IRS Form 1095-C: A Comprehensive Overview

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Okay, here’s a comprehensive article on IRS Form 1095-C, aiming for approximately 5000 words:

IRS Form 1095-C: A Comprehensive Overview

The Affordable Care Act (ACA) brought significant changes to the American healthcare landscape, including new reporting requirements for employers. One of the key forms associated with these requirements is IRS Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. This form is crucial for both employers and employees, playing a vital role in verifying health insurance coverage and determining eligibility for the premium tax credit. This article provides an in-depth exploration of Form 1095-C, covering its purpose, who needs to file it, how to complete it, common errors, and the implications for both employers and employees.

1. Purpose of Form 1095-C

Form 1095-C serves two primary purposes under the ACA:

  • Employer Reporting of Health Coverage Offers: The form is used by Applicable Large Employers (ALEs) – generally those with 50 or more full-time equivalent employees – to report information about the health coverage they offered (or did not offer) to their full-time employees. This information helps the IRS determine whether an employer meets its obligations under the employer shared responsibility provisions (also known as the “employer mandate”).
  • Employee Verification of Coverage: The form provides employees with information about the health coverage offered to them by their employer. This information is used by employees to determine their eligibility for the premium tax credit, which helps individuals afford health insurance purchased through the Health Insurance Marketplace. It also helps employees verify that they had minimum essential coverage (MEC) for each month of the year, which was previously relevant for avoiding the individual shared responsibility payment (the “individual mandate”). Although the individual mandate penalty has been reduced to zero, the reporting requirements remain.

2. Who Must File Form 1095-C?

Form 1095-C must be filed by Applicable Large Employers (ALEs). The determination of ALE status is critical and involves a specific calculation:

  • Full-Time Employees: A full-time employee is, for any calendar month, an employee who is employed on average at least 30 hours of service per week, or 130 hours of service per month.
  • Full-Time Equivalent Employees (FTEs): To calculate FTEs, you combine the hours of service of all non-full-time employees for the month, but no more than 120 hours of service per employee, and divide the total by 120.
  • ALE Determination: An employer is an ALE for a calendar year if it employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year.

Specific Scenarios:

  • Controlled Groups: Companies that are part of a controlled group (e.g., parent company and subsidiaries) are treated as a single employer for determining ALE status. The combined number of full-time and FTE employees across all members of the controlled group is used.
  • Governmental Entities: Governmental entities are subject to the employer shared responsibility provisions and are generally required to file Form 1095-C.
  • Self-Insured ALEs: ALEs that offer self-insured health coverage must use Form 1095-C to report information about that coverage for all enrolled employees, even those who are not full-time. This is in addition to reporting offers of coverage to full-time employees.
  • Non-ALEs offering Self-Insured Coverage: Employers that are not ALEs but offer self-insured health coverage use Form 1095-B, not Form 1095-C, to report coverage information.

3. Who Receives Form 1095-C?

The employer must furnish a copy of Form 1095-C to each full-time employee who was employed for at least one month of the calendar year. Additionally:

  • Self-Insured Coverage: ALEs with self-insured plans must also provide Form 1095-C to any individual (including part-time employees and non-employees like COBRA participants) who enrolled in the coverage.
  • Former Employees: Former employees who were full-time for any month of the year should also receive a Form 1095-C.
  • Employees of ALE Group Members: Each member of an aggregated ALE group is responsible for furnishing Form 1095-C to its own full-time employees.

4. Deadlines for Filing and Furnishing Form 1095-C

  • Furnishing to Employees: The deadline to furnish Form 1095-C to employees is generally January 31st of the year following the calendar year to which the form relates. However, the IRS has routinely extended this deadline in recent years, often to early March. It’s essential to check the current IRS instructions for the specific deadline.
  • Filing with the IRS:
    • Paper Filing: If filing by paper, the deadline is generally February 28th of the year following the calendar year to which the form relates.
    • Electronic Filing: If filing electronically (which is required for employers filing 250 or more of any type of information return, including Form 1095-C), the deadline is generally March 31st of the year following the calendar year to which the form relates.
  • Extensions: Automatic 30-day extensions of time to file with the IRS are available by filing Form 8809, Application for Extension of Time to File Information Returns. This extension does not extend the deadline for furnishing statements to employees. Separate extensions for furnishing statements to recipients may be requested, but they are not automatic and require a showing of good cause.

5. Detailed Breakdown of Form 1095-C: Parts I, II, and III

Form 1095-C is divided into three parts:

Part I: Employee and Applicable Large Employer (ALE) Member Information

This section contains identifying information about the employee and the employer.

