By now, most applicable large employers (ALEs) are very familiar with the reporting requirements under the ACA. Yet we often see the same mistakes when these employers complete Forms 1094-C and 1095-C.
The confusion is understandable, given the back-and-forth with ACA implementation. But ambiguity won’t exonerate you from fines and other measures if you don’t have complete and accurate paperwork.
Reporting Requirements Recap
Before we go into the mistakes we typically see, let’s review the reporting requirements.
- ALEs (those with 50 or more full-time employees or part-time equivalents on average during the preceding calendar year) must show proof of compliance with the ACA’s employer shared responsibility mandate by completing Form 1095-C. This form is provided to the employee and the IRS; it reports whether the employer offered eligible employees affordable health coverage that provides minimum essential coverage and meets the minimum value threshold.
- Along with Form 1095-C, Form 1094-C (transmittal form) is completed to report to the IRS summary information for each ALE member and to transmit Forms 1095-C to the IRS.
- Together, Forms 1094-C and 1095-C are used in determining whether an ALE member owes a payment under the employer shared responsibility provisions under section 4980H.
- Small employers with fewer than 50 full-time employees are exempt from most ACA reporting requirements, but not all. For example, self-insured small employers must complete and file Forms 1095-B and 1094-B (the transmittal form) with the IRS, as well as provide full-time employees with a copy of Form 1095-B.
- Small employers also are required to file Forms 1095-C and 1094-C if they are members of a controlled or affiliated service group that collectively has at least 50 full-time employees.
Common Mistakes in Completing Form 1094-C and 1095-C
To prevent a penalty letter due to reporting errors (more on that later), let’s look at some of the more common mistakes being made on Forms 1094-C and 1095-C.
Missing deadlines. Watch your due dates! At times the IRS will provide extensions to the normal due dates, but don’t assume they will. The regular deadlines are:
- January 31: Deadline to furnish Form 1095-C to employees
- February 28: Deadline to file Forms 1094-C/1095-C to the IRS if filing by paper
- March 31: Deadline for electronic filing to the IRS
Not counting your employees properly. Penalties are based on the stated full-time employee counts for each month of the tax year as provided on Form 1094-C. Make sure you are following the IRS measurement method and definitions. Common errors include counting an employee during months they did not work for you (if they were hired or terminated during the year) and counting employees in your full-time headcount who were not eligible for coverage.
Code errors. The codes you use on Form 1095-C will ultimately determine if (and for what months) your company may be subject to penalties. And there are several of them, along with caveats. For example:
- Line 14 identifies the kind of offer that was made, if any.
- Line 15 identifies the lowest cost contribution for self-only coverage.
- Line 16 indicates why a penalty should not be assessed for that particular month.
- Depending on the code used in Line 14, you might not complete Line 15…
The list goes on. So read the IRS instructions thoroughly! And seek additional help from a trusted advisor. Getting it right the first time will save you a lot of time, trouble and expense.
Forgetting to check all the boxes. A client of ours received a significant penalty letter for one reason—they neglected to check one box on Form 1094-C which indicated that yes, they did offer minimum essential coverage for all 12 months of the tax year. That’s all it takes to trigger a letter. So whether you are completing the forms in house or using a payroll company or other service, review the Form 1094-C and 1095-C thoroughly!
Not keeping a copy of your forms. You never know if a penalty letter will be mailed to your company, even if you think you’ve done everything correctly. Keep a copy of what you send to the IRS so that you can make corrections if needed or respond promptly to a penalty notice.
What Triggers an Employer Shared Responsibility Payment (ESRP) Letter?
The employer shared responsibility rules require ALEs to offer health coverage for minimum essential health benefits to full-time employees and their dependents. Any ALE that doesn’t offer such coverage—or offers coverage that is not affordable to full-time employees and dependents—could be subject to the ESRP if just one full-time employee is allowed a premium tax credit for purchasing health insurance coverage from the ACA Marketplace.
Even if you follow the rules when it comes to the ACA, Form 1094-C and Form 1095-C, errors in reporting can trigger an ESRP letter and a hefty penalty. Mistakes can and will happen, so do the best you can to get these forms right the first time.
If you are not confident in your knowledge of the process or are confused by the instructions, reach out to a trusted ACA expert like James Moore’s HR Consulting team. And if you have received an ESRP notice, find out more about how we can help.
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