Form 1095-C Explained

Okay, here’s a comprehensive article explaining Form 1095-C, aiming for approximately 5,000 words:

Form 1095-C Explained: A Comprehensive Guide for Employers and Employees

The Affordable Care Act (ACA) introduced several reporting requirements for employers, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is one of the most critical. This form is essential for both employers and employees in navigating the complexities of health insurance coverage and the ACA’s mandates. This article provides an in-depth explanation of Form 1095-C, covering its purpose, who needs to file it, how to complete it, what information it contains, deadlines, penalties for non-compliance, and common scenarios. We’ll break down each section of the form, providing clear examples and addressing frequently asked questions.

1. The Purpose of Form 1095-C

Form 1095-C serves two primary purposes:

• For Employers (Applicable Large Employers – ALEs): It helps the IRS determine whether an Applicable Large Employer (ALE) owes a payment under the Employer Shared Responsibility provisions (also known as the “employer mandate”). This mandate requires ALEs to offer affordable, minimum value health coverage to their full-time employees (and their dependents) or potentially face penalties. Form 1095-C provides the IRS with information about the health coverage offered (or not offered) to each employee.
• For Employees: It provides employees with information about the health coverage offered to them by their employer. This information is helpful for employees when they file their individual income tax returns. While employees don’t need Form 1095-C to file their taxes (unlike Form W-2 for wages), it can be useful in confirming whether they had minimum essential coverage (MEC) throughout the year. Although the individual mandate penalty is currently zero at the federal level, some states have their own individual mandates and associated penalties, making this information potentially relevant.

2. Who Needs to File Form 1095-C? (Applicable Large Employers – ALEs)

Form 1095-C is filed by Applicable Large Employers (ALEs). An ALE is an employer with an average of at least 50 full-time employees, including full-time equivalent employees (FTEs), during the preceding calendar year. This determination is crucial, as only ALEs are subject to the employer mandate and the associated reporting requirements.

Determining ALE Status:

• Full-Time Employee: A full-time employee, for ACA purposes, is an employee who averages at least 30 hours of service per week or 130 hours of service per month.
• Full-Time Equivalent Employees (FTEs): To calculate FTEs, combine the hours of service of all non-full-time employees for each month (but do not count more than 120 hours of service per employee per month). Divide the total monthly hours by 120. This gives you the FTE count for that month.
• Aggregation Rules: Companies under common ownership or control are generally treated as a single employer for determining ALE status. This prevents businesses from splitting into smaller entities to avoid the employer mandate.
• Preceding Calendar Year: ALE status is determined each calendar year based on the previous year’s workforce. For example, to determine if you’re an ALE for 2024, you look at your workforce data from 2023.
• First Year in Existence: A new employer determines its ALE status based on a reasonable expectation of its average workforce size for the current year.

Example:

• Company A: Had 45 full-time employees and 20 part-time employees who each worked 60 hours per month.
  • FTEs: (20 employees * 60 hours) / 120 = 10 FTEs
  • Total: 45 full-time + 10 FTEs = 55 employees. Company A is an ALE.
• Company B: Had 60 full-time employees throughout the year. Company B is an ALE.
• Company C: Had 40 full-time employees and no part-time employees. Company C is not an ALE.

3. Who Receives Form 1095-C?

An ALE must furnish a Form 1095-C to:

• All full-time employees: Any employee who was considered full-time (30+ hours per week or 130+ hours per month) for any month of the calendar year must receive a 1095-C, regardless of whether they enrolled in the employer’s health plan.
• Employees enrolled in self-insured coverage: If the ALE offers a self-insured health plan (meaning the employer directly pays for healthcare claims rather than purchasing insurance from an insurance company), they must provide a 1095-C to any employee (full-time or part-time) who enrolled in the coverage, as well as any covered dependents. This is because the 1095-C also serves as proof of minimum essential coverage for these individuals.

Important Note: An employer that is not an ALE is not required to file Form 1095-C. However, if a non-ALE employer offers a self-insured health plan, they will file Form 1095-B instead to report coverage information for enrolled individuals.

