Most Employers Are Required to File Electronic Information Returns Beginning in 2024

On February 21, 2023, the IRS released Final Rules amending the existing requirements related to mandatory e-filing of information returns, including Forms 1094-C and 1095-C, among others. The final rules are effective for all applicable returns due on or after January 1, 2024. While the final rule requires electronic filing for a number of different information returns, such as Forms W-2 and 1099, which were previously allowed to be paper filed by employers of a certain size, this alert addresses the changes applicable to Forms 1094 and 1095, which must be filed by applicable large employers (ALEs) as well as non-ALEs that sponsor self-funded health plans.

Under the final rules, employers filing 10 or more returns must file Forms 1094 and 1095 (and their other applicable returns) electronically. The 10-form threshold is determined based on the total number of forms the employer must file with the IRS, including the Forms 1094 and 1095, as well as other information returns, such as Forms W-2 and Forms 1099, income tax returns, excise tax returns, and employment tax returns, including those that are not required to be e-filed, such as forms 940 and 941. Previously, employers that filed less than 250 of the same ACA reporting forms were allowed to choose whether to file their applicable Forms 1094 and 1095 (either the B or C forms, as applicable) by paper or electronically.

The final rules allow employers to seek a waiver in cases of undue hardship. Per the final rules, a key factor in determining whether hardship exists is whether the cost for filing the returns electronically exceeds the cost of filing the return on paper. Entities seeking a waiver must specify the type of filing to which the waiver applies, the period to which it applies, and the entity must follow any applicable procedures, publications, forms, instructions, or other guidance, including postings to the IRS.gov website, when requesting the waiver. Further, the final rules allow the IRS to grant exemptions from the requirements in certain instances.

Conclusion

All ALEs and many non-ALEs (that report due to sponsoring a self-funded health plan) will be impacted by these changes and will be required to file their tax year 2023 Forms 1094 and 1095 electronically unless they seek and are granted a hardship exception by the IRS. Impacted entities should take the time between now and next year to engage a filing vendor that can assist them with their electronic filing obligations.

FINAL 1094 C AND 1095 C FORMS AND INSTRUCTIONS FOR 2016 POSTED BY IRS

The IRS has released final 1094 C and 1095 C forms for 2016 and has posted final instructions as well. The changes from the 2015 forms were minor. However, the instructions for completing the 1094 C and 1095 C forms for 2016 have changed significantly. The changes primarily were more extensive explanations on how to complete the forms.

The final forms and instruction can be found at:

• Final 2016 1094 C 
  

• Final 2016 1095 C
  

• Final Instructions 
  

As of now, a full cycle of reporting and penalty determinations has not yet been seen. The due dates for providing the forms and submitting them to the IRS were delayed for the 2015 forms. Employers may not see penalty determinations from the IRS for these forms.

The reporting requirements will affect applicable large employers (ALEs) every year. Employers should establish a process for populating the forms and submitting them to the IRS. If you are responsible for completing these forms, we recommend reviewing the final instructions to ensure understanding of the requirements for completing &submitting the forms.

FINAL INSTRUCTIONS

The following summarizes key points from the 2016 final instructions:

