Health Insurance Tax Forms

Forms 1094-C and 1095-C are IRS forms that employers must file if they are required under the Affordable Care Act (ACA), or Obamacare, to offer their employees health insurance. The primary difference between these two forms is that Form 1095-C includes health insurance information and is provided to bet the IRS and employees. Form 1094-C is essentially a cover sheet for 1095-C and is only sent to the IRS.

The Role of the 1095-C

The Affordable Care Act requires employers with at least 50 full-time employees to provide health insurance to their employees. Employers must give eligible employees a Form 1095-C every year. This form should include information about:

  • The type of coverage the employee is offered
  • The lowest-cost premium available
  • The number of months insurance coverage is available

An employee must receive a 1095-C form whether or not they make use of the employer's health plan.

Where the 1094-C Fits In

While Form 1095-C is sent to both employees and the IRS, Form 1094-C is only provided to the IRS. The following information must be included on Form 1094-C:

  • Information about the employer (address, employer identification number, and phone number, etc.)
  • The number of employees the business has
  • A contact person
  • The number of 1095-C forms being sent to the IRS

It's important to understand that Form 1094-C is cannot be submitted without Form 1095-C. Employers need to be certain that they are submitting both forms, and that they contain the information necessary to comply with the ACA.

Employer Responsibility

Mid-size employers, which have between 50 and 99 employees, are required to offer minimum essential health coverage under the ACA. In order to fulfill this requirement, which is known as employer-shared responsibility, there are several tasks that the employer should complete.

1. The employer should identify every employee that qualifies as a full-time employee under ACA rules. This includes employees that average 30 hours or more of work in a month. Employers should also take into account whether they have employees of special classification, like independent contractors, staffing employees, interns, or temporary employees.

2. The employer should determine if the measurement method they are using to calculate full-time status accurately reflects their workforce. If not, they may need to employ a different calculation method to ensure they are in compliance with the ACA.

3. After choosing a method for measuring full-time status, the employer needs to update summary plan descriptions and plan documents to reflect the measurement method.

4. The employer needs to determine which 4980H Safe Harbor they will use when calculating the affordability of coverage. When performing affordability calculation, employers will need to use information like the federal poverty line, rate of pay, and W2.

Taking these preparatory steps will help employers more easily fill out submit forms 1094-C and 1095-C, and will allow them to comply with the employer rules outlined by the Affordable Care Act.   

Document Contents

If an employer wishes to be in full compliance with the ACA, they must submit forms 1094-C and 1095-C with the correct information. For instance, in addition to the total employee headcount, Form 1094-C needs to list the names of all full-time employees or full-time equivalents. Form 1094-C also needs to indicate whether the employer offered minimum essential coverage and if the used an applicable 4980H "Safe Harbor."

Employers must submit Form 1095-C lists for each calendar month. These lists must include a variety of information. For example, an employer must provide proof that they've offered coverage to their employees and must also provide the code for the offered coverage. In addition, the employer should indicate how much of the lowest cost monthly premium the employees will be responsible for paying. Form 1095-C lists should also indicate if a 4980H "Safe Harbor" was used.

Why the IRS needs the 1095-C

The IRS is partly responsible for enforcing the Affordable Care Act, which is why it needs to receive 1095-C forms. If a company does not fulfill their requirement to offer health insurance, a penalty may be levied. The IRS uses 1095-C forms to keep track of which companies are and are not offering health insurance to their employees.

The ACA also requires that most people carry health insurance and provides financial assistance to people who do not receive employer insurance so they can purchase their own plans. 1095-C forms helps the IRS determine which people do not have access to employer insurance. If a 1095-C form is not filed for an employee, they may have trouble getting access to the health coverage that they need.

Filing Information for Employers

1095-C forms must be provided to employees each year by the end of January. If an employer plans on filing paper forms, the must be filed by the end of February, and electronic forms must be submitted to the IRS by the end of March.

If an employer needs to send less than 250 forms, they can file paper 1094-C and 1095-C forms. An employer with over 250 forms needs to file both types of form electronically.

Who Must File 1094 and 1095-Series Forms?

The company that is providing health insurance coverage is responsible for filing 1095-C forms. If insurance is purchased from the marketplace, Form 1095-A will be filed. Insurance carriers, third-party administrators, employers, or an insurer that offers coverage to non-employees or former employees will file Form 1095-B. Employers that provide full coverage or a self-funded plan to their staff will file Form 1095-C. Any business that employs over 50 workers is required to submit these forms to the IRS.

Which Employers are Required to File Form 1095-C?

Under the Affordable Care Act, employers that are required to offer their employees health insurance are known as applicable large employers (ALEs). An ALE is an employer that has 50 full-time workers or equivalents. If an employee works 30 or more hours a week, they are considered a full-time employee. Full-time equivalent refers to two or more part-time workers whose combined hours total 30 or more a week. ALEs are the only employers required to provide Form 1095-C to their employees.