4. Detailed Breakdown of Form 1095-C

Form 1095-C is divided into three parts:

• Part I: Employee and Employer Information
• Part II: Employee Offer of Coverage
• Part III: Covered Individuals (Only for Self-Insured Plans)

Let’s examine each part in detail:

Part I: Employee and Employer Information

This section is relatively straightforward and contains basic identifying information:

• Employee Information:
  • Employee’s Name
  • Social Security Number (SSN)
  • Address
• Employer Information (ALE Member):
  • Employer’s Name
  • Employer Identification Number (EIN)
  • Address
  • Phone Number
  • Contact Person’s Name (if needed for the entire ALE)

This information is used to identify the employee and the employer responsible for the form. It’s crucial that this information is accurate to ensure proper processing by the IRS.

Part II: Employee Offer of Coverage

This is the most complex and critical part of Form 1095-C. It provides information about the health coverage offered (or not offered) to the employee for each month of the calendar year.

• Line 14: Offer of Coverage: This line uses a series of codes to indicate the type of coverage offered to the employee for each month. There is a box for each month (January through December), and an “All 12 Months” box that can be used if the same code applies for the entire year.

  Here’s a breakdown of the most common Line 14 codes:

  • 1A. Qualifying Offer: This is the “gold standard” offer. It means the employer offered minimum essential coverage (MEC) providing minimum value (MV) to the employee, and the employee’s share of the lowest-cost self-only coverage was no more than a specified percentage of the federal poverty line (this percentage is adjusted annually). It also means the employer offered MEC to the employee’s spouse and dependents. If 1A applies for all 12 months, the employer can generally avoid penalties under both sections 4980H(a) and 4980H(b) of the employer mandate.
  • 1B. Minimum Essential Coverage (MEC) providing Minimum Value (MV) offered to employee only. The employer offered affordable coverage that met minimum value, but only to the employee, not to their spouse or dependents.
  • 1C. MEC providing MV offered to employee and at least MEC offered to dependent(s) (not spouse).
  • 1D. MEC providing MV offered to employee and at least MEC offered to spouse (not dependents).
  • 1E. MEC providing MV offered to employee and at least MEC offered to dependent(s) and spouse. This is similar to 1A, but the employee’s cost may have exceeded the affordability threshold based on the federal poverty line. It might still be considered affordable based on other safe harbors (discussed later).
  • 1F. MEC not providing MV offered. The employer offered coverage, but it didn’t meet the minimum value standard (e.g., it didn’t cover at least 60% of the average costs of benefits).
  • 1G. Offer of coverage to employee who was not a full-time employee, but enrolled in self-insured coverage. This code is used for employees who were not full-time for any month of the year but enrolled in the employer’s self-insured plan.
  • 1H. No offer of coverage. The employer did not offer health coverage to the employee for that month.
  • 1J. MEC conditionally offered to spouse. Conditional offers may be dependent upon the lack of coverage offered by another employer.
    • 1K. Similar to 1J, but this code is used for conditionally offered MEC to a spouse, and MEC providing MV is offered to the employee and at least MEC is offered to dependent(s).
  • 1L, 1M, 1N, 1O, 1P, 1Q, 1R, 1S, 1T, and 1U. These new codes, introduced in 2020 and 2021, are specifically for Individual Coverage Health Reimbursement Arrangements (ICHRAs). They relate to different types of ICHRA offers and affordability calculations.
  • 1L. Individual coverage HRA offered to you only with affordability determined by using employee’s primary residence location ZIP code.
  • 1M. Individual coverage HRA offered to you and dependent(s) (not spouse) with affordability determined by using employee’s primary residence location ZIP code.
  • 1N. Individual coverage HRA offered to you, spouse and dependent(s) with affordability determined by using employee’s primary residence location ZIP code.
  • 1O. Individual coverage HRA offered to you only using the employee’s primary employment site ZIP code affordability safe harbor.
  • 1P. Individual coverage HRA offered to you and dependent(s) (not spouse) using the employee’s primary employment site ZIP code affordability safe harbor.
  • 1Q. Individual coverage HRA offered to you, spouse and dependent(s) using the employee’s primary employment site ZIP code affordability safe harbor.
  • 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.
  • 1T. Individual coverage HRA offered to you only with affordability determined using employee’s primary residence location ZIP Code. Employee and spouse were offered the HRA.
  • 1U. Individual coverage HRA offered to you only with affordability determined using employee’s primary employment site ZIP Code. Employee and spouse were offered the HRA.

