October 5, 2016
Earlier this week the final instructions to the Forms 1094-C and 1095-C were released. We have previously written two articles separately discussing how the draft instructions impact the Form 1094-C and the Form 1095-C. The points made in each of these articles remain valid as the final instructions do not change anything of substance from the draft instructions. The remainder of this article discusses a few points the final instructions emphasized and provides five key takeaways from the 2016 final instructions.
The final instructions did provide some clarifying language that is useful. First, when discussing the Form 1094-C Part III column (b) the final instructions make it clear that an employee should be counted as a full-time employee for the purpose of the column if he/she satisfies the definition of a full-time employee under the monthly measurement method or the look-back measurement method (emphasis added). Previous iterations of the instructions had not made it clear that the look-back measurement method could be used for the calculation. However, it was certainly a logical conclusion that it could be. Regardless, clarification is always appreciated and the IRS should be applauded for any clarifying steps it takes.
The final instructions also added a clarifying note under the code 1G for line 14. The note makes it abundantly clear that the code 1G can only be entered for all 12 months or not at all. This was discussed elsewhere in the draft instructions but is further emphasized in the final instructions in a note under the code 1G. If the code 1G is inserted on line 14 for all 12 months, both lines 15 and 16 should not be completed.
Another addition made by the final instructions is a note following the 2H code. The new note clarifies that none of the affordability safe harbor codes, 2F, 2G, or 2H, should be entered if an ALE member did not offer minimum essential coverage to at least 95 percent of its full-time employees and their dependents. This is not a new rule the final instructions are creating as this requirement is clearly laid out in the final regulations for section 4980H (see section 54.4980H-5(e)(2)(i)).
Interestingly, the final instructions include more concise language when discussing the information return and payee statement penalties. Furthermore, when detailing the penalty for failure to file a correct information return, the final instructions redact the word “generally” to make a more definitive statement that the penalty associated with such failure is $260 for each return for which the failure occurs. The rationale behind this is not clear but something we thought should be noted.
Another change worth mentioning is there is a new heading created to discuss the “VOID” box at the top of the Form 1095-C. The new section, which consists of eight words, makes it clear the “VOID” box at the top of the Form 1095-C should not be used by employers. Presumably, the “VOID” box is used by the government if an employer files a corrected return for an individual.
One change that was emphasized despite not being pertinent to a majority of employers is the IRS makes it clear in the final instructions that if an employer elects to use substitute Forms and file using paper with the IRS, the Forms must be printed in landscape format. If an employer is spending time creating its own substitute Forms, we hope the employer is sophisticated enough to create and print the Forms in the landscape setting. The IRS did emphasize this point twice in the final instructions so some employers are clearly trying to recreate the wheel with substitute Forms.
There are other minor additions, deletions, and punctuation changes which are not worth exploring. Should you have questions on these please don’t hesitate to email me. This article will conclude by discussing five key takeaways from the final instructions to the Forms 1094-C and 1095-C.
Penalties
The biggest change to the Forms 1094-C and 1095-C is an employer will no longer be able to use the good faith efforts standard to protect itself from filing information returns or payee statements with inaccurate or incorrect information. In 2015, if the Forms 1094-C and 1095-C were filed on time, the IRS did not assess a penalty for filing an information return or payee statement with inaccurate or incorrect information so long as a good faith effort was made by the employer. This crutch for an employer no longer exists in 2016. An employer can be penalized $260 per return for failing to file a correct information return (the Forms 1094-C and 1095-C filed with the IRS). Similarly, an employer can be penalized $260 per statement for failing to provide a correct payee statement (the Form 1095-C that must be furnished to certain employees by January 31, 2017). Each penalty is separately capped at $3,193,000. However, these penalties can be increased if there is intentional disregard for the filing requirements. It is easy to envision the worst case scenario of the same Form 1095-C that is furnished to an employee with incorrect information being provided to the IRS at the later deadline with the same incorrect information. In this worst case scenario, that Form 1095-C with incorrect information could trigger a penalty of $520.
Deadlines
As far as actual changes to the Forms, no change will be more burdensome than the tighter filing deadline. Last year, Notice 2016-4 extended the filing deadlines for the Forms 1094-C and 1095-C as well as the deadline to furnish the Form 1095-C to certain employees. The tightest deadline an employer will face is the deadline to furnish the 2016 Form 1095-C to certain employees by January 31, 2017 (compared to March 31, 2016 for the 2015 Form 1095-C). The Form 1095-C is by far the more complicated Form and providers who are not automating the process will undoubtedly struggle to meet this deadline.
