ACA Reporting Requirements: A Quick Guide for Employers About ACA 1095 Forms
Operating a business is no easy task, especially when it comes to IRS tax requirements. The larger the business, the more employers, the more administrative work is required to keep operations running while maintaining all sorts of compliance requirements. Whether you own the business or you are responsible for administration and human resources, it is likely that the responsibility of ACA reporting may fall on your shoulders.
If this is the case, you’ve found the right article! Here, we will detail the ACA reporting process, including the required forms, deadlines, and updates for the 2023 tax year. This is your crash course for all things 1095.
What is ACA Reporting?
A Brief Look at the Affordable Care Act
The Affordable Care Act, often referred to as Obamacare, is a landmark healthcare reform law enacted in the United States in 2010. This legislation aimed to make healthcare more accessible and affordable for Americans. It introduced essential provisions such as the establishment of health insurance marketplaces, the expansion of Medicaid, and regulations preventing insurers from denying coverage based on pre-existing conditions.
The Affordable Care Act has had a significant impact on the American healthcare landscape, bringing healthcare coverage to many who were previously uninsured and implementing reforms to improve the quality and accessibility of healthcare services. With this new legislature came the requirement for reporting health insurance coverage to the IRS.
Why is ACA Reporting Required?
As the need for better access to affordable coverage grew, coverage providers were required to be increasingly transparent with the IRS. This meant they had to show that their coverage met the quality and affordability standards. The IRS introduced ACA Form 1095 for the 2015 tax year to provide uniform accountability for ACA reporting.
Forms 1095, specifically 1095-B and 1095-C, are designed to capture information on the offer of coverage and affordability of every individual or employee that was covered. Whether the provider is a health insurance provider or an employer, they are required to provide certain information to verify that the plan meets the Minimum Essential Coverage (MEC) Requirements laid out by the IRS. In addition to filing 1095 forms with the IRS, employers and providers must distribute copies of these forms to covered individuals.
Employers that fail to provide Minimum Essential Coverage (MEC) to all required individuals are liable to be penalized in the form of an Employer-shared Responsibility Payment (ESRP).
Form 1095-B — An Overview
What is Form 1095-B?
Form 1095-B, Health Coverage, is an IRS tax form that must be filed by any entity that provides MEC to any individuals during the calendar year. The information that is reported on this form is used by the IRS to verify that the individual was enrolled in a health insurance plan and that the provider offered coverage that was up to ACA standards.
Who must File Form 1095-B?
This form is typically filed by health insurance providers; employers that offer self-insured coverage plans to their employees are also required to file this form.
Self-insured plans, also referred to as self-funded, are plans that an employer administers and offers to their employees without enlisting a third-party provider. This is a much more flexible and cost-effective option for employers that eliminates working with an insurance company. However, the administrative energy that is needed to maintain this type of plan is high.
Employers that offer self-insured health coverage to their employees are required to file 1095-B Forms for each covered individual, regardless of the size of their business.
What Information is Required on Form 1095-B?
In order to file a 1095-B Form, the sponsor of the coverage will need the tax information of their own company, as well as:
- Contact and tax information for the covered individual (name, address, TIN)
- Any other individuals covered by this plan (spouses, dependents)
- The type of coverage that was offered (government-sponsored, employer-sponsored, HRA, etc.)
- How many months out of the calendar year the individual was covered
Form 1095-C — An Overview
What is Form 1095-C?
Form 1095-C is an IRS tax return statement used by Applicable Large Employers (ALEs) to report the health coverage offered to employees during the year. A company is considered an ALE if it has at least 50 full-time employees.
Who must File Form 1095-C?
Under the ACA, all Applicable Large Employers (ALE) are required to file a Form 1095-C for each of the employees that they offered coverage to during the calendar year.
The IRS defines an ALE as any employer that has 50 or more full-time or full-time equivalent employees on their payroll. Full-time employees are those who work at least 30 hours a week and a total of 130 hours a month. Under the ACA, employers are required to offer MEC to all eligible full-time employees. Employers are not required to offer coverage to their part-time employees; However, the hours that these part-time employees work must be considered when determining ALE status.
Here’s a simple example: A business that employs 49 full-time workers and two part-time workers.
If the part-time employees work a combined total of 130 hours a month (the equivalent of one full-time worker), then the business actually has 50 full-time equivalent employees. The IRS would consider this business an ALE and require them to complete ACA reporting.
What are ACA Codes?
There are two sets of ACA codes that are required on Form 1095-C. The codes for line 14 and the codes for line 16.
Line 14 Codes: The codes on line 14 are used to describe the offer of coverage. Employers must enter the code that accurately describes the offer of coverage made to the employee for each month of the previous tax year. There must be a code entered for every month of the year, if the code is the same for every month, employers can check the “All 12 months” box in Part 3 of the form.
Line 16 Codes: These codes help the IRS verify that the employer is providing health insurance that meets affordability requirements. The health insurance plan must meet the Minimum Essential Coverage (MEC) requirements set in place by the IRS.
This is the line where Safe Harbors come into play. A Safe Harbour is a method by which employers can prove that the health insurance coverage that they offer to their employees is, in fact, affordable.
Information required on Form 1095-C
To correctly file 1095-C online, the following information must be reported:
- The name, address, and SSN of the covered individual.