• Line 15: Employee Share of Lowest-Cost Monthly Premium (for Self-Only Minimum Value Coverage): If code 1B, 1C, 1D, 1E, 1J, or 1K is entered on Line 14 for any month, Line 15 must be completed. This line reports the employee’s share of the monthly premium for the lowest-cost self-only coverage that provides minimum value. This amount is crucial for determining affordability. If Code 1A is entered on Line 14, Line 15 can be left blank.

• Line 16: Section 4980H Safe Harbor Codes (if applicable): This line uses codes to indicate if the employer is relying on any of the affordability safe harbors or other relief from the employer mandate penalties.

  Here are some of the key Line 16 codes:

  • 2A. Employee not employed during the month. The employee was not employed by the ALE on any day of that calendar month.
  • 2B. Employee not a full-time employee. The employee was not a full-time employee for that month (averaged less than 30 hours per week).
  • 2C. Employee enrolled in coverage offered. The employee enrolled in the health coverage offered by the employer, regardless of whether the coverage was affordable or provided minimum value. This code takes precedence over other 2-series codes.
  • 2D. Employee in a Limited Non-Assessment Period. This applies to situations where the employee is in a waiting period or other initial measurement period before coverage is offered.
  • 2E. Multiemployer interim rule relief. This applies to employers contributing to multiemployer plans.
  • 2F. Section 4980H affordability Form W-2 safe harbor. The employer is using the W-2 safe harbor to determine affordability. This safe harbor looks at the employee’s W-2 wages.
  • 2G. Section 4980H affordability federal poverty line safe harbor. The employer is using the federal poverty line safe harbor to determine affordability. This is the safe harbor implicitly used with code 1A on Line 14.
  • 2H. Section 4980H affordability rate of pay safe harbor. The employer is using the rate of pay safe harbor to determine affordability. This safe harbor looks at the employee’s hourly rate of pay (or monthly salary).
  • 2I. Reserved for future use (Non-calendar year plan transition relief).

Understanding Affordability Safe Harbors:

The ACA requires that the employee’s share of the premium for self-only coverage be “affordable.” The IRS provides three safe harbors that employers can use to determine affordability:

1. W-2 Safe Harbor: The coverage is considered affordable if the employee’s required contribution for the lowest-cost self-only coverage does not exceed a specified percentage (adjusted annually) of the employee’s Form W-2 wages (Box 1) from that employer for the year.
2. Rate of Pay Safe Harbor: For hourly employees, the coverage is affordable if the employee’s required contribution does not exceed a specified percentage (adjusted annually) of their hourly rate of pay multiplied by 130 hours. For salaried employees, it’s based on their monthly salary.
3. Federal Poverty Line Safe Harbor: The coverage is considered affordable if the employee’s required contribution does not exceed a specified percentage (adjusted annually) of the federal poverty line for a single individual. This is the simplest safe harbor to apply and is often used with Code 1A on Line 14.

Example Scenarios for Part II:

