Employers Should Be Preparing Now for Form 1095-C Reporting
Date: May 04, 2015
Publication: Law@Work Spring 2015 Newsletter
By January 31, 2016, applicable large employers will be required to send Forms 1095-C to verify certain information about the employer’s 2015 health coverage. Form 1095-C will be used by the IRS to verify an individual’s compliance with the Affordable Care Act individual mandate, to verify an employer’s compliance with the employer “pay or play” rules, and to verify an individual’s eligibility for a tax credit to reduce the cost of an insurance policy purchased through a Health Insurance Marketplace (also known as a state “Exchange”).
Compliance with each of these requirements is determined on a monthly basis, so Form 1095-C will contain a month-by-month report regarding the health coverage offered to an individual and whether the individual and any dependents were actually enrolled in that health coverage. Because the form will contain an individualized month-by-month report, employers should understand the reporting requirements now to ensure that they will have the necessary data for accurate reporting in 2016.
What Is Form 1095-C?
Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is an individualized statement that informs the employee and the IRS about the employer’s health coverage. As with Forms W-2 and W-3, an employer will provide a Form 1095-C to each eligible recipient by January 31 following the reporting year and will transmit copies of those forms to the IRS with Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns.
Which Employers Must Provide Form 1095-C?
An employer must provide Form 1095-C if it is an applicable large employer under Internal Revenue Code Section 4980H (known as the “employer mandate” or the employer “pay or play” rules). Generally, an employer is an applicable large employer if it and other employers within its controlled group together employed an average of at least 50 full-time employees and full-time equivalent employees in the prior calendar year.
Note: Applicable large employers who employed an average of less than 100 full-time employees and full-time equivalent employees in 2015 can qualify for transition relief to delay application of the employer mandate until 2016. However, the reporting requirement is not also delayed. Employers who qualify for this transition relief will be required to provide a 2015 Form 1095-C to their full-time employees.
Each employer is responsible for providing Forms 1095-C to its employees. If multiple companies within the same controlled group participate in a single health plan sponsored by the parent company, reporting must nevertheless be done separately by each employer. While an employer may delegate the actual preparation and filing of the reports (for example, to the parent company or a vendor), the employer will ultimately be liable for any non-compliance.
Which Individuals Must Receive Form 1095-C?
An applicable large employer generally must provide Form 1095-C to any employee who is treated as a full-time employee under the Affordable Care Act and to any other employee or non-employee (including a retiree, a former employee enrolled in COBRA coverage, or a non-employee director) enrolled in self-insured health coverage offered by the employer during any month of the year.
Note: Because these forms must be provided to all employees who are considered full-time under the Affordable Care Act, an employer must understand the rules and regulations applicable to a determination of full-time status. Failure to understand these rules could cause the employer to misclassify an employee and therefore be subject to a penalty for failure to provide a Form 1095-C.
If an employer offers affordable (under the federal poverty line safe harbor), minimum value coverage to an individual and any spouse and dependents for all twelve months of the year, the employer may give the individual a certification statement instead of a Form 1095-C. However, the employer will still be required to complete a Form 1095-C for that employee and submit the form to the IRS.
What Information Must Be Reported on Form 1095-C?
Form 1095-C contains three parts:
- In Part I, an employer will be required to identify the recipient of the form and his employer.
- In Part II, an employer will be required to use indicator codes to report whether the employer offered affordable, minimum value essential coverage to the employee, his spouse, and/or his dependents for each month of the year.
Note: Part II communicates the extent to which an employer has satisfied its obligation under the employer mandate, so the accuracy of this Part will depend upon an employer’s understanding of the rules and regulations applicable to the employer mandate. Failure to understand those rules could lead to an accuracy-related penalty for failure to correctly complete Form 1095-C and/or assessment of a penalty under Internal Revenue Code Section 4980H.
- In Part III, an employer who offers self-insured health coverage must report the months during which an individual and each dependent was enrolled in the self-insured health coverage. An employer is not required to complete Part III for an individual if the employer does not offer self-insured health coverage or if the individual was not enrolled in the self-insured health coverage at any time during the year.
What Should an Employer Be Doing Now?
Applicable large employers should be tracking data now to ensure that it can be accurately reported in 2016. Additionally, employers should consider whether they have the knowledge and resources to prepare Forms 1095-C in house or whether they should outsource this function to a vendor. If using a vendor, employers should be carefully reviewing and negotiating service agreements to ensure appropriate allocation of responsibility and liability.