- The name, address, EIN, and contact info of the plan provider.
- The offer of coverage code for each recipient/employee, broken down by month
- The recipient/employee’s premium share of coverage by month.
- The employee’s age, plan start month, and Zip Code (For ICHRA Reporting).
- Any safe harbor relief codes that are applicable
- The covered individual’s spouse and dependent(s) information, if applicable (name, SSN or DOB, and months covered)
2023 Tax Year Updates
4.1 Recent updates for the 2023 Tax Year
The IRS has also made some recent changes to the filing thresholds that will take effect in the 2024 calendar year. This will impact the majority of organizations that are required to complete ACA reporting with the IRS. Now, instead of filling up to 250 paper forms 1095, the IRS will only permit ten paper forms collectively.
This update to the filing thresholds will likely affect any and all businesses or providers that are filing paper forms to make the permanent shift to filing electronically.
4.2 IRS drafts of Forms 1095-B/C
At this point in the article, you may be wondering if there are any updates to the ACA Forms for the upcoming reporting season. The good news is no! The drafts of 1095-B and 1095-C that the IRS has released don’t contain any notable changes that will affect or change the filing process for the 2023 tax year.
If your organization has completed the process in past tax years, you will essentially need the same information, and there will be no additional requirements to complete the forms successfully.
4.3 Filing Deadlines for Tax Year 2023
The ACA reporting deadlines for the 2023 tax year are as follows:
- Deadline to furnish copies — March 2nd
- Deadline to file paper forms with the IRS — February 28th
- Deadline to E-file forms with the IRS — March 31st
It is important to note that if any of these deadlines fall over a weekend or a federal holiday, the deadline will automatically be moved to the next business day.
An update about the deadline for furnishing 1095 copies: There is often a little confusion surrounding this deadline each year because the IRS generally extends the deadline for furnishing copies to employees and recipients. The IRS made a final judgment about the deadline for distributing recipient copies at the end of 2022. The IRS has now permanently moved the deadline from January 31st to March 2nd.
Filing Methods
5.1 Paper Filing and IRS Mailing Address
If you choose to file paper copies of 1095 Forms, this is the mailing address that the IRS provides.
For the States: Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Georgia, Kentucky, Louisiana, Maine, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Texas, Vermont, Virginia, West Virginia
This is the Mailing address: Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301
For the States: Alaska, California, Colorado, District of Columbia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Washington, Wisconsin, Wyoming
This is the Mailing address: Department of the Treasury, Internal Revenue Service Center, P.O. Box 219256, Kansas City, MO 64121–9256
5.2 Required Electronic Filing
As mentioned above, the IRS now requires that businesses file no more than ten paper information returns in the course of a calendar year. Due to the nature of ACA reporting, this will require the majority of businesses and providers to file their 1095s electronically.
While this is a requirement, there are a lot of benefits to e-filing! This method is proven to be more accurate, with the IRS reporting far fewer errors and miscalculations on electronic forms. Additionally, the IRS is able to process these forms at a much more efficient pace and provide updates on the status of these forms.
IRS Penalties for ACA Reporting
6.1 Late or Inaccurate Filing
The IRS can penalize a business for failing to comply with information return filing requirements under IRC 6721 and IRC 6722.
Under IRC 6721, the IRS can impose a penalty ranging from $50 to $290 for every return that wasn’t filed on time and each information return that doesn’t meet the filing criteria. A common example of this would be submitting forms with incorrect Taxpayer Identification Numbers (TIN). Also, for intentional disregard, the penalty amount is $580.
Under IRC 6722, the IRS can impose an additional penalty if the employer doesn’t provide their employee or recipient with a correct copy of their ACA form.
The IRS will mail a Penalty Notice 972CG to an employer as a final warning that they have failed to meet their reporting obligations and provide correct information.
6.2 Failure to provide MEC
Employers who fail to provide minimum essential coverage to their eligible employees and those who fail to meet ACA reporting requirements are subject to IRS penalties.
There are two types of penalties that may apply:
- 4980H(a) Penalty: The IRS issues this penalty when an employer fails to offer Minimum Essential Coverage to at least 95% of their eligible employees as required under the Affordable Care Act (ACA).
- 4980H(b) Penalty: The IRS issues this penalty when an employer offers an unaffordable health insurance plan to their employees, and the employee also receives a premium tax credit over the federal healthcare exchange.
Extensions for ACA Forms
7.1 Filing an Extension for ACA Reporting
Employers that need additional to file their 1095 forms with the IRS can file an extension of 30 days.
7.2 Form 8809 — An Overview
Filing an 8809 Extension will allow you an additional 30 days to complete and file your ACA Forms 1095 and 1099s. The Form 8809 is the Application for Extension of Time To File Information Returns. This is an automatic extension, so as long as you file an accurate form on or before the deadline, the IRS will most likely grant your extension.
Conclusion
In conclusion, ACA reporting is an indispensable aspect of managing a business organization as it not only showcases a commitment to quality healthcare coverage for employees but also underscores the critical importance of IRS compliance.
Accurate and timely reporting not only safeguards against potential penalties but also fosters trust between employers, employees, and the government, contributing significantly to the overall success and reputation of the organization.