• Scenario 1: Full-time employee offered affordable, minimum value coverage for all 12 months.
  • Line 14: 1A (All 12 Months)
  • Line 15: (Blank)
  • Line 16: 2G (All 12 Months) – Optional, as 2G is implicit in 1A
• Scenario 2: Full-time employee offered coverage that did not provide minimum value.
  • Line 14: 1F (All 12 Months)
  • Line 15: (Employee’s share of the premium)
  • Line 16: (Likely blank, unless another safe harbor applies)
• Scenario 3: Full-time employee not offered coverage.
  • Line 14: 1H (All 12 Months)
  • Line 15: (Blank)
  • Line 16: (Likely blank, unless the employee was in a Limited Non-Assessment Period (2D) or another exception applies)
• Scenario 4: Employee was full-time for part of the year, then part-time.
  • Line 14: 1E (for the months the employee was full-time and offered coverage) and 1H (for the months the employee was part-time and not offered coverage, or another appropriate code). Could use 1S if employee was offered an ICHRA.
  • Line 15: (Employee’s share of the premium for the months coverage was offered)
  • Line 16: 2B (for the months the employee was part-time) and potentially another code (e.g., 2F, 2G, 2H) for the months the employee was full-time.
• Scenario 5: Employee enrolled in a Self-Insured Plan:
  • Line 14: 1G (if employee was not full time, otherwise use the applicable code (1A-1F, 1H, 1J-1U))
  • Line 15: Leave Blank
  • Line 16: 2C

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

This section is only completed if the employer offers a self-insured health plan. It lists the individuals covered under the plan, including the employee and any covered dependents.

• Column (a): Name: The name of each covered individual.
• Column (b): SSN or DOB: The Social Security Number (SSN) of each covered individual. If an SSN is not available, the individual’s date of birth (DOB) can be entered.
• Column (c): Covered All 12 Months: Check this box if the individual was covered for all 12 months of the year.
• Columns (d) – (o): If the individual was not covered for all 12 months, check the boxes for the specific months they were covered.

Why is Part III important?

Part III provides proof of minimum essential coverage (MEC) for the individuals listed. While the federal individual mandate penalty is currently zero, some states have their own individual mandates. This information can help individuals avoid penalties in those states. It also helps the IRS verify compliance with the ACA.

5. Filing Deadlines and Procedures

• Furnishing to Employees: ALEs must furnish Form 1095-C to employees by January 31st of the year following the calendar year to which the form relates. For example, the 2023 Form 1095-C must be furnished to employees by January 31, 2024. Extensions may be available in certain circumstances.
• Filing with the IRS:
  • Paper Filing: If filing fewer than 250 Forms 1095-C, paper filing is permitted. The deadline for paper filing is February 28th.
  • Electronic Filing: If filing 250 or more Forms 1095-C, electronic filing is required. The deadline for electronic filing is March 31st.
  • Transmittal Form: Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, must be filed with the IRS along with Forms 1095-C. Form 1094-C summarizes the information from all the 1095-Cs filed by the employer.

Electronic Filing:

Electronic filing is done through the IRS’s Affordable Care Act Information Returns (AIR) system. Employers need to register with the AIR system and obtain a Transmitter Control Code (TCC) before they can file electronically. The IRS provides detailed instructions and specifications for electronic filing. Using tax preparation software or a third-party service provider can simplify the electronic filing process.

6. Penalties for Non-Compliance

Failure to file or furnish Form 1095-C, or filing incorrect or incomplete forms, can result in significant penalties. The penalties are adjusted annually for inflation.

• Failure to Furnish: Penalties apply for each Form 1095-C that an ALE fails to furnish to an employee by the deadline.
• Failure to File: Penalties apply for each Form 1095-C that an ALE fails to file with the IRS by the deadline.
• Intentional Disregard: If the IRS determines that an ALE intentionally disregarded the filing or furnishing requirements, the penalties are significantly higher.
• Corrections: If an ALE files an incorrect or incomplete Form 1095-C, they should file a corrected form as soon as possible. Penalties may be reduced or waived if the errors were due to reasonable cause and not willful neglect.

Employer Shared Responsibility Payment (ESRP):

In addition to the penalties for failing to file or furnish Form 1095-C, ALEs may also be subject to the Employer Shared Responsibility Payment (ESRP) if they don’t offer affordable, minimum value coverage to their full-time employees and at least one full-time employee receives a premium tax credit for purchasing coverage through the Health Insurance Marketplace.

