Forms 1094-C and 1095-C

Understanding Forms 1094-C and 1095-C: A Comprehensive Guide

In the complex landscape of healthcare reporting and compliance, Forms 1094-C and 1095-C play a crucial role for many employers. These forms, mandated by the Affordable Care Act (ACA), are essential tools for reporting health insurance information to the Internal Revenue Service (IRS) and employees. This comprehensive guide will delve into the intricacies of these forms, their purpose, and the responsibilities they entail for employers.

What are Forms 1094-C and 1095-C?

Forms 1094-C and 1095-C are IRS forms used by certain employers to report information about the health coverage they offer to their full-time employees. These forms are part of the ACA's efforts to ensure compliance with the employer shared responsibility provisions, also known as the "employer mandate."

Form 1094-C, often referred to as the "transmittal form," is used to report summary information about an employer's offer of health coverage and to transmit Forms 1095-C to the IRS. Form 1095-C, on the other hand, is distributed to both the IRS and employees, providing detailed information about the health insurance coverage offered to each full-time employee.

Who Needs to File Forms 1094-C and 1095-C?

The requirement to file these forms applies to Applicable Large Employers (ALEs). An ALE is defined as an employer with 50 or more full-time employees, including full-time equivalent employees, during the preceding calendar year. It's important to note that this threshold includes both full-time employees (those working 30 or more hours per week) and the equivalent of full-time employees working part-time.

Additionally, self-insured employers of any size must file these forms for employees enrolled in their self-insured health plans, even if they are not considered ALEs.

The Purpose of Form 1094-C

Form 1094-C serves as a cover sheet for an employer's 1095-C forms. It provides the IRS with summary information about the employer's health coverage offerings. This form includes:

• Basic information about the ALE, including name, address, and Employer Identification Number (EIN)
• The total number of Forms 1095-C being submitted
• Information about whether the ALE is part of an Aggregated ALE Group
• Certifications of eligibility for transition relief (if applicable)
• Information about the ALE's offer of coverage by month

Employers must file one Form 1094-C along with all of their Forms 1095-C.

The Purpose of Form 1095-C

Form 1095-C is more detailed and is used to report specific information about the health coverage offered to each full-time employee. This form is filed with the IRS and also provided to employees. It includes:

• Employee and employer information
• Details about the coverage offered to the employee, including the lowest-cost monthly premium for self-only coverage
• The months during which coverage was offered
• The employee's share of the lowest-cost monthly premium
• Applicable safe harbor codes

For self-insured plans, Form 1095-C also includes information about covered individuals (including dependents) for each month of the calendar year.

Deadlines for Filing and Furnishing Forms

The deadlines for filing Forms 1094-C and 1095-C with the IRS and furnishing Form 1095-C to employees are critical dates that employers must be aware of. Typically, these deadlines fall in the first quarter of the year following the reporting year.

For example, for the 2024 tax year:

• Forms 1095-C must be furnished to employees by January 31, 2025
• Forms 1094-C and 1095-C must be filed with the IRS by February 28, 2025, if filing on paper, or March 31, 2025, if filing electronically

It's important to note that these deadlines can sometimes be extended by the IRS, so employers should stay informed about any potential changes.

Common Challenges in Completing Forms 1094-C and 1095-C

While these forms serve a crucial purpose, many employers find them challenging to complete accurately. Some common difficulties include:

1. Determining ALE Status

Calculating whether an organization meets the threshold to be considered an ALE can be complex, especially for companies with fluctuating workforce sizes or those near the 50 full-time employee threshold.

2. Tracking Offers of Coverage

Employers must accurately track when and to whom coverage was offered throughout the year. This can be particularly challenging for companies with high turnover or variable hour employees.

3. Understanding Safe Harbor Codes

The forms use various codes to indicate different scenarios related to coverage offers and affordability. Selecting the correct codes requires a thorough understanding of the ACA's complex rules.

4. Gathering Accurate Data

Compiling all the necessary information from various sources (HR, payroll, benefits administration) can be time-consuming and prone to errors.

5. Keeping Up with Changing Regulations

The rules and requirements surrounding these forms can change from year to year, requiring employers to stay informed and adapt their reporting processes accordingly.

Best Practices for Compliance

To ensure accurate and timely filing of Forms 1094-C and 1095-C, employers should consider the following best practices:

1. Start Early

Begin gathering necessary data well before the filing deadline. This gives ample time to address any discrepancies or missing information.

2. Implement Robust Tracking Systems

Utilize HR software or other systems that can accurately track employee hours, offers of coverage, and other relevant data throughout the year.

3. Educate Key Personnel

Ensure that HR, benefits, and payroll teams are well-versed in the requirements of these forms and understand their roles in the reporting process.

4. Conduct Regular Audits

Periodically review your data and processes to identify and correct any issues before they become problematic during filing season.

5. Consider Outsourcing

For some organizations, particularly those without dedicated ACA compliance teams, outsourcing the preparation and filing of these forms to a specialized service provider may be beneficial.

6. Stay Informed

Regularly check for updates from the IRS regarding any changes to the forms or filing requirements.

Potential Penalties for Non-Compliance

The IRS takes compliance with these reporting requirements seriously, and failure to file or furnish these forms correctly and on time can result in significant penalties. As of 2024, these penalties include:

• Failure to file correct information returns (Form 1095-C) with the IRS: $290 per return, with a maximum penalty of $3,532,500 per year
• Failure to provide correct payee statements (Form 1095-C) to employees: $290 per statement, with a maximum penalty of $3,532,500 per year
• Failure to file electronically when required: $290 per return, with a maximum penalty of $3,532,500 per year

These penalties can be even higher for intentional disregard of the filing requirements. It's worth noting that these penalty amounts are subject to annual inflation adjustments.

The Future of Forms 1094-C and 1095-C

As with many aspects of healthcare regulation, the requirements surrounding Forms 1094-C and 1095-C are subject to change. While these forms have been a staple of ACA compliance since 2015, there have been ongoing discussions about potential modifications or alternatives to the current reporting system.

Some proposed changes have included simplifying the reporting process, reducing the frequency of reporting, or even eliminating certain reporting requirements altogether. However, as of 2024, these forms remain a critical component of ACA compliance for ALEs.

Employers should stay informed about any potential changes to these requirements and be prepared to adapt their processes accordingly. This may involve regularly consulting with legal counsel, attending industry conferences, or subscribing to updates from relevant government agencies.

Conclusion

Forms 1094-C and 1095-C play a vital role in the implementation and enforcement of the Affordable Care Act's employer shared responsibility provisions. While they present significant compliance challenges for many employers, understanding these forms and implementing robust processes for their completion and submission is crucial.

By staying informed about the requirements, leveraging appropriate tools and resources, and adopting best practices, employers can navigate the complexities of ACA reporting more effectively. This not only helps avoid potential penalties but also contributes to the broader goal of ensuring access to affordable health coverage for employees.

As the healthcare landscape continues to evolve, it's likely that reporting requirements will also change. Employers must remain vigilant and adaptable, ready to adjust their processes as necessary to meet new challenges and requirements in the realm of health coverage reporting.

Ultimately, while Forms 1094-C and 1095-C may seem like mere paperwork, they represent a significant piece of the larger puzzle of healthcare reform in the United States. By fulfilling these reporting obligations accurately and timely, employers play a crucial role in supporting transparency and accountability in the healthcare system.