• For all ALEs, Part II communicates ACA full-time employee status, coverage offered or not offered to full-time employees and the reason the full-time employee will not trigger a penalty under ACA rules. For employers that self-fund their plans, the forms also explain who is covered for individual mandate purposes (Part III).
• Employers must either keep copies of the 1094 C and 1095 C forms that they file with the IRS or be able to reconstruct the forms for at least three years after the due date of the returns.
• The new instructions explain more clearly how ALEs file. The IRS first determines whether the organization is an ALE (50 or more full-time and full-time equivalents). Status as an ALE is determined based on the IRS controlled group. A 1094 C must be completed for each EIN that has employees associated with it. An employer may submit more than one 1094 C for an EIN but one must be marked as the authoritative transmittal. At least one 1094 C must be submitted for each employer with a different EIN that is part of an IRS control group and has employees associated with that EIN.
• The due dates remain the same. Employers must send 1095 C forms to employees by January 31st. Employers must also send the 1094 C and 1095 C forms to the IRS. The due date depends on how the forms are submitted. Forms submitted on paper (under 250 forms) must be sent to the IRS by February 28th. Forms submitted electronically (250 or more forms) must be sent to the IRS by March 31st.
• Extensions were available in 2015 but they didn’t apply because the submission dates were delayed. Going forward, the following potential extensions are available:
• Employers can get an automatic 30-day extension on IRS submissions by completing Form 8809 before the due date. They can file Form 8809 on paper or electronically through the FIRE system.
• Under certain hardship conditions, an employer can follow the instructions on Form 8809 to apply for an additional 30-day extension.
• Employers issuing more than two hundred fifty 1095 Cs must submit them to the IRS electronically. Employers can apply to waive electronic filing by submitting Form 8508. This Form should be submitted at least 45 days before the due date. The IRS will not process any waiver requests before January 1 of the calendar year in which the forms are due. Waivers must be applied for and approved each year. If a waiver is approved, it will apply to any corrected forms submitted for that same year. If you submit the initial forms electronically, you can submit corrections on paper as long as there are 250 or fewer. If there are more than 250 corrected forms, they need to be submitted electronically or you need an approved waiver for submitting the forms on paper. If you fail to file electronically when you are required to and do not have an approved waiver, you may have to pay a penalty of up to $260 per form. Penalties may be waived if you can show reasonable cause for not filing electronically. This penalty will not apply to the first 250 forms.
• Employers who want to send electronic 1095 C forms to employees must first obtain their employees’ consent. The same process and rules apply to these forms that apply to providing the W-2 electronically. Employers need consent specific to Form 1095 C in order send electronically.
• Instructions include details on filing corrected forms. Most employers had their filing accepted even though there were errors. Many filed corrected forms this year. The correction process did not change for 2016.
• New instructions update the penalties:
• Penalty for failing to file a correct information return with the IRS is generally $260/per return. The total penalties that can be assessed for failing to file a correct return in a calendar year is capped $3,193,000
• Penalty for failing to give an individual a correct form is generally $260/per form. The total penalties that can be assessed for not giving an individual a correct form in a calendar year is capped $3,193,000.
• Special rules apply that may increase the per form penalty and penalty caps. An increased penalty applies if the employer intentionally disregards the requirement to file the forms and/or provide the forms to eligible individuals.
• Penalties may be waived if the failure was due to reasonable cause and not willful neglect.
• The final 2016 instructions explain how to report coverage under a Health Reimbursement Arrangement (HRA).
• The final 2016 instructions clarify COBRA reporting situations. A qualified beneficiary may become COBRA eligible for different reasons and the reason may impact how to report the situation.
• The 2016 instructions also clarify how to report on post-employment coverage, for example, retiree health plan coverage. 

The 2016 instructions are much clearer than the filing instructions from 2015.

FORM 1094 C

The following summarizes key points from the final 2016 Form 1094 C:

• On 1094 C Form, line 22, some of the transition relief options have been removed, and others remain. The options that were removed did not apply beyond 2015.
  
• Line 22 relates to offers of coverage and transitional relief. The instructions clearly indicate you need to either check box “A” (the “qualifying offer method”) if you intend to use code 1A on line 14 for at least one employee or provide a substitute statement to any full-time employee.
• On page 2, column A, the circumstances for checking “yes” to Minimum Essential Coverage Offer Indicator have changed. 
• On page 2, column (b), do not include any employees in a limited non-assessment period in the full-time employee headcount for the month.
• On page 2, column ©, you are required to enter a total employee count. This count does include full-time and part-time employees. It also includes employees in limited non-assessment periods.

The 1094 C has changed minimally for 2016.

FORM 1095

The following summarizes key points from the final 2016 Form 1095 C:

• An employee in a limited non-assessment period is not considered an employee for reporting purposes. Limited non-assessment periods include time spent in a new hire waiting period as well as the new hire measurement period for employees that are look-back measured.
  
• The instructions clarify how self-funded employers need to report. 
• New instructions note that ALEs offering coverage through an insured plan or a multi-employer health plan should not complete Part III on Form 1095 C. In these cases, the insurance carrier or plan sponsor of the multi-employer health plan provides Form 1095 B to indicate who was covered under the contract during the year.
• The new instructions state there may be more than one way to report an employee offer of coverage. Employers can report using any code combination that accurately reflects coverage situations.
• Self-funded employers can use Forms 1094 B and 1095 B to report coverage on non-employees who may be covered under the self-funded plan. This could include non-employee directors, those retired for the entire year, or a non-employee COBRA qualified beneficiary. These individuals can be reported on the 1095 C forms as well.
• The 2016 1095 C Form includes the Plan Start Month. This box is optional again in 2016. The employer simply enters a two-digit code to indicate the first month of the plan year. For example, January is 01, February is 02 and so on.
• The approach for reporting individuals covered by a multi-employer arrangement (for example, union trust plans) remains the same in 2016.This process may change in 2017.
• Line 14 has two new code options. New codes show conditional spouse coverage:
• 1J – Minimum essential coverage (MEC) providing minimum value is offered to employee. MEC is conditionally offered to spouse. No coverage offered to dependent children.
• 1K – Minimum essential coverage providing minimum value is offered to employee. MEC is offered to dependent children. MEC is conditionally offered to the spouse.

