The IRS, after cautioning last year not to expect future extensions to the Jan. 31 deadline for furnishing Affordable Care Act (ACA) reporting forms to employees, has changed its mind.
In new proposed regulations, the IRS would permanently extend by 30 days the deadline for employers to distribute individual statements to full-time employees that indicate whether their employer-sponsored health insurance met ACA requirements for minimum essential coverage. The new deadline for furnishing Forms 1095-B or 1095-C would be March 2.
The proposal says employers and insurers may take advantage of the extension for distributing 2021 reporting forms to employees before the rule is finalized, starting with delivering 2021 forms in early 2022. It does not change the due dates for filing these forms with the IRS.
The ACA requires applicable large employers (ALEs)—employers that during the prior year had 50 or more full-time employees or the equivalent when part-time employees' hours are combined—to submit reporting forms to the IRS and to distribute these forms to employees by the following deadlines:
|1095 forms delivered to employees
|Jan. 31, 2022
(automatic extension to March 2)
|Paper filing with IRS*
|Feb. 28, 2022**
|Electronic filing with IRS
|March 31, 2022**
*Employers that file 250 or more information returns with the IRS must file the returns electronically.
**Filers can obtain a 30-day extension on filing forms with the IRS by submitting Form 8809—Application for Extension of Time to File Information Returns—by the filing due date.
A Permanent Change
The IRS-proposed regulations "make permanent a 30-day automatic extension for furnishing Forms 1095-B and 1095-C to individuals," wrote Kellie M. Thomas, a principal in the Baltimore office of law firm Jackson Lewis. "Such forms will now be due each year on March 2 (or the next business day if March 2 falls on a weekend/holiday), and the relief is immediate—furnishers can rely on the proposed regulations for 2021 reporting (due in 2022)."
The proposed regulations, Thomas added, "do not change the Feb. 28/March 31 due dates for submitting these forms to the IRS when filing by paper or electronically, respectively."
Danielle Capilla, vice president of compliance, employee benefits, at Alera Group, a network of insurance and financial services firms, advised that "employers should work diligently to complete their reporting forms on time." Many employers may still prefer to distribute the 1095 forms to employees alongside their W-2 tax forms, which must be given to employees by Jan. 31, she noted.
According to benefits broker HUB International, "although the filing deadline technically remains Jan. 31, employers and coverage providers would be able to take advantage of a 30-day extension automatically." In addition, according to HUB's compliance team, "these proposed rules say employers and coverage providers may rely on them for the 2021 reporting forms. This is not typical; usually proposed rules are just that—proposed—but in rare circumstances, the IRS and Treasury Department do allow taxpayers to rely on the rules before they are final. Fortunately, this is one such instance."
The IRS is accepting comments on the proposed rule through Feb. 4, 2022, via the Federal eRulemaking Portal at www.regulations.gov (indicate IRS and REG-109128-21).
ACA Reporting Forms
The IRS has issued final versions of ACA forms for reporting on plan year 2021 coverage.
1094-B—for filing Forms 1095-B to the IRS.
1094-C—for filing Forms 1095-C to the IRS.
1095-B—used by insurance companies offering fully insured health coverage through employer-sponsored plans, and by small, self-funded employers, to document employees and family members enrolled in minimum essential coverage.
1095-C—used by ALEs who sponsor self-funded health plans to detail their offer of coverage so as to avoid potential employer mandate ("shared responsibility") penalties. Completed for every full-time employee, furnished to each employee and submitted to the IRS. Self-insured ALEs also must complete a Form 1095-C for any part-time employees who are enrolled in coverage.
Note: Employers that offer employer-sponsored self-insured health coverage to nonemployees who enroll in the coverage may use Form 1095-B, rather than Form 1095-C, Part III, to report coverage for those individuals and other family members.
Coordination with State Laws
Five states—California, Massachusetts, New Jersey, Rhode Island and Vermont—along with Washington, D.C., have enacted individual health coverage mandates that mirror the former federal requirement that individuals obtain ACA-compliant health coverage or pay a penalty tax. These states could require taxpayers to show proof of ACA-equivalent coverage or be fined by their states.
Employers should verify whether states with their own reporting requirements have updated their forms and know which states allow reporting using the federal forms and deadlines for furnishing state forms to employees.
In addition, employers should alert affected employees if their states of residence require coverage, what materials the employer will be providing, and what action the employees will need to take, said Kim Buckey, vice president of client services at DirectPath, a benefits advocacy and education firm.
"If they haven't already done so, now is certainly a good time to begin such communications," she advised.
Alternative for Insurer-Furnished Statements
The proposed regulations include an alternative way for insurers to provide Forms 1095-B to individuals: Instead of delivering the Form 1095-B to the individual, the insurer would be able to post a notice on its website and provide the form on request.
"The IRS is easing this reporting requirement primarily due to fact that the information has little utility since Congress lowered the penalty for the 'individual mandate' to $0, effective as of 2020," wrote Caleb Barron, an attorney in law firm Bradley's Nashville office.
No More Good-Faith Compliance
Last year, the IRS announced in Notice 2020-76 that beginning with plan year 2021 reporting— taking place during the first quarter of 2022—it would no longer provide "transitional good-faith relief" that it had offered since the requirements for reporting minimum essential coverage first went into effect in 2015.
"The preamble to the proposed regulations reiterated that employers would no longer be able to utilize the good faith relief from penalties under sections 6721 and 6722 for reporting incorrect or incomplete [forms] for the 2021 tax year and all subsequent tax years," wrote Ryan Moulder, a Los Angeles-based partner at Health Care Attorneys PC and general counsel at Accord Systems LLC, an ACA compliance software firm. He noted that:
- Section 6721 of the ACA penalizes an employer who fails to timely file or files an incorrect or incomplete Form 1094-B, Form 1095-B, Form 1094-C or Form 1095-C to the IRS.
- Section 6722 penalizes an employer who fails to timely furnish or who furnishes an incorrect or incomplete Form 1095-B or 1095-C to an individual.
For the 2021 reporting season the penalty under both sections 6721 and 6722 is $280 per return. "This penalty could apply twice to the same Form 1095-C, once for the Form 1095-C that is furnished to the employee and once for the Form 1095-C that is submitted to the IRS for a total of $560," Moulder explained.
"During the era of transitional good-faith relief, the IRS has been accommodating of employers filing incomplete or inaccurate information on Forms 1094 and 1095," Barron noted. "With the relief coming to an end, employers should take extra care to ensure the information they are reporting, especially the coding on Forms 1095-C, is accurate."
While the IRS may continue to allow corrections to avoid the assessment of a shared responsibility payment, he explained, "the effective cost of such corrections may be the information reporting penalties."
According to a blog post by MZQ Consulting, a benefits compliance firm, "the proposed 30-day automatic extension to the Form 1095-B/C delivery deadline comes with its own increased penalty risks."
The consultancy noted, "If an employer or issuer distributes its 2021 Forms-1095-B or C after March 2, 2022, then they will be considered late and subject to penalties. Employers will not be able to request additional time past the 30 days to furnish forms to employees, and the IRS has made it clear that they don't want to hear excuses any longer."
Related SHRM Articles:
Prepare for Upcoming ACA Reporting Deadlines in 2022, SHRM Online, November 2021
IRS Lowers 2022 Employer Health Plan Affordability Threshold to 9.61% of Pay, SHRM Online, September 2021