The deadline to file the Forms 1094-C and 1095-C with the IRS is February 28, 2017 if the employer is filing on paper. If an employer is filing electronically, the deadline is March 31, 2017. Last year, the deadline for filing on paper was May 31, 2016 and the deadline for filing electronically was June 30, 2016. These deadlines are going to put pressure on employers and providers.
Extensions
Not only did Notice 2016-4 prolong the filing deadlines for the 2015 Forms, but it also took away the possibility of extensions. In 2016, the employer has the possibility of utilizing the extensions discussed in the final instructions. Unfortunately, there is no automatic extension for the tightest deadline of furnishing the Form 1095-C to certain employees by January 31, 2017. However, an employer may request an extension of time to furnish the statement by sending a letter to the IRS with the filer’s name, TIN, address, the type of return for which the extension is being requested, a statement that the extension request is for providing statements to employees, the reason for the delay, and the signature of the filer or authorized agent. This extension request must be postmarked by or before the January 31, 2017 deadline. If the government is lenient, something an employer should not anticipate, the extension will generally only be granted for 30 days bringing the new due date to March 2, 2017.
If an employer completes the Form 8809, it will receive an automatic 30 day extension for filing the Forms 1094-C and 1095-C with the IRS. With the 30 day automatic extension, the deadline for filing on paper is March 30, 2017. With the 30 day automatic extension, the deadline for filing electronically is April 30, 2017. However, April 30, 2017 is a Sunday. Therefore, employers filing electronically with the benefit of the extension would have until May 1, 2017 to file the Forms 1094-C and 1095-C with the IRS.
Eliminated and New Codes
The code 1I has been eliminated as an option from line 14. Similarly, the code 2I has been eliminated as an option from line 16. Both the code 1I and the code 2I are marked as “Reserved” and should never be entered on the Form 1095-C. The 2016 Form 1095-C has two new codes that were both created to cover a conditional offer of coverage to an employee’s spouse. A conditional offer of coverage is an offer of coverage that is subject to one or more reasonable, objective conditions such as the employee’s spouse only being eligible for coverage if the spouse is not eligible for coverage through the spouse’s employer.
Code 1J should be entered if minimum essential coverage (MEC) providing minimum value is offered to an employee and at least MEC is conditionally offered to the employee’s spouse. If code 1J is used, MEC is not offered to the employee’s dependents. Code 1J is similar to code 1D. If an employer is entering code 1J, the employer is falling short of the Play or Pay standard because the employer is not offering the employee’s dependents coverage. Therefore, a 1J code entry could lead to a section 4980H penalty. Code 1K should be entered if MEC providing minimum value is offered to an employee, at least MEC is offered to the employee’s dependents, and at least MEC is conditionally offered to the employee’s spouse. Code 1K is similar to code 1E. If either new code is entered on line 14, the employer is responsible for completing line 15.
Part III of the Form 1095-C
Part III of the Form 1095-C should only be completed by an employer who sponsors a self-insured plan. If the employee listed in part I of the Form 1095-C is enrolled in coverage for one day of a calendar month, he/she should be listed on line 17 in part III of the Form 1095-C. Unlike part II of the Form 1095-C where coverage must be offered for each day of a calendar month for it to count as an offer of coverage, an employee only needs to be enrolled in coverage for one day of the calendar month for a calendar month box to be checked in part III of the Form 1095-C. The reason is part III of the Form 1095-C is replacing the Form 1095-B. The Form 1095-B only requires an individual to be enrolled in coverage for one day of the calendar month for a calendar month box to be checked. Therefore, it is logical that part III of the Form 1095-C has the exact same requirement.
The final instructions do not make any major substantive changes compared to the draft instructions. However, the final instructions do emphasize certain points which are summarized in the article. Every employer must take greater care with the Forms 1094-C and 1095-C in 2016 as employers are no longer protected by the good faith efforts standard. Therefore, there are severe consequences for filing the Forms 1094-C and/or 1095-C with incorrect information. An employer should also be aware of the tighter deadlines associated with the 2016 Forms. Employers should be skeptical of a provider’s ability to meet these tight deadlines if data is being tracked manually or in Excel spreadsheets. Please let us know if you have any questions regarding our automated filing services.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorney's P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the newly created Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
Legal Consent
The information contained on this site is not, nor is it intended to be, legal advice. An attorney should be consulted for advice regarding your situation. Copyright © 2016 by Accord Systems, LLC. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.