  • Lines 1-6: Employee Information

    • Line 1: Employee’s Name
    • Line 2: Employee’s Social Security Number (SSN)
    • Line 3: Employee’s Street Address
    • Line 4: Employee’s City or Town
    • Line 5: Employee’s State or Province
    • Line 6: Employee’s ZIP Code

  • Lines 7-13: Applicable Large Employer Member (Employer) Information

    • Line 7: Employer’s Name
    • Line 8: Employer’s Employer Identification Number (EIN)
    • Line 9: Employer’s Street Address
    • Line 10: Employer’s Phone Number
    • Line 11: Employer’s City or Town
    • Line 12: Employer’s State or Province
    • Line 13: Employer’s ZIP Code

Part II: Employee Offer of Coverage

This is the most complex part of Form 1095-C and requires careful attention to detail. It reports information about the offer of health coverage made to the employee for each month of the year.

  • Line 14: Offer of Coverage Code: This line uses a series of codes to indicate the type of coverage offered to the employee (or if no coverage was offered). This is a critical field. Here’s a breakdown of the most common codes:

    • 1A: Qualifying Offer: Minimum essential coverage providing minimum value offered to full-time employee with employee contribution for self-only coverage equal to or less than 9.5% (as adjusted) of the mainland single federal poverty line and at least minimum essential coverage offered to spouse and dependent(s). This is the “gold standard” offer, providing the greatest protection from employer penalties.
    • 1B: Minimum essential coverage providing minimum value offered to employee only.
    • 1C: Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) (not spouse).
    • 1D: Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to spouse (not dependent(s)).
    • 1E: Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) and spouse.
    • 1F: Minimum essential coverage NOT providing minimum value offered to employee, or employee and spouse or dependent(s), or employee, spouse and dependents.
    • 1G: Offer of coverage to employee who was not a full-time employee for any month of the calendar year (and who enrolled in self-insured coverage). This code is used for the entire year.
    • 1H: No offer of coverage (employee not offered any health coverage or employee not a full-time employee).
    • 1J: Minimum essential coverage conditionally offered to spouse; minimum essential coverage providing minimum value offered to employee; and minimum essential coverage conditionally offered to dependent(s).
    • 1K: Minimum essential coverage conditionally offered to spouse; minimum essential coverage providing minimum value offered to employee; and minimum essential coverage offered to dependent(s).
    • 1L: Individual coverage health reimbursement arrangement (ICHRA) offered to you only with affordability determined by using employee’s primary residence location ZIP code.
    • 1M: Individual coverage health reimbursement arrangement (ICHRA) offered to you and dependent(s) (not spouse) with affordability determined by using employee’s primary residence location ZIP code.
    • 1N: Individual coverage health reimbursement arrangement (ICHRA) offered to you, spouse and dependents with affordability determined by using employee’s primary residence location ZIP code.
    • 1O: Individual coverage health reimbursement arrangement (ICHRA) offered to you only with affordability determined by using employee’s primary employment site ZIP code.
    • 1P: Individual coverage health reimbursement arrangement (ICHRA) offered to you and dependent(s) (not spouse) with affordability determined by using employee’s primary employment site ZIP code.
    • 1Q: Individual coverage health reimbursement arrangement (ICHRA) offered to you, spouse and dependents with affordability determined by using employee’s primary employment site ZIP code.
    • 1R: Individual coverage HRA that is NOT affordable offered to you; employee and spouse or dependent(s); or employee, spouse, and dependents.

    • 1S: Individual coverage HRA offered to an individual who was not a full-time employee.

    • Other Codes: There are additional, less common codes. Always refer to the official IRS instructions for the complete and current list.

  • Line 15: Employee Required Contribution: This line reports the employee’s share of the monthly premium for the lowest-cost self-only coverage that provides minimum value. This is not necessarily the premium for the plan the employee actually chose, but rather the cost of the cheapest available plan that meets the minimum value standard. This amount is crucial for determining the affordability of the coverage. If code 1A is used on Line 14, Line 15 may be left blank.

  • Line 16: Section 4980H Safe Harbor Codes (if applicable): This line uses codes to indicate if the employer is relying on one of the affordability safe harbors under Section 4980H of the Internal Revenue Code. These safe harbors provide alternative ways to determine if the coverage offered is considered “affordable” under the ACA. Here are some common codes:

    • 2A: Employee not employed during the month.
    • 2B: Employee not a full-time employee.
    • 2C: Employee enrolled in coverage offered. This code is used even if the employee enrolled in coverage that did not provide minimum value.
    • 2D: Employee in a Limited Non-Assessment Period. This often applies to new hires waiting for coverage to begin.
    • 2E: Multiemployer interim rule relief.
    • 2F: Section 4980H affordability Form W-2 safe harbor. The employer is using the employee’s Form W-2 wages to determine affordability.
    • 2G: Section 4980H affordability federal poverty line safe harbor.

