IRS to Accept Tax Returns Lacking Health Care Status; Employer Reporting Unchanged

Employers still must distribute 1095 forms to employees and report employee health coverage to IRS, as deadlines loom

By Stephen Miller, CEBS Feb 22, 2017
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On Feb. 15, the IRS announced on its ACA Information Center for Tax Professionals webpage that it would not reject taxpayers' 2016 income tax returns that are missing health coverage information.

This information is supposed to be included on line 61 of the Form 1040 and line 11 of the Form 1040EZ to demonstrate compliance during the year with the Affordable Care Act's (ACA's) mandate that individuals have health insurance that meets ACA standards, or else pay a penalty.

Two crucial points regarding the IRS announcement should be underscored, said Jeff Cronin, vice president at Sovos, a Minneapolis-based compliance software company:

  • The announcement only applies to personal income tax filers—it does not affect employers disclosure and reporting obligations.

  • It is not a repeal of the individual mandate; penalty provisions are still in place and are currently being enforced.

The IRS indicated that it will accept tax returns lacking this information in light of President Donald Trump's executive order directing agencies to minimize the ACA's regulatory burden. While the requirement to have ACA-compliant coverage or pay a tax penalty has been in place since 2014, starting this year the IRS was to have begun automatically flagging and rejecting tax returns missing that information.

"This action by the IRS doesn't mean it won't enforce the individual mandate," said Lisa Carlson, senior Employee Retirement Income Security Act (ERISA) attorney at Lockton Compliance Services in Chicago. "This action simply means the IRS won't reject a taxpayer's return outright if the taxpayer doesn't answer the health coverage question. The IRS reserves the right to follow up with a taxpayer, at a future date, regarding his or her compliance with the individual mandate, if the person's tax return doesn't provide information about his or her health insurance coverage during 2016."

Enforcement Uncertainty

For those individuals who previously filed without providing health insurance information or who indicated that they did not carry coverage as was required, "whether the IRS will assess penalties depends on the retroactive nature of [a possible future] repeal of the individual mandate or its penalties," Carlson said.

While the IRS announcement does not suggest that the agency won't be strictly enforcing the individual mandate tax penalty, "we just don't know" what enforcement actions the agency might take, said Garrett Fenton, an attorney with Miller & Chevalier in Washington, D.C., whose practice focuses on employee benefits, tax and executive compensation.

While it's unclear how strenuous IRS enforcement actions might be, "the individual mandate and its related tax penalties are certainly still on the books, and it would require an act of Congress to change that," Fenton noted. If tax filers leave unchecked the box indicating that they have ACA-compliant coverage, "the IRS may come back and ask them follow-up questions, and they still may get audited and potentially owe the tax penalty."

[SHRM members-only toolkit: Communicating with Employees About Health Care Benefits Under the Affordable Care Act]

Employer Compliance

"The ACA is still the law of the land," advised Scott Behrens, a senior ERISA attorney at Lockton Companies in Kansas City, Mo. "Prudent employers will want to continue to comply with the ACA, including the play-or-pay mandate and reporting requirements"— furnishing Forms 1095-C to employees and making all required filings with the IRS—"until formal guidance relieves them of those compliance obligations."

Despite the IRS announcement, "employers are still required to file their ACA reporting forms, Cronin agreed. "Those forms will be rejected if they do not contain the requisite information. Because the President has indicated that we may not see a repeal until 2018, employers will still be required to operate their health plans in an ACA-compliant manner until notified otherwise."

In the context of the employer mandate, waiver of penalties seems unlikely because these penalties are written into law and are a significant source of revenue for the federal government, Cronin said. Beyond the possible extension of "good faith" relief to tax year 2017 filings, "there will not likely be any IRS changes to employers' reporting obligations pursuant to the President's executive order," he predicted.

The bottom line: "Those who are responsible for issuing and filing 1094s and 1095s on behalf of their organizations should continue to comply with all relevant laws, regulations, reporting requirements and filing specifications during the repeal-and-replace process," said Cronin.

Deadlines Loom

The IRS issued Notice 2016-70 in November 2016, giving employers subject to the ACA's 2016 information-reporting requirements up to an additional 30 days to deliver these forms to employees. The notice affected upcoming deadlines for ACA information reporting as follows:

  • The IRS extended the deadline to deliver ACA reporting forms to employees from Jan. 31 to March 2. Employers must deliver to workers the 2016 Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) and Form 1095-B (Health Coverage).

The Treasury Department and the IRS determined that a substantial number of employers and other insurance providers needed additional time "to gather and analyze the information [necessary to] prepare the 2016 Forms 1095-C and 1095-B to be furnished to individuals," Notice 2016-70 stated. This extension applies for tax year 2016 only and does not require the submission of any request or other documentation to the IRS.

  • The IRS did not change the deadline for filing Forms 1094 and 1095 with the agency. This indicated no automatic extension was likely to file the 2016 Form 1094-B (Transmittal of Health Coverage Information Returns) along with copies of Form 1095-B, and Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns) along with copies of Form 1095-C.

• Employers filing these forms by mail will still need to do so by Feb. 28.
• Employers filing electronically (as those submitting 250 or more forms are required to do) must do so by March 31

Although the date for filing with the IRS was not extended, employers can obtain a 30-day extension by submitting Form 8809 (Application for Extension of Time to File Information Returns) by the due date for the ACA information returns.


For small businesses with fewer than 50 full-time equivalent employees that provide employees with an ACA-compliant group plan, the rules are a bit different. If fully insured, the insurance company that provides coverage is required to send enrollees a copy of Form 1095-B and to submit Forms 1995-B (along with transmittal Form 1094-B) to the IRS in order to report minimum essential coverage.

If a small company is self-insured and provides group coverage, it must also provide employees and the IRS with Form 1095-B. But small business that offer insurance are not required to send Form 1095-Cs to employees or to the IRS.

Small business that do not provide group coverage are not subject to ACA reporting.


"While Congress considers options to repeal and replace the ACA, businesses should prepare to comply with the current employer mandate through 2018," said Cronin. "Businesses should pay close attention to decisions over the next few weeks, but be prepared to stay patient because significant details on employer obligations are unlikely to take shape for some time," he advised.

"We've got to act as if the individual and employer mandates are and will continue to be on the books indefinitely until we hear otherwise," said Fenton. "Congress certainly isn't going to be passing a repeal tomorrow by any means."

Related SHRM Online Articles:

How Trump’s First Executive Order Could Affect Employer Health Plans, SHRM Online Benefits, January 2017

IRS Delays Employers' Deadline to Distribute ACA Reporting Form 1095 to Employees, SHRM Online Benefits, November 2016

Where’s My 1095?’ Addressing Tax Filing, SHRM Online Benefits, February 2016

SHRM Health Care Reform Resource Page 

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