There are two potential ESRP penalties:

• 4980H(a) Penalty (“Sledgehammer Penalty”): This penalty applies if the ALE fails to offer minimum essential coverage to at least 95% of its full-time employees (and their dependents) and at least one full-time employee receives a premium tax credit. The penalty is calculated on a per-employee basis (excluding the first 30 full-time employees).
• 4980H(b) Penalty (“Tack Hammer Penalty”): This penalty applies if the ALE offers coverage to at least 95% of its full-time employees (and their dependents), but the coverage is either not affordable or does not provide minimum value, and at least one full-time employee receives a premium tax credit. This penalty is also calculated on a per-employee basis, but only for those full-time employees who receive a premium tax credit.

The ESRP penalties can be substantial, so it’s crucial for ALEs to understand their obligations under the employer mandate and to accurately complete Form 1095-C.

7. Common Scenarios and FAQs

• Q: What if an employee waives coverage?

  • A: Even if an employee waives coverage, the ALE must still provide them with a Form 1095-C. Line 14 would indicate the type of coverage offered (e.g., 1E), and Line 16 would likely be blank (unless a safe harbor applies).

• Q: What if an employee terminates employment during the year?

  • A: The ALE must still provide a Form 1095-C to the terminated employee, covering the months they were employed. Line 14 would indicate the offer of coverage (or lack thereof) for each month of employment. Line 16 might include code 2A (employee not employed) for the months after termination.

• Q: What if an employee changes from full-time to part-time (or vice versa) during the year?

  • A: The Form 1095-C would reflect the different statuses for each month. Line 14 would have different codes for the full-time and part-time months. Line 16 might include code 2B (employee not a full-time employee) for the part-time months.

• Q: What if an employer offers multiple health plans?

  • A: Form 1095-C reports information about the lowest-cost self-only coverage that provides minimum value. If the employee enrolled in a different plan, that information is not reported on Line 15. However, if the employee is enrolled in self-insured coverage, the information in part III will reflect that.

• Q: What is the difference between Form 1095-B and Form 1095-C?

  • A: Form 1095-B, Health Coverage, is used by insurers and non-ALE employers offering self-insured plans to report coverage information. Form 1095-C is used by ALEs to report offer of coverage information and coverage information for self-insured plans. An individual might receive both a 1095-B and a 1095-C if they had coverage from multiple sources during the year.

• Q: What if an employee is a member of a controlled group that contains several ALE members?

  • A: If the employee is employed by more than one ALE member of the controlled group, only the member for which the employee is employed needs to provide a Form 1095-C.

• Q: What if an ALE member fails to offer coverage to all full time employees and their dependents?

  • A: They are subject to the section 4980H(a) penalty (the “sledgehammer penalty”). This penalty applies if an employer fails to offer coverage to at least 95% of full time employees and their dependents, and at least one full time employee receives a premium tax credit in the marketplace.

• Q: Can an employer use different affordability safe harbors for different employees?

  • A: Yes, an employer can use a different safe harbor for different employees, as long as it applies a single safe harbor consistently to all employees within a reasonable category. The employer must use the same safe harbor for all months of the calendar year for each employee.

• Q: How do I correct a Form 1095-C?

  • A: If you need to correct a Form 1095-C that you’ve already filed with the IRS, you’ll need to file a corrected Form 1095-C and a corrected Form 1094-C (if applicable). There is a box on each of the forms to indicate it is a “CORRECTED” form. You must provide the corrected 1095-C to the employee as well. The IRS provides specific instructions for making corrections, and it’s important to follow them carefully to avoid penalties.

• Q: Where can I get help with Form 1095-C?

  • A: The IRS website (irs.gov) provides extensive resources, including instructions, publications, and FAQs. You can also consult with a tax professional, payroll provider, or benefits consultant for assistance.

8. Conclusion

Form 1095-C is a complex form, but understanding its requirements is essential for ALEs to comply with the Affordable Care Act and avoid potential penalties. This comprehensive guide has provided a detailed explanation of the form, its purpose, who needs to file it, how to complete it, deadlines, penalties, and common scenarios. By carefully reviewing this information and seeking professional guidance when needed, employers can navigate the complexities of Form 1095-C and ensure accurate reporting. Employees can also use this information to understand the details of their employer-provided health coverage. Remember, accurate and timely filing is crucial for both employers and employees.