Forms 1094 and 1095: IRS issues final forms and instructions

Beginning in early 2016, many employers must file Forms 1094 and 1095 to provide information to the IRS and plan participants about health coverage provided in the previous year. The forms will be used by the IRS to enforce the Affordable Care Act’s (ACA’s) shared-responsibility (or “play or pay”) provision, as well as individual mandate and tax credit eligibility rules.

The forms come in two versions: “B Forms” and “C Forms.” The B Forms (1094-B and 1095-B) are filed by providers of health care coverage — mostly insurers, but also some self-insuring employers and others. Meanwhile, the C Forms (1094-C and 1095-C) are filed by applicable large employers (ALEs, generally employers with at least 50 full-time employees or the equivalent).

The IRS recently released the final forms and instructions for completing them. The final instructions generally follow the draft instructions released earlier — but with some important modifications.

Form 1095-C

The final instructions on Form 1095-C include several particularly notable clarifications and simplifications. Specific topics include:

Reporting COBRA offers to terminated employees. An offer of COBRA coverage made to a former employee upon termination of employment isn’t reported as an offer of coverage on line 14. Instead, the ALE will enter code 1H (no offer of coverage) on line 14 and code 2A (individual not employed) on line 16 for any month for which a COBRA offer was made to a terminated employee.

This is a major reversal from a position announced in Q&A guidance earlier this year, which would have required ALEs to report the “offer” of COBRA based on actual COBRA elections. Under the final instructions, COBRA offers for terminated employees aren’t reported as offers of coverage under any circumstances — even if a former employee elects the coverage. By entering code 2A on line 16, the ALE is protected from potential “play or pay” penalties for the month.

Qualifying offers. Receipt of a qualifying offer — an offer of affordable, minimum value coverage to the employee and minimum essential coverage to family members — disqualifies employees and family members from eligibility for premium tax credits. In some cases, ALEs can provide alternative statements in lieu of Form 1095-C to notify employees of the resulting ineligibility for tax credits.

The final instructions add an example involving a full-time employee who receives a qualifying offer for less than 12 months in the calendar year. The example illustrates that an ALE can use the qualifying offer code (1A) on Form 1095-C so long as the employee received a qualifying offer for all months in which the employee was full-time (and not in a limited nonassessment period). But the ALE cannot furnish the alternative statement unless the employee received a qualifying offer for all 12 months in the calendar year.

The instructions continue to emphasize that Form 1095-C (not the alternative statement) must always be provided to employees who actually enroll in a self-insured health plan sponsored by the ALE. A new paragraph added to the instructions for the qualifying offer transition relief for 2015 appears to be misplaced. It states that an ALE relying on this relief can send the “notification described above” to an employee who received a qualifying offer for all 12 months of the calendar year. However, that notification says that the employee may be eligible for a premium tax credit, which would not be accurate for an employee who received a qualifying offer for all 12 months.

Counting total employees. The final instructions state that an ALE can count employees on the 12th day of each month. With this addition, ALEs now can choose any of five permissible days within each month to count total employees. The ALE must use the same day for all months in the year.

ALE definition. The final instructions note that an employee isn’t counted for the ALE determination for any month that he or she has coverage under the TRICARE or Veterans’ Administration health care programs. This change reflects recent legislation.

HRA reporting

The final instructions incorporate HRA reporting rules consistent with the revised reporting rules under Form 1095-B. The section on supplemental coverage, however, has been replaced with a section addressing two common coverage situations under the heading “Coverage in More Than One Type of Minimum Essential Coverage.”

In the first situation, a coverage provider offering more than one type of minimum essential coverage to an individual needs to report only one type of coverage. Thus, an employer sponsoring both a self-insured major medical plan and a Health Reimbursement Arrangement (HRA) is required to report coverage under either the major medical plan or the HRA, but not both.

In the second situation, a provider of minimum essential coverage doesn’t have to report minimum essential coverage for which an individual is eligible only because the individual has other minimum essential coverage for which reporting is required. Thus, an employer sponsoring both a fully insured major medical plan and an HRA for employees enrolled in the major medical plan isn’t required to report the coverage under the HRA for an individual covered by both arrangements.

The HRA reporting rules in the draft instructions prompted concern because they’d have imposed additional reporting obligations on HRA sponsors with fully insured health plans. This change provides welcome relief. Because the insurer is obligated to report enrollment in major medical coverage on Form 1095-B, requiring the employer to separately report HRA coverage would have been redundant.

However, if a health plan and HRA are sponsored by different employers — for example, for employees enrolled both in their employer’s HRA and their spouse’s employer’s non-HRA self-insured group health plan — each employer will have to separately report. In Notice 2015-68, the IRS has announced its intention to issue proposed regulations on this subject.

Other tidbits

Careful readers will find other tidbits that may prove useful when completing the forms. For example, clarification is provided regarding truncation of employer identification numbers on statements provided to individuals and how to handle missing taxpayer IDs. Reporting entities will also want to read IRS Notice 2015-68 for its further elaboration of reporting issues — including limited penalty relief related to soliciting taxpayer IDs from covered individuals.


Sidebar: Trade legislation increases penalties for information return failures

Congress has significantly increased the penalties for failures related to information returns and individual statements required under the Internal Revenue Code, such as Forms W-2 and 1099. Notably, also included are the Affordable Care Act’s (ACA’s) new reporting requirements for health coverage providers and applicable large employers (ALEs) on IRS Forms 1094 and 1095. (See main article.)

The penalty increases apply to returns and statements required after December 31, 2015. (Because the new filings under the ACA are first required in early 2016, the increased penalties will apply to them from the outset.) The penalty for general failures increases from $100 to $250 per return, and the calendar-year cap increases from $1.5 million to $3 million. “Failures” include:

  • Failure to file by the due date,
  • Failure to include all required information, and
  • Provision of incorrect information.

If failures result from intentional disregard of the filing requirements, the per-return penalty increases to $500, and the calendar-year cap doesn’t apply. Lower penalty amounts continue to apply for smaller entities and for failures corrected within certain timeframes, but those penalty amounts will also increase under the law.

Because the increased penalties also apply to individual statement failures, there could be a double impact where there are dual requirements to file an information return and an individual statement. This is the case with required reporting by ALEs under the ACA: They must file information returns with the IRS and furnish statements to employees.

To enable ALEs to show a good-faith effort to comply with the new requirements, the IRS previously announced limited relief from penalties for Forms 1094 and 1095 filed and furnished in 2016 for coverage offered in 2015. Although the penalty increases don’t seem to affect that relief, they provide additional incentives for ALEs to at least satisfy the good-faith standard for the fast-approaching deadlines.

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