    • 2H: Section 4980H affordability rate of pay safe harbor.

    • Other Codes: Refer to the IRS instructions for the complete list of codes.

Part III: Covered Individuals (Only for Self-Insured Plans)

This part is completed only by ALEs that sponsor self-insured health plans. It lists information about each individual (employee, spouse, dependents) who was enrolled in the self-insured coverage for at least one month of the year.

  • Lines 17-22: Covered Individual Information
    • Name of each covered individual
    • SSN (or date of birth if SSN is not available) for each covered individual
    • Columns (a) through (l): Checkboxes to indicate the months for which each individual was covered.

6. Common Errors and How to Avoid Them

Completing Form 1095-C accurately is crucial to avoid potential penalties. Here are some common errors and tips for avoiding them:

  • Incorrect ALE Status Determination: Failing to accurately calculate the number of full-time and full-time equivalent employees can lead to incorrect filing obligations. Use the IRS definitions and calculation methods carefully.
  • Incorrect Line 14 Codes: Using the wrong offer of coverage code is a frequent mistake. Understand the nuances of each code and choose the one that accurately reflects the coverage offered (or not offered) for each month.
  • Incorrect Line 15 Amount: The amount on Line 15 should be the employee’s share of the lowest-cost self-only minimum value coverage, not the actual premium paid.
  • Missing or Incorrect Line 16 Codes: If relying on an affordability safe harbor, the appropriate code must be entered on Line 16.
  • Incomplete Part III (for Self-Insured Plans): Failing to complete Part III for all covered individuals in a self-insured plan is a common oversight.
  • Incorrect SSNs or Names: Typos in names or SSNs can cause matching problems with IRS records. Double-check all identifying information.
  • Failing to Furnish Forms to Employees: Not providing copies of Form 1095-C to employees by the deadline can result in penalties.
  • Failing to File with the IRS: Missing the filing deadline (paper or electronic) can also lead to penalties.
  • Using the wrong form: Using form 1095-C when form 1095-B should be used.

Tips for Avoiding Errors:

  • Thoroughly understand the IRS instructions: The instructions for Form 1095-C are detailed and provide specific guidance. Read them carefully.
  • Use payroll and HR data accurately: Ensure that your payroll and HR systems are set up to track employee hours, coverage offers, and enrollment information accurately.
  • Consider using ACA reporting software: Several software solutions are available that can automate the Form 1095-C process, reducing the risk of errors.
  • Seek professional assistance: If you are unsure about any aspect of Form 1095-C, consult with a qualified tax advisor or benefits consultant.
  • Double-check all information before filing: Review all forms carefully for accuracy before submitting them to the IRS and furnishing them to employees.

7. Penalties for Non-Compliance

Failure to comply with the Form 1095-C filing and furnishing requirements can result in significant penalties. Penalties can be assessed for:

  • Failure to File: Not filing Form 1095-C with the IRS by the deadline.
  • Failure to Furnish: Not providing Form 1095-C to employees by the deadline.
  • Filing Incorrect or Incomplete Forms: Submitting forms with errors or missing information.

The penalty amounts are adjusted annually for inflation. The penalties are generally assessed per form, so the total penalty can be substantial for employers with many employees. The IRS may waive penalties if the failure was due to reasonable cause and not willful neglect. There are different tiers of penalties, with higher penalties for intentional disregard of the filing requirements.

8. Implications for Employers

Form 1095-C is a critical component of employer compliance with the ACA’s employer shared responsibility provisions. Here’s a summary of the key implications for employers:

  • Determining Liability for Employer Shared Responsibility Payments: The information reported on Form 1095-C is used by the IRS to determine whether an ALE owes an employer shared responsibility payment. These payments are assessed if an ALE:
    • Does not offer minimum essential coverage to at least 95% of its full-time employees (and their dependents), and at least one full-time employee receives the premium tax credit; OR
    • Offers minimum essential coverage that is not affordable or does not provide minimum value, and at least one full-time employee receives the premium tax credit.
  • Demonstrating Compliance: Accurate and timely filing of Form 1095-C demonstrates compliance with the ACA’s reporting requirements.
  • Avoiding Penalties: Proper completion and filing of the forms help employers avoid potentially substantial penalties.
  • Administrative Burden: Complying with the Form 1095-C requirements can create an administrative burden for employers, particularly those with complex workforce structures or self-insured plans.

