Yes, the dreaded time of the year is almost here; 1095 Forms are coming! 2021 Affordable Care Act Reporting for “Applicable Large Employers” (those with 50 or more “Full-Time Equivalents” in the prior calendar year) is right around the corner. ACA Reporting (under IRS codes 6055 & 6056) has been a challenge for employers & HR since the first reporting year in 2015. Even these days we see employers who A) have not been reporting that should be; and B) are manually preparing forms and have no permanent technology solution in place, most of the time inaccurately. While this is a moving target and the IRS may again grant relief; guidance from IRS Notice 2020-76 is making it more important than ever for employers to understand how ACA reporting impacts them and to have a plan in place annually to make sure returns are done timely and accurately. For those employers that don’t; the consequences could be grave. In short, this IRS Notice has stated that employers have had long enough to get their act together when it comes to ACA reporting. It’s clear the IRS intends to increase enforcement of the Employer Mandate under the ACA and is improving their capabilities each round by matching up W-2’s to what they believe should be a 1095-C. The IRS issued more Letters 5699 last year than ever before. This letter notifies employers that the IRS believes they’re an Applicable Large Employer under the Employer Mandate, did not file their 1095 forms, and they’re imposing a penalty. The penalty for this can be huge: $280 for not filing the 1094-C form, then $280 for each 1095 form not provided to each W-2 employee + $280 for each W-2 employee in which the IRS did not receive a 1095 form. That’s the number of W-2’s x $560 folks.
Reporting for the 2021 calendar year applicable employers must:
- Furnish statements to individuals by Jan. 31, 2022; and
- File returns with the IRS by Feb. 28, 2022 (or March 31, 2022, if filing electronically)
On Nov. 22, 2021, the IRS proposed a rule that would extend the annual furnishing deadlines under both for an additional 30 days. However, this rule is in proposed form and has not been finalized. Therefore, employers should still target the general furnishing deadline (Jan. 31). Best practices are to furnish statements to individuals as soon as employers are able.
Reporting deadlines aside, why is planning for and having a permanent solution for ACA reporting more important than ever for applicable employers moving forward? Four main reasons:
- The era “Good Faith” Reporting is Over – The IRS issued Notice 202-76 that stated, “As good-faith relief was intended to be transitional relief; this is the least year Treasury Department and the IRS intend to provide this relief” This means penalty relief form incorrect or incomplete returns will no longer be forgiven for those that made the effort to comply. Accuracy going forward will be paramount.
- Electronic Reporting Will Apply to More Employers – Currently, applicable employers filing less than 250 forms can file electronically or by mail. Employers filing 250 or more returns must file electronically through the ACA Information Return (AIR) system. This requires technical expertise in the form of specific formatting, coding, etc. Most employers who do this internally will not be equipped to handle the process and will need to outsource. Proposed regulations that impact ACA 1095 Form filings will reduce the threshold for mandatory e-filing down to 100 returns in the calendar year and then down to 10 in the following years.
- The Days of Extensions to Provide and File 1095 Forms Are Coming to An End – Since the start of ACA reporting the IRS has been granting extensions to the point, we have come to expect them. IRS Notice 2020-76 clearly shows the IRS intends to do away with this. The IRS had requested comments on why extensions will be needed. The IRS stated, “very few comments were submitted, which indicates that this relief may no longer be necessary”. The Notice goes on to say “The Treasury Department and the IRS are renewing the request for comments related to furnishing requirements……. Unless we receive comments that explain why this relief continues to be necessary, no relief related to the furnishing requirements…. will be granted in future years”.
- More Employees Can Trigger Penalties – The “Affordability” threshold for 2022 has been lowered to 9.61% of the Safe Harbor an employer has elected to use. In addition, the 400% cap of the Federal Poverty Level (FPL) for people to receive Premium Tax Credits (subsidies) has been removed for 2021-2022. This means employees earning more than 400% of the FPL can trigger penalties. For example, a family of 4 making over $106,000 could trigger a penalty.
The bottom line for employers is to scrutinize their ACA reporting strategy and to make sure they have accurate and accessible data. The IRS is getting better at finding non-filers and mistakes for those that do. A simple checklist:
- First and foremost, do you understand who is “full-time” at your organization for the ACA Employer Mandate? Do you have accurate coverage data – do you know who was offered coverage and when and did they enroll or waive coverage?
- Do you understand “Affordability Safe Harbors”, and do you have the right one selected for your workforce?
- Do you understand the 1 and 2 series codes that go on the 1095 forms and how they would apply to specific situations?
- Do you have accurate compensation data?
- Do you have the correct demographic data? For example, many Self-Insured employers have filed 1095-C forms without the required dependent data of those covered in Section III of the form.
- Are you in compliance with State Individual Mandate reporting for states like CA & NJ for example?
About the Author
David Cotie, Vice President Business Development – Group Health Solutions, Inc. Principal – Senor Health Solutions, LLC. David is a Group Benefits, Medicare, and Compliance expert that has been assisting HR professionals for 20 years in designing and managing employee benefits programs; and ensuring compliance with Federal and State regulations and legislation impacting benefits and Human Resources.