Filing Forms 1094-C and 1095-C for ACA Information Reporting

The Affordable Care Act outlines two annual information-reporting requirements. The first requirement can be found in Section 6055 of the Internal Revenue Code (IRC). This requirement states that health insurance issuers, government agencies, small self-insured employers, and any other entity providing health insurance must provide information about anyone who was given minimum essential coverage (MEC).

The second requirement, which is in Section 6056 of the IRC, states that all ALEs that are required to provide health insurance must provide full information about the health insurance coverage offered to their employee, including all terms and conditions. This is the information that will be provided to the IRS and employees in Form 1095-C.

If a substitute form is used, this form must meet all the content requirements of the IRS and should include every piece of information needed for Form 1094-C and Form 1095-C.

In 2017, the IRS provided draft instructions for forms 1094, 1095, and other forms required for ACA reporting. Generally, the IRS does not release drafts until they are sure no further changes will be made to the forms. However, it is still possible that changes will occur. HR managers will usually accept forms from the previous year. There are, however, some 1094-C and 1095-C form changes that need to be understood.

Verbiage Change to the Form Instructions

Forms 1094-C and 1095-C have both experienced verbiage changes. Throughout the forms, "Employer" has been replaced with "ALE Member." This was done so that employers would be reminded that every ALE member is required to file its own forms.

New Indicator Codes for Line 14 of Form 1095-C

Previously, any coverage that was offered to the spouse of an employee had to be reported in the same way as the employee's coverage. This was true even if the coverage offer was conditional. However, new codes have been added to Form 1095-C that are used to indicate conditional coverage for spouses of employees.

The new codes are referred to as 1J and 1K. Code 1J is for "Minimum essential coverage providing minimum value offered to you; minimum essential coverage conditionally offered to your spouse; and minimum essential coverage NOT offered to your dependent (s)".

Code 1K states that "Minimum essential coverage providing minimum value offered to you; minimum essential coverage conditionally offered to your spouse; and minimum essential coverage offered to your dependent(s)." A coverage offer is considered conditional if it comes with reasonable conditions.

New Coding Instructions for COBRA Coverage

Offering coverage to employees who have retired or have been terminated can be complicated. When coding COBRA coverage offers, employers should use Line 14 of 1H and Line 16 of 2A. This should be done whether COBRA coverage elections were made or not.

This same coding should be used for any non-COBRA coverage that is offered post-employment. Generally, this scenario will apply to retired employees. When a retired employee was employed for at least one month in a calendar year, this is the type of coding that should be used.

Calculating Full-Time Employee Status

The IRS has provided instructions on Form 1094-C about how full-time employee status should be calculated. Full-time employee status should be calculated exclusively by using the rules outlined in Code 4980H. No other regulations apply when determining full-time employee status for the Affordable Care Act, even rules that have been constructed by an employer.

Changes to Transitional Relief

On the newest 1094-C and 1095-C forms, the IRS has removed the Qualifying Offer Transitional Relief box. Previously, this box was located on Line 22 on both forms. On 1094-C option B was labeled as "Reserved" and as Line 14 Code 1L on 1095-C.

This transitional relief previously applied to people who were reporting 2014 non-calendar year plans in 2015. Transitional Relief is still provided under Section 4980H for non-calendar year plans that started in 2015 and extended into 2016.

For reporting in 2017, there is no longer any transitional relief. This means that employers need to file their forms by the required filing deadlines. For paper forms, this deadline is February 28. Electronic forms need to be filed by March 31st. If an employer fails to submit their forms by these deadlines, they will be penalized by the IRS.

The "Good Faith" Compliance Standard

Code sections 6055 and 6056 require ALEs to report information using forms 1094-C and 1095-C regardless of whether the ALE offered eligible employees enrollment in minimum essential health coverage (MEC).

In previous years, the IRS provides some leeway to ALEs who made a good faith effort to correctly file forms 1094-C and 1095-C. However, in 2017, employers that either file their form incorrectly or miss required filing deadlines will face a penalty. Penalties will only be waived for a reasonable cause, as the IRS no longer takes good faith efforts into account.

There are several different reasonable causes for failing to file 1094-C and 1095-C forms. For example, fire, natural disaster, and casualty are all considered reasonable causes. However, concrete proof that a reasonable cause occurred must be provided to the IRS in order to have the penalties waived.

Employees at all levels, especially employers, HR, and payroll, should become familiar with Forms 1094-C and 1095-C. Anyone that could reasonably be held responsible for these forms should understand how to complete them and the information that needs to be included. Employers that delay filling and submitting these forms will likely be subject to severe penalties. Collecting more information about Affordable Care Act reporting is the prudent choice.

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