IRS Grants Relief as Employers Prep for ACA Reporting in 2020

Deadline extended to March 2 for distributing 1095 forms; additional small-employer relief

Stephen Miller, CEBS By Stephen Miller, CEBS December 3, 2019
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On Dec. 2, the IRS announced it would extend the deadline to March 2 from Jan. 31 for employers to provide employees with a copy of their 1095-C or 1095-B reporting form, and again extended "good faith effort" transition relief to employers for Affordable Care Act (ACA) reporting for plan year 2019.

The IRS granted additional relief to small employers with regard to furnishing employees with Forms 1095-B, letting them post a notice on their websites that Forms 1095-B are available on request, and will allow large self-insured employers similar relief with regard to furnishing Forms 1095-C to part-time employees.

Filing Deadlines

The critical 2020 filing deadlines for 2019 coverage are as follows:

ACA Requirement Deadline
1095 forms delivered to employeesJan 31 (extended to March 2)*
Paper filing with IRS
Feb 28
Electronic filing with IRS
Mar 31

*As in the past, the IRS has extended the Jan. 31 deadline by 30 days, doing so in Notice 2019-63.
Source: IRS.


Although the IRS has extended the Jan. 31 deadline to furnish ACA reporting forms to employees by 30 days, employers may still decide to distribute 1095 forms to employees in January along with employees' W-2 earnings statements.

"The IRS will not grant an additional 30-day extension beyond this deadline," and if an employer submits a request for a 30-day extension to furnish these forms, "the IRS will not respond to that request since it is now moot," according to compliance firm Hub International. Even with the automatic extension, "the IRS specifically encouraged employers and other coverage providers to send the forms to employees and individuals as soon as possible."

Forms and Instructions

The IRS also has issued draft forms and instructions to help employers prepare to report on the health coverage they offered employees in 2019. The final forms are expected to be issued before the end of the year. Employers subject to the ACA must ensure that 1095 reporting forms are distributed to employees, except as noted below, and transmit copies of these forms to the IRS early in 2020.

"The release of these documents is another clear message from the IRS that it's continuing to enforce the reporting requirements," said benefits attorney Arthur Tacchino, chief innovation officer at compliance software and services firm SyncStream Solutions.

The draft forms and instructions are available on the IRS website:

The final forms, once available, will be posted on the IRS website. IRS Publication 5223, General Rules and Specifications for Affordable Care Act Substitute Forms 1095-A, 1094-B, 1095-B, 1094-C, and 1095-C, describes how employers may prepare substitute forms to furnish ACA reporting information to individuals and the IRS.

Not Just ALEs

Applicable large employers (ALEs)—those that had an average of 50 or more full-time employees or part-time equivalents during the preceding calendar year—use Form 1095-C to report whether they offered eligible employees affordable health coverage that provides minimum essential coverage and meets the minimum value threshold

Small employers with fewer than 50 full-time employees are exempt from most ACA reporting requirements, but not all, the IRS points out. For example, self-insured small employers must complete and file Forms 1095-B and 1094-B with the IRS, as well as provide full-time employees with a copy of Form 1095-B (see the box below for relief offered by the IRS for distributing Forms 1095-B to employees).

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.

Reporting obligations for employees who work for companies with fewer than 50 employees are generally handled by the insurance carrier if the employer is fully insured. Self-insured small employers often delegate this task to a third-party administrator, however these employers are responsible for any liability associated with noncompliance.

Given the complexity of ACA reporting, "employers should be ensuring they are on top of their data as the 2019 calendar year comes to a close," Tacchino advised. They should "review their source data for accuracy, making sure hire dates, termination dates and offers of coverage are all correct, as most systems employers use to populate the forms rely on the accuracy of this data."


Good-Faith Reporting Relief Extended

IRS Notice 2019-63, in addition to extending the due date for furnishing employees with ACA information-reporting forms until March 2, also extended for another year good-faith relief for reporting.

The notice provides relief from penalties to employers that report incorrect or incomplete information when they show that they made good-faith efforts to comply with the information-reporting requirements, both for furnishing forms to individuals and for filing them with the IRS. This relief applies to missing and inaccurate taxpayer identification numbers and dates of birth, as well as other information.

The IRS will take into account "whether an employer or other coverage provider made reasonable efforts to prepare for reporting the required information" to the IRS and furnishing forms to employees, such as gathering and transmitting the necessary data to an agent to prepare the data for submission to the IRS or testing its ability to transmit information to the IRS.

