- The IRS has published the final instructions for applicable large employers filing forms to assess the adequacy and affordability of employer-sponsored health insurance for full-time workers.
- The reporting on Forms 1094-C/1095-C helps the IRS assess whether an employer may be subject to a penalty.
- For 2017, the IRS transition relief, which allowed employers to have a little more flexibility in who they offered coverage and how they filed before they were at risk of substantial penalties, expired.
- The IRS has also set new filing dates, adjusted the maximum filing penalties for inflation, and excused small-dollar errors on Form 1095-C.
IRS Forms 1094-C and 1095-C assess whether large employers offer ACA-compliant healthcare coverage
On Oct. 4, 2017, the Internal Revenue Service (IRS) published the 2017 Final Instructions for the Forms 1094-C and 1095-C; it published the corresponding final forms the previous week. Under the Affordable Care Act (ACA), applicable large employers (ALEs) are subject to employer-shared responsibility provisions, including information reporting requirements.
The reporting on 1094-C/1095-C helps the IRS assess whether an employer may be subject to an assessment. An ALE risks an assessment if it fails to offer adequate and affordable coverage to full-time employees and their dependents, and even one full-time receives a premium tax credit for purchasing insurance through a government-sponsored health insurance marketplace.
Self-insured ALEs must use the 1094-C/1095-C forms to report on individuals covered under the employer plan.
The IRS made only minor changes to the 2016 reporting forms. As expected, the agency removed transition relief, which allowed employers to have a little more flexibility in who they offered coverage to and how they filed before they were at risk of substantial penalties. Transition relief is no longer applicable in 2017. Additionally, the IRS has set filing dates, adjusted the maximum filing penalties for inflation, and excused small-dollar errors on Form 1095-C.
Business owners can go online to read the instructions and obtain the final versions of Form 1094-C and Form 1095-C. The final documents did not substantively differ from the IRS’ draft changes to the 2017 instructions that the agency released at the beginning of September.
What is the impact?
With the forms finalized for 2017, how can you determine who must be offered adequate and affordable coverage to avoid a potential assessment under Section 4980H of the Internal Revenue Code? What information do you need to gather to file appropriately? Consider the following questions as you prepare for employer shared responsibility obligations at the end of the tax year.
Are you an ALE subject to employer shared-responsibility provisions?
In general, an ALE has 50 or more full-time employees, including FTEs in the previous calendar year. If your company is new, you determine its status using the employee count that you anticipate, and use current-year data rather than historical data. Keep in mind that:
- The employer shared responsibility provisions exclude certain military veterans from the employee count when determining ALE status.
- Aggregation rules apply, so if your business is part of a controlled or affiliated service group as defined in IRC sections 414(b), (c), (m), and (o), you must aggregate your employee count across the group to determine whether your firm is an ALE subject to employer shared-responsibility provisions.
Who are your full-time employees?
Once you know that your firm is an IRS-defined ALE subject to the ACA’s employer shared responsibility provisions, you’ll need to determine who your full-time employees are, as delineated by the IRS. This evaluation appears easy if your workforce has no schedule variations. The IRS defines a full-time employee as an individual who works an average of 30 hours a week, or the equivalent of 130 hours a month.
However, even the most standardized work schedules may include variables and difficult assessments such as: new employees, seasonal employees, workers on leave, contract employees, and workers whose hours are difficult to measure, such as commissioned staff or employees paid piece-rate. Keep in mind, there are very nuanced rules for calculating the employee hours with specific carve-outs for various employee populations.
Which method are you using to categorize employees as full-time?
The IRS allows two choices to calculate the number of full-time employees in your firm: a lookback measurement period, or monthly measurement. You choose the method, and you must apply it consistently across IRS-permissible categories for grouping employees.
The lookback measurement method calls for you to review employees’ time worked for each completed month. Lookback-measurement periods can vary from three to 12 months, although many businesses choose a 12-month yardstick and align their administrative period with open enrollment for health insurance coverage. This gives you time to review payroll information and determine which employees are considered full-time, and which ones may be considered in payment assessments if not offered adequate and affordable coverage.
You can always reevaluate your full-time measurement approach based on the make-up of your employee population and health plan design.
Is my company part of a controlled or affiliated service group?
If your company is part of a control or affiliated service group as defined in IRC sections 414(b), (c), (m), and (o), ensure that you’re aggregating hours for determining ALE status, as well as full-time status for any employee who works for multiple members in the group. Take care in reporting employees who work for more than one member there are very specific rules.
Does our company have self-insured plans?
If your firm has self-insured healthcare plans, gather information on the enrollees and when they signed up. Additionally, ensure that your business makes reasonable attempts, as defined by the IRS, to gather social security numbers for additional covered individuals, such as spouses and dependents. If your company makes these attempts but doesn’t receive social security numbers, you’ll have to instead use employees’ birth dates for tax filing.
Do I have a non-calendar year plan?
If your business doesn’t use a calendar-year tax schedule, and you use the lookback measurement period, align any start date to measure the number of your FTEs with the start of the plan year, not the calendar year.
How do I track and identify employees in a limited non-assessment period?
This one is important. You may not understand how to assess your full-time employees if you have workers who are in a limited non-assessment period. But if you don’t obtain this information, you may be subject to an erroneous 4980H assessment, or incur a penalty for filing inaccurate returns.
The IRS only gave relief for penalties pertaining to Internal Revenue Code sections 6721 and 6722 if they are inaccurate and/or incomplete. The relief rested on a company’s good-faith effort to complete new returns for 2015 and 2016, but this is not the case for 2017 filings.
Many employers may not understand how to track and use limited non-assessment periods, during which 4980H employer shared responsibility tax penalties will not apply, provided that coverage is offered within a given time frame. There are six distinct circumstances that allows the employer to apply this relief.
Is my firm’s healthcare plan considered affordable?
Finally, determine how you are going to assess affordability of the coverage offered to your employees. The IRS offers three safe harbors you may apply: W-2, rate of pay, and Federal Poverty Level. There are some limitations to the use of these safe harbors. You must evaluate affordability for any full-time employee who is not in a limited non-assessment period or not enrolled in your firm’s coverage.
Do you contribute on behalf of any of your employees to a multi-employer plan?
If your business is required to contribute on behalf of an employee via a collective bargaining agreement or a related participation agreement, you may qualify for multiemployer interim relief. The IRS has extended this relief into 2017. To qualify, your firm must meet certain conditions, inclusive of the multiemployer coverage meeting affordability and minimum value requirements.
What are the filing deadlines for these forms?
The IRS has set new filing dates for Forms 1094-C and 1095-C, but note that they are not extended dates:
- Furnishing date: Jan. 31, 2018
- Paper filing date: Feb. 28, 2018
- Electronic filing date: April 2, 2018
Strive to meet all employer shared responsibility provisions
Once you’ve gathered and assessed all the necessary data for Forms 1094-C and 1095-C, ensure that your business can meet the requirements of the employer shared responsibility provisions. Remember, the IRS is now less forgiving about penalties for incomplete and/or inaccurate returns.
Employers that do not provide accurate or complete information will most likely be required to respond to IRS notices and correct any errors. Ultimately it will be easier to complete these forms correctly and completely the first time, rather than to go back and fix mistakes.
If you’re unsure where to begin, or don’t think you can meet these requirements on your own, help is available for completing and filing these forms.