Deadline Approaching! Here Come This Year's Form 1094/1095 Filings
The beginning of a new year signals approaching regulatory compliance deadlines. Not the least of these is the filing of Forms 1094-C and 1095-C, which was made mandatory under the Affordable Care Act (ACA).
As in the past two years, the IRS recently gave applicable large employers (ALEs) a one-month reprieve — from January 31 to March 4 — on the deadline to furnish employees with the 1095-C “Employer-Provided Health Insurance Offer and Coverage” form. The original February 28 deadline for ALEs to file forms 1094-C and 1095-C with the IRS remains intact. Forms filed electronically can be submitted later, by April 1.
Although ALEs have racked up some experience with these filings by now, errors still occur. If your organization must file the forms, you’ll need to work closely with your advisors to minimize possible mistakes.
As in the past, the IRS is extending its “good faith transition relief” for ACA-imposed penalties for certain categories of errors. “This relief [applies] only to furnishing and filing incorrect or incomplete information reported on a statement or return, and not to a failure to timely furnish or file a statement or return,” according to IRS Notice 2018-94.
Another potential source of penalties is failing to meet the IRS deadlines. Notice 2018-94 states the agency might cut you some slack, however, if you had “reasonable cause” to file late. “To establish reasonable cause,” the IRS adds, “the reporting entity must demonstrate that it acted in a responsible manner and that the failure was due to significant mitigating factors and events beyond the entity’s control.”
Meanwhile, still other ACA compliance challenges have come to light through an audit of the data used on the reporting forms. A common one is misclassification of new employees. Say an employer classifies someone as a part-time or variable-hour worker (and his or her hours are monitored and tabulated during the “initial measurement period). If the employer doesn’t offer coverage and it later turns out that the employee in question meets full-time status requirements, a penalty may follow.
Employers must offer health care coverage to full-time employees by the first day of the fourth calendar month following their start date. In contrast, employers don’t need to offer coverage to eligible part-time, seasonal and variable pay employees before the first day of the 14th month following an employee’s start date. If an improperly classified full-time employee isn’t offered coverage before that later date, the IRS may assess a penalty for more than a year’s worth of noncoverage.
In its ACA regulations, the IRS suggests several factors that employers can use to make the initial determination of an employee’s status. Employers that establish and follow a formal process for determining new employee status using the IRS-recommended criteria can reduce the chances of classification errors. If errors occur anyway, the agency might be more forgiving when assessing penalties.
Another ACA compliance pitfall is not properly documenting offers of health care coverage to employees. A proper offer of coverage needs to describe the plan, its costs and whether it meets minimum essential coverage requirements.
An employee might opt not to accept an offer of coverage, and not respond to the offer. But not receiving an acceptance of a coverage offer from an employee doesn’t necessarily mean the offer has been declined; it could mean the employee didn’t receive, or inadvertently threw out, the offer letter.
To avoid this scenario, require employees to sign and return acknowledgments that they have received the offers. Make sure all employees who haven’t accepted the offers get these confirmation receipts back to you.
Still another challenge for ALEs when completing these IRS forms is the arduous task of using the proper codes in Section II (employee offer of coverage) on the 1095-C form. There are possible code combinations for lines 14 (offer of coverage), 15 (employee required contribution) and 16 (safe harbor relief assertion) that can put employers in a Catch-22 situation, potentially resulting in fines. Consider asking your tax or benefits advisor to double-check your coding.
What may lie ahead
If you manage to do everything right in this reporting cycle, you might not be home free for next year. That’s because some reporting requirements might change because of the 2017 Tax Cuts and Jobs Act’s elimination of the individual mandate, effective this year.
Individuals no longer will need to verify that, one way or another, they have obtained minimum essential coverage. Therefore, the IRS and U.S. Treasury Department “are studying whether and how the reporting requirements … should change, if at all, for future years,” according to Notice 2018-94.
No one said navigating the ACA would be easy — even nearly a decade after its enactment. But, as mentioned, with tactical and technical assistance from your trusted advisors, consider it mission accomplishable.