It’s that time of year again. Time to file 1094/1095Cs—and yes, we still have to file them!
We’ve taken note of some of our top observations from over the years and compiled them here in the top nine things you need to know about 1095s and ACA reporting.
- You’re Doing it Wrong
Experientially, the vast majority of returns we’ve seen have had at least an error or two. But don’t dismay. With simple clerical errors, the IRS has been surprisingly forgiving. We haven’t yet seen a fine based on simple typographical errors for instance. But failure to offer a qualified health plan? That’s a different story.
- You may be Overthinking It
Do you offer at least one health plan to substantially all full time US-based employees across your organization? Does it meet Minimum Essential Coverage and Minimum Value as the vast majority of traditional plans do? And is it affordable to the employee? Finally, is your coverage fully insured (as opposed to self-insured)?
If you answered yes to all the questions above, you’re probably providing an offer of health insurance under both the Qualifying Offer Method and the 98 percent Offer Method—whether you’re intending to or not—which substantially reduces the amount of time and effort needed to complete the filing. The points in this article for the most part will only apply if this is the case for you.
- Growing Employers Often Start Reporting Too Soon
If you’ve been in growth mode, and just peaked over the 50 full-time equivalent mark for the majority of the prior year for the first time, it means you just became an ALE (applicable large employer) this year, and don’t have to file 1095Cs until next year.
Example: you went from 45 full time employees to 55 starting in May of 2019, and have stayed pretty much steady headcount-wise. In this case you won’t have to file 1095s until first quarter of 2021 for the 2020 calendar year.
Changing the example slightly, if that sudden growth didn’t happen until September of 2019, you get a full additional year and won’t have to file until the first quarter of 2022.
- Your Outside Vendor probably isn’t as much of an expert on 1095s as you’d hope
Without fail, each year a client will reach out to us as their benefits broker, asking for 12 months of invoices or other information laying out who was enrolled on their group health plan the prior year. The problem is, the vast majority of companies don’t need to include that kind of data in their 1095 reporting.
It turns out, many vendors completing these forms aren’t experts in ACA compliance, and so just take the approach of trying to fill in all the blanks. Or, many vendors offer software, but without guidance.
The result is that HR professionals spend many extra hours each year compiling data in a spreadsheet that the IRS never wanted to see.
- For most employers, most of each 1095c will be blank
Here is a prototype for what the bulk of 1095cs look like:
This applies for employees who you employed and who were benefit-eligible for the entirety of prior year.
Notice there is only one box filled on all of Part 2, and nothing is filled in for Part 3. We just marked “1A” under “all 12 months” and we’re done.
Note that 1A is an offer of coverage that meets the FPL safe harbor for affordability. Please only use the code that applies to your organization.
- If an employee was newly hired—or fired—during the prior year, that’s only slightly more complicated
In the below example, assume Bill was hired mid-April and the company has a “first of the month following 60 days after Date of Hire” waiting period. For months Bill wasn’t offered coverage we mark 1H, and for months he was offered coverage we mark 1A. For the “1H” months we must also provide a safe harbor code to indicate why no offer of coverage was made—which in this case would be either “2A” if not employed those months, or “2D” for months he was in the waiting period.
- Only Certain Employers Have to Include Health Insurance Costs on Their W-2s
For companies that are part of a control group: Only companies that issue 250 W-2s in a year—within a specific entity—need to report health insurance premiums on their employees’ W-2s. That is, the normal aggregation rules for related employers under the control group rules do not apply here. This can be a big help for franchisees or other organizations structured as multiple legal entities.
- You’ll Probably Get a Bill from the IRS No Matter What You Do! (Only Half-joking)
Each year we get calls from our clients that we know did everything they were supposed to do—they offered qualified health insurance to all full time employees, did so at an affordable rate, and still received a penalty letter (called a Letter 226J) for tens of thousands of dollars. In each case, a conference call with the IRS— in addition to a few quick required documents—resolved the issue.
The most common mistake we see is the employer checking “no” to the question on the 1094C submission on whether coverage was offered to 95% or more of full time employees. Another common mistake is not entering a code in line 16 of the 1095C, if needed.
But even if you have a buttoned-down filing, we’re still seeing 226Js whenever an employee is receiving a subsidy on the state exchange.
- For fully-insured groups, 1095 form filing only gets complicated if you’re not following best practices
If you’re not offering coverage to all of your full time (per the ACA definition) eligible employees, then chances are you’re not eligible for the “98 percent offer method” which adds some additional wrinkles—and time—to your filing. Reality is, you should be offering health insurance coverage to all full time employees anyway.
If your plan doesn’t meet Minimum Essential Coverage, Minimum Value and/or it’s not affordable, then you won’t be eligible for the Qualifying Offer Method and your reporting requirements are more burdensome. Additionally, you’ll most likely be receiving a valid IRS invoice due to ACA penalties.
Self-insured groups have to provide additional information about which employees—and their family members – were actually enrolled each month. If you’re fully-insured, this is the same information the carrier provides directly to subscribers in the 1095-B.
Looking for help or guidance with your specific situation? Contact me (or your Bolton service representative) with questions.
And please remember, Bolton doesn’t practice law or accountancy—consult your experts in those fields.