Employers subject to the Affordable Care Act (ACA) information reporting requirements will have an extra 30 days to furnish ACA reporting forms to individuals who were enrolled in the employer’s medical coverage during the 2020 plan year. In Notice 2020-76, the IRS automatically extended the due date for providing individuals with Forms 1095-B and 1095-C from January 31, 2021, to March 2, 2021. The IRS will not grant requests for extensions to furnish Forms 1095-B and 1095-C beyond the extended March 2, 2021, due date, so employers must be mindful of complying with the extended deadline.1
However, the due date for filing ACA reporting forms with the IRS has not been extended. Employers subject to the information reporting requirements must file Forms 1094-C and 1094-B (the transmittal forms to Forms 1095-C and 1095-B) in addition to copies of Forms 1095-B and 1095-C with the IRS each year. The deadline for filing the 2020 forms with the IRS remains fixed at March 31, 2021, and is not impacted by Notice 2020-76. As in prior years, employers may request a 30-day extension to file forms with the IRS by submitting Form 8809 prior to March 31, 2021.
ACA reporting is required on an annual basis for employers that employed 50 or more full-time and full-time equivalent employees, on average, during the prior calendar year. Although the individual mandate (requiring individuals to maintain health coverage or face a tax penalty) was eliminated by the Tax Cuts and Jobs Act beginning in 2019, ACA reporting is still required so the IRS can enforce the employer shared responsibility requirements (the “pay or play” mandate). In addition, the reporting is used to confirm whether individuals who received advance premium tax credit subsidies for ACA exchange coverage were actually eligible for such subsidies. For example, an employee could claim they were not offered health coverage by their employer and claim an advance premium tax credit subsidy for Exchange coverage, but an employer’s ACA reporting on Form 1095-C could prove the employee was offered ACA-compliant employer-sponsored health insurance, rendering the employee ineligible for the subsidy and preventing penalties against the employer.
Employers that experienced COVID-19-related workforce changes (such as furloughs, layoffs, and rehires) that impacted employee eligibility for health insurance should carefully consider the impact of these workforce changes on the employer’s ACA reporting obligations. Employers that complete ACA reporting in-house should be mindful of special rules that apply to rehired employees and should understand the nuances involved in reporting offers of COBRA continuation coverage. In addition, employers using the look-back measurement method should be aware that an employer generally must report an employee as full-time during a stability period if the employee measured as full-time during the prior measurement period. This means an employer may be “locked in” to reporting an employee as full time on Form 1095-C during a month the employee worked part-time or no hours (such as during a furlough or reduced work schedule).
Employers that outsource ACA reporting to a third party should confirm whether the vendor will be taking advantage of the extended March 2 deadline to furnish forms to individuals. The extended deadline should be taken advantage of to carefully review the impact of COVID-19-related workforce changes on reporting; employers should request a sample of vendor-prepared ACA forms to review for compliance with counsel experienced in the ACA reporting requirements. A significant number of ACA penalty assessments we have reviewed were triggered by vendor failure to use correct coding in reporting offers of coverage on Form 1095-C or vendor failure to use the most protective code when more than one code is applicable to an employee. We have also observed that it is common for third-party ACA reporting services agreements to disclaim liability for penalties triggered by the contents of forms prepared by the vendor, even where the penalty is triggered by incorrect coding by the vendor. Thus, employers should not assume vendor-prepared forms will insulate the employer from penalty assessments.
Employers are subject to penalties up to $270 per form (capped at $3,275,500 annually) for failing to file ACA forms or for including incorrect information in ACA forms. Therefore, it is extremely important to submit correct information in an employer’s ACA forms, not only to prevent potential ACA employer shared responsibility penalties but to avoid the separate information reporting penalties.
Notably, the IRS Treasury inspector general issued a report in June 2020 that concluded IRS ACA enforcement efforts have been too lax, resulting in the under collection of more than $16 billion in ACA penalties for tax years 2015 and 2016 alone. The Treasury inspector general encouraged the increased collection of penalties for ACA reporting failures, including when incorrect information is included in an employer’s forms. It is unclear how this enforcement directive will square with the ongoing “good faith” reporting relief, which Notice 2020-76 notes is set to expire beginning in 2021.
If you have any questions regarding the content of this alert, please contact Alexandra Lugo, associate, at alugo@barclaydamon.com or another member of the firm’s Employee Benefits Practice Area.
We also have a specific team of Barclay Damon attorneys who are actively working on assessing regulatory, legislative, and other governmental updates on non-trademark-related COVID-19 matters and who are prepared to assist clients. You can reach our COVID-19 Response Team at COVID-19ResponseTeam@barclaydamon.com.
1 Employers operating in California, New Jersey, Rhode Island, and Washington DC should be aware that these states enacted individual mandates in 2020 and permit employers to use the IRS ACA forms to satisfy state health coverage reporting requirements. However, the state reporting deadlines must be complied with irrespective of the recent IRS extension for furnishing ACA forms to individuals, and employers subject to state reporting requirements should carefully consider the deadlines under state law.