A conditional coverage offer to a spouse does not include a spousal surcharge. It does include spousal force outs (spouse not offered coverage if coverage is available through spouse’s employer). Another conditional offer would be if you required spouses to enroll in their employers’ plan, before they could be eligible for your plan.

• The 2016 instructions note that an employer can’t enter safe harbor codes (2F, 2G, 2H) in line 16 if the employer fails to offer 95% of full-time employees/dependent children minimum essential coverage (MEC).
• Instructions note that the safe harbors apply the indexed percentage amount going forward. It is 9.66% in 2016 and 9.69% in 2017.
• The 2016 instructions cover situations where two or more employees of an ALE are married or parent and child. 

CONCLUDING THOUGHTS

Employers should start addressing how they will handle reporting for 2016. If you are responsible for completing or checking the forms, read through the instructions. The final 2016 instructions explain more practically the reporting requirements. More examples are included as well.

If you are a self-funded plan and choose to use the B forms for specific non-employees, the B forms and instructions can be found at:

•  2016 instructions for 1094/1095 B forms 
  

• 2016 1095 B form 
  

•  2016 1094 B form 
  

Both the 1095 B forms and the 1095 C forms have a VOID box in the upper right hand corner. Employers are instructed to never check the VOID box.

Both the 1095 B and 1095 C forms include instructions for taxpayers to retain the form with their tax records. It appears these forms will not have to be submitted with tax returns in 2017.

The good faith compliance standard will not apply in 2016 unless the IRS decides at a later date to extend it. In addition, the original deadlines will apply.

Employers should be gearing up now to complete the necessary forms for 2016. 

Seven Questions Employees Will Ask About the ACA 1095s

You did it! Your 1095 forms are ready and going out to employees. Now what?

You guessed it: Employee confusion. You’re going to get some questions. If you’re the one in charge of providing the answers, remember a great offense is the best defense. You’ll want to answer the most common questions before they’re even asked.

We’ve put together a list of some basic things employees will want to know, along with sample answers. Tailor these Q&As as needed for your organization. and then send them out to employees using every channel you can (mail, e-mail, employee meetings, company website, social media, posters). Tell employees how to get more detailed information if they need it.

Employee questions about the 1095s:

1.    What is this form I’m receiving?
A 1095 form is a little bit like a W-2 form. Your employer (and/or insurer) sends one copy to the Internal Revenue Service (IRS) and one copy to you. A W-2 form reports your annual earnings. A 1095 form reports your health care coverage throughout the year.

2.    Who is sending it to me, when, and how?
Your employer and/or health insurance company should send one to you either by mail or in person. They may send the form to you electronically if you gave them permission to do so. You should receive it by March 31, 2016. (Starting in 2017, you should receive it each year by January 31, just like your W-2.)

3.    Why are you sending it to me?
The 1095 forms will show that you and your family members either did or did not have health coverage with our organization during each month of the past year. Because of the Affordable Care Act, every person must obtain health insurance or pay a penalty to the IRS.

4.    What am I supposed to do with this form?
Keep it for your tax records. You don’t actually need this form in order to file your taxes, but when you do file, you’ll have to tell the IRS whether or not you had health insurance for each month of 2015. The Form 1095-B or 1095-C shows if you had health insurance through your employer. Since you don’t actually need this form to file your taxes, you don’t have to wait to receive it if you already know what months you did or didn’t have health insurance in 2015. When you do get the form, keep it with your other 2015 tax information in case you should need it in the future to help prove you had health insurance.

5.    What if I get more than one 1095 form?
Someone who had health insurance through more than one employer during the year may receive a 1095-B or 1095-C from each employer. Some employees may receive a Form 1095-A and/or 1095-B reporting specific health coverage details. Just keep these—you do not need to send them in with your 2015 taxes.

6.    What if I did not get a Form 1095-B or a 1095-C?
If you believe you should have received one but did not, contact the Benefits Department by phone or e-mail at this number or address.

7.    I have more questions—who do I contact?
Please contact _____ at ____. You can also go to our (company) website and find more detailed questions and answers. An IRS website called Questions and Answers about Health Care Information Forms for Individuals (Forms 1095-A, 1095-B, and 1095-C) covers most of what you need to know.