Employers that fail to file information returns or to furnish forms to employees, except as otherwise provided in the notice, are not eligible for relief.

The IRS requested comments as to whether extending the due date for furnishing reporting forms to employees and extending good-faith reporting relief will be necessary for future years and, if so, why. Employers may submit comments via the Federal eRulemaking Portal at http://www.regulations.gov or by mail.

1095-B Furnishing Relief

The IRS is granting small employers whose employees receive Forms 1095-B additional reporting relief for 2019 plan year reporting.

The IRS said in Notice 2019-63 it would not assess penalties against coverage providers (insurance carriers or self-funded small employers) for failing to furnish Forms 1095-B to employees when the following two conditions are met:

  • The reporting entity posts a notice prominently on its website stating that employees may receive a copy of their 2019 Form 1095-B on request, accompanied by an e-mail address and a physical address to which a request may be sent, as well as a telephone number that employees can use to contact the reporting entity with any questions.
  • The reporting entity furnishes a 2019 Form 1095-B within 30 days of the request being received.

"Insurers and small employers must, however, file with the IRS all the 1095-Bs they prepare, even those not supplied to primary insureds" under the relief described above, noted Ed Fensholt, senior vice president and director of compliance services at Lockton, a benefits brokerage and consultancy.

1095-C Furnishing Relief

Among ALEs, "self-insured employers are not required to automatically supply a copy of the 1095-C to anyone who was not an ACA full-time employee for at least a month in 2019," Fensholt said. To qualify for this relief, self-insured employers must satisfy the same notice and furnish-on-request requirement described above.

This relief does not extend to the requirement for ALEs to furnish Forms 1095-C to full-time employees.


Changes for 2019 Reporting 

The draft instructions and Forms 1094 and 1095 "are slightly different from previous years, so it will be important for employers to track when the final forms are available and make sure they are using the latest versions," said Kim Buckey, vice president of client services at DirectPath, a benefits education, enrollment and health care transparency firm.

"The proposed changes are minimal," she noted, and "the instructions have not changed other than being updated with new dates—2019 versus 2018." The forms have also been updated to reflect that Congress eliminated the penalty on individual taxpayers for not having ACA-compliant health coverage by reducing the penalty to $0 beginning in 2019. This effectively ended the individual coverage requirement, also known as the individual mandate or the individual responsibility requirement. The IRS noted that individuals do not need to report whether they had coverage or not when filing their federal income tax returns.

The draft instructions now remind participants that if they were offered minimum essential coverage through their employer, they would not be eligible for a premium tax credit or subsidy when buying insurance coverage on an ACA exchange, Buckey pointed out. "These changes will require updates to any templates employers might be using," she noted.

[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]

Electronic Filing

The IRS will allow electronic filing of ACA information returns for the 2019 tax year in January 2020. Employers that file 250 or more information returns with the IRS must file the returns electronically.

"Employers can save themselves time, money and effort by carefully reviewing the data to ensure that full-time employees are correctly identified, and that the company is designing its programs to offer affordable coverage to all full-time employees," Buckey said. "Such preparation will reduce the risk of receiving penalty letters and paying assessments."

[SHRM members-only how-to guide: How to Use the Look-Back Measurement Method to Determine Full-Time Status Under the Affordable Care Act]

State Mandates

Since the individual mandate for coverage was effectively repealed as of January 2019, for income tax purposes "employees don't need to worry about these forms unless state mandates come into play," noted compliance advisory firm Employer's Resource.

Some U.S. states have enacted their own requirements for individual coverage and state reporting, including California, Massachusetts, News Jersey, and Washington, D.C. Rhode Island and Vermont have passed laws to reinstate the individual mandate beginning in 2020.

Employers should verify whether states with their own reporting requirements have updated their forms and know which states allow reporting using the federal forms. For example, New Jersey is permitting employers to send their entire federal Form 1095-C filing to the state, "letting the state filter out what they need," Tacchino noted.

Employers, Buckey advised, 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. "If they haven't already done so, now is certainly a good time to begin such communications—when benefits are top of mind due to annual enrollment and in the months leading up to tax-planning season," she recommended.


