have met its §§ 6055 furnishing requirements to such service members in this manner as long as the individual responsibility payment is zero.

Additionally, the DoD requests that the IRS consider it to have met its requirement to furnish a written statement under § 6056 through electronic provision of the Form 1095-C for those active duty members covered under TRICARE and federal employees offered MEC through FEHB, with the express understanding that the DoD will provide a paper copy to the employee when requested, as detailed in Notice 2020-76.

We are sensitive to the unique situations taxpayers may experience, and the DoD is confident it can adequately address the needs of all members and employees by furnishing the Forms 1095-B and 1095-C, using the secure and convenient method of electronic delivery through its myPay platform. If IRS grants the DoD's request, the DoD would inform members and employees through an information campaign of the new electronic delivery method. The DoD would also commit to setting up a clear path, similar to the infrastructure already in existence for the Form 1095-B so that any member or employee may easily request a paper copy mailing of the forms.

We appreciate your consideration of the DoD request.

Prepared by:

Jamie M. Porterfield
Deputy General Counsel, Military Civilian Pay Law
Defense Finance and Accounting Service
Indianapolis, IN

Concur:

Susan Mitchell
Department of Defense Tax Counsel
Office of the Secretary of Defense

Concur:

Dwight D. Creasy
General Counsel
Defense Finance and Accounting Service