9. Implications for Employees

Form 1095-C provides valuable information to employees regarding their health coverage. Here are the key implications:

  • Premium Tax Credit Eligibility: The information on Form 1095-C is used by employees to determine their eligibility for the premium tax credit when purchasing coverage through the Health Insurance Marketplace. If an employee was offered affordable, minimum value coverage by their employer, they are generally not eligible for the premium tax credit.
  • Verification of Coverage: The form helps employees confirm that they had minimum essential coverage for each month of the year. While the individual mandate penalty is currently zero, this information may still be relevant for state-level mandates or for personal records.
  • Understanding Coverage Options: Form 1095-C provides clarity about the type of coverage offered by the employer, helping employees make informed decisions about their health insurance.

10. Correcting Errors on Form 1095-C

If you discover an error on a Form 1095-C after it has been filed with the IRS and furnished to the employee, you must file a corrected form. Here’s the process:

  • Check the “CORRECTED” Box: At the top of the Form 1095-C, check the “CORRECTED” box.
  • Complete the Form with Corrected Information: Fill out the entire form, including the corrected information. Do not only enter the corrected fields; the entire form must be resubmitted.
  • Furnish a Corrected Copy to the Employee: Provide the employee with a copy of the corrected Form 1095-C as soon as possible. Clearly label it as “CORRECTED.”
  • File with the IRS: Submit the corrected Form 1095-C to the IRS, following the same filing procedures (paper or electronic) as the original form.
  • Transmittal Form: When filing corrected paper Forms 1095-C with the IRS, you must also include Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. Check the “CORRECTED” box on Form 1094-C as well.

11. Relationship to Other ACA Forms (1094-C, 1095-B)

Form 1095-C is part of a family of ACA-related forms. It’s important to understand the relationships between these forms:

  • Form 1094-C: Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. This form is used to transmit Forms 1095-C to the IRS. It summarizes the information reported on the 1095-C forms and provides information about the ALE, including the number of full-time employees and whether the employer is part of an aggregated ALE group. An ALE must file Form 1094-C even if it files only one Form 1095-C.
  • Form 1095-B: Health Coverage. This form is used by health insurance issuers (insurance companies) and employers with self-insured plans who are NOT ALEs to report information about individuals who had minimum essential coverage. ALEs with self-insured plans use Form 1095-C (Parts I, II, and III) to report this information, not Form 1095-B.

Key Differences:

  • Form 1095-C is for ALEs to report offers of coverage and coverage information for self-insured plans.
  • Form 1095-B is for non-ALEs with self-insured plans and for insurance companies to report coverage information.
  • Form 1094-C acts as a cover sheet, summarizing all submitted 1095-C forms.

12. The Future of Form 1095-C

While the individual mandate penalty under the ACA has been reduced to zero, the employer shared responsibility provisions remain in effect. Therefore, Form 1095-C continues to be a crucial reporting requirement for ALEs. The IRS has continued to refine the instructions and make clarifications, and it is essential to stay up to date on the latest guidance. Changes to healthcare laws could potentially impact Form 1095-C in the future, so employers and tax professionals should monitor any legislative developments.

13. Resources and Where to Get Help

  • IRS Website: The IRS website (www.irs.gov) is the primary source for information on Form 1095-C. You can find the form itself, instructions, FAQs, and other resources. Search for “Form 1095-C” or “Affordable Care Act.”
  • IRS Instructions for Forms 1094-C and 1095-C: These instructions are essential reading for anyone completing these forms.
  • IRS Affordable Care Act Tax Provisions for Employers: This webpage provides a comprehensive overview of the ACA’s requirements for employers.
  • Tax Professionals: Consult with a qualified tax advisor or benefits consultant for assistance with Form 1095-C compliance, especially if you have complex situations.
  • ACA Reporting Software: Consider using software specifically designed for ACA reporting to streamline the process and reduce errors.

14. Conclusion

IRS Form 1095-C is a complex but essential form for Applicable Large Employers under the Affordable Care Act. Accurate and timely completion of this form is crucial for demonstrating compliance, avoiding penalties, and providing employees with the information they need. Employers should invest the necessary time and resources to understand the requirements, utilize available resources, and seek professional assistance when needed. By doing so, they can navigate the complexities of Form 1095-C and fulfill their obligations under the ACA. Staying informed about any changes to the regulations and seeking updated guidance each year is critical for continued compliance.

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