Checklist for ACA Reporting

The IRS offers this advice for employers that are preparing for ACA reporting:

  • Determine ALE status for 2019 based on 2018 data. Identify full-time employees based on the ACA's definition of full time (averaging 30 hours of work or more per week during a month), considering special classifications such as staffing employees, independent contractors, temporary or short-term employees, and even interns.
  • Assess whether the monthly measurement method or look-back measurement method to determine full-time status is best, based on the nature of the company's workforce. Update plan documents and summary plan descriptions, if necessary, for the measurement method selected.
  • Select the appropriate safe harbor the company will use for the affordability calculation: W-2, rate of pay, or federal poverty line.
  • Make sure Social Security number request obligations are being fulfilled.
  • Check reporting obligations for non-ALEs that self-insure group health plans.
  • Review the instructions for required forms, noting changes from prior years.

IRS Q&As provide more information on reporting offers of health insurance coverage and on 1095 filing requirements.


2020 ACA Penalties

Employers should expect higher penalties for ACA violations, advised Basic HR Compliance & Technology, an ACA compliance software and services firm. The IRS has begun "aggressive enforcement of the ACA," sending out Letter 226J penalty notices for noncompliance with the employer shared responsibility payment provision, the firm noted.

The Department of Health and Human Services issued the 2020 Notice of Benefit and Payment Parameters final rule in April 2019, and based on the inflation-adjustment factor in the final rule, compliance advisers project that the ACA 2020 penalty amounts, adjusted annually from the initial penalties set in 2014, will be as follows:

  • The Section 4980H(a) penalty is expected to increase from $2,320 per employee to $2,500 per employee. This penalty is imposed on employers who fail to offer full-time employees and their dependent children the opportunity to enroll in minimum essential coverage sponsored by the employer if at least one full-time employee obtains a premium tax credit for insurance purchased through an ACA marketplace exchange.
  • The Section 4980H(b) penalty is expected to increase from $3,480 per employee to $3,750 per employee. This penalty is imposed on employers whose plan fails to meet the affordability and minimum value requirements.

Other ACA penalties, including failure to file Form 1095 with the IRS and failure-to-furnish forms to employees, are expected to increase from $260 to $270 per return.


Legislative Relief Sought

The Society for Human Resource Management (SHRM) and the employer community "continue to advocate for a bipartisan, bicameral proposal to streamline ACA employer reporting requirements," said Chatrane Birbal, SHRM's director for policy engagement.

The Commonsense Reporting Act, introduced in the House (H.R. 4070) by Reps. Mike Thompson, D-Calif., and Adrian Smith, R-Neb., and in the Senate (S. 2366) by Sens. Mark Warner, D-Va., and Rob Portman, R-Ohio, "would allow employers to voluntarily report upfront to the IRS general information about their health plan for the current plan year, which will help increase the accuracy of eligibility determinations for exchange tax credits," Birbal said. "State and federally run exchanges would be able to access information securely through a data services hub to determine individual eligibility for tax credits, and the IRS would use the information to more accurately issue 226-J tax penalty letters," she noted.

If enacted, the legislation would help ease employers' reporting burdens by requiring ACA reporting forms only "for employees about whom the employer received notification that the employee or their dependents purchased coverage through an exchange, rather than issuing reporting statements for the entire workforce," Birbal said. "Ultimately, the proposal will provide individual consumers with much-needed safety nets, employers with relief from the burdensome reporting requirements, and state and federal exchanges with an additional tool to verify tax credit and subsidy eligibility."

Small Business Health Care Tax Credit Form Updated

The IRS also issued Form 8941, Credit for Small Employer Health Insurance Premiums, for tax year 2019 and filing instructions.

The small business health care tax credit is limited to employers with fewer than 25 full-time equivalent employees that pay an average wage of about $50,000 a year or less, and pay at least half of their full-time employees' health insurance premiums for Small Business Health Options Program (SHOP) coverage.

The maximum credit is 50 percent of premiums paid by small businesses or 35 percent of premiums paid for small nonprofit organizations. The credit is available to eligible employers for two consecutive taxable years.

Last year, the IRS released guidance on qualifying for the credit if small employers are in areas with no SHOP plans available through the ACA marketplace exchange.


Related SHRM Articles:

IRS Lowers Employer Health Plans' 2020 Affordability Threshold, SHRM Online, July 2019

HHS 2020 Out-of-Pocket Maximums Raise Employer Penalties, SHRM Online, April 2019



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