Taxes

Forms 1094 and 1095: New IRS Guidance Available

July 14, 2015

We all understand forms 1094 and 1095 can be confusing. Luckily for all of us, the IRS has provided a new Q&A page with guidance!

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The IRS has provided both new and updated Q&A guidance on the reporting requirements for large employers, as defined under the Affordable Care Act (ACA). Beginning in 2016, these large employers must file Forms 1094 and 1095 to provide information to the IRS and plan participants about health coverage provided in the previous year. The forms are used by the IRS to enforce the ACA’s shared-responsibility (or “play or pay”) provision, as well as individual mandate and tax credit eligibility rules.

The latest guidance consists of an updated Q&A document covering basic reporting requirements and a new Q&A document addressing more specific issues that may arise while completing Forms 1094 and 1095. TLC Employer Services would like to take a look at some specifics with you.

Clarifying Who Reports and How

The guidance clarifies that a large employer with no full-time employees for any month of the year isn’t obligated to report unless the organization sponsors a self-insured health plan in which any employee, spouse or dependent is actually enrolled. In that case, it must still file Forms 1094-C and 1095-C even if it has no full-time employees.

The guidance also confirms that a large employer must file and provide Form 1095-C to all full-time employees regardless of whether they were offered coverage during the year.

Examples show how reporting differs in a couple of specific situations:

  • If a large employer reports for separate divisions, employees working for multiple divisions must receive aggregated information on a single Form 1095-C.
  • If a large employer is part of a controlled group of companies, employees should receive a separate Form 1095-C for full-time employment with each large employer in the controlled group.

The guidance verifies that large employers may designate third parties to perform reporting on their behalf. In fact, the new Q&As confirm that a governmental large employer may designate another governmental entity to accept reporting responsibility on its behalf. The allocation of responsibilities under various combinations of self-insured and fully insured coverage options is also explained.

In addition, the guidance confirms that a Form 1095-C may be delivered to employees in any manner permitted for delivery of Form W-2 — including by hand. But, unlike with Form W-2, employers need not furnish a midyear Form 1095-C upon an employee’s request following termination of employment.

Applying the Qualifying Offer Method

The updated Q&As now address reporting under the qualifying offer method, which allows large employers to furnish a simplified statement to employees receiving qualifying offers for all 12 months of the year. The Q&As emphasize that use of simplified statements isn’t available for employees who actually enroll in a large employer’s self-insured health plan.

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The guidance doesn’t mention the qualifying offer method transition relief available in 2015. This relief allows a large employer to use a different simplified statement provided that it makes qualifying offers to at least 95 percent of its full-time employees.

Similarly, if a terminating employee’s coverage ends before the end of the month of termination, the large employer must report that no coverage was offered for the month. (In each case, the large employer may be able to avoid pay-or-play liability even though coverage wasn’t offered for the full month.) In contrast, when reporting coverage information under Part III of Form 1095-C, an employee should be reported as having coverage if he or she is enrolled on any day of the month.

The disparate treatment of partial months of coverage highlights the multiple purposes of Form 1095-C. Under the play-or-pay provision, large employers generally get credit for offering coverage for a month only if the offer applies to the full month — but an individual avoids the individual mandate penalty for a month by having coverage on any day of the month.

Reporting COBRA Offers

The new Q&As illustrate reporting under various COBRA scenarios. The guidance explains how sponsors of self-insured plans should report enrollment information for nonemployee COBRA beneficiaries, such as former spouses. Qualified beneficiaries electing COBRA independently from the employee must receive separate forms, while those who have COBRA because of an employee’s election should be included on the same form provided to the employee. (Reporting may be made on either Form 1095-B or 1095-C for individuals who weren’t employees at any time during the year.)

Several examples illustrate how a large employer should complete Form 1095-C for full-time employees who receive a COBRA offer because of:

Termination. In general, a COBRA offer made because of termination is reported as an offer of coverage only if the former employee enrolls in COBRA coverage and the employee’s cost of coverage reflects the COBRA premium for the lowest-cost, self-only coverage providing minimum value.

Reduction of hours. In contrast, a COBRA offer made to an active employee because of reduced hours would be reported as an offer of coverage on Form 1095-C even if the employee declines COBRA coverage. The example used to illustrate this final point, however, doesn’t extend more than 60 days after the loss of eligibility. So it’s unclear whether the large employer would still report that coverage is offered after the employee’s COBRA election period has ended.

Paying Attention

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With mandatory reporting starting in early 2016 (for 2015 coverage), understanding the complexities of these reporting requirements is critical. Although some of the Q&As contained in this guidance were previously addressed in the instructions for Forms 1094 and 1095, others provide helpful clarifications and new information. If your organization is subject to the large-employer reporting requirements, pay close attention to this and future guidance as the reporting deadline draws nearer.

E-filing Details Emerge

Details have begun to emerge about electronic filing (e-filing) of Forms 1094 and 1095 information returns required under the ACA’s shared-responsibility (or “play or pay”) provision. (See main article.) Mandatory filings are required in the first quarter of 2016, with e-filing generally required if a filer must submit at least 250 information returns.

Much of the detail about e-filing is being generated by an IRS working group called the ACA Information Returns (AIR) and posted on a webpage dedicated to the AIR program. Here are some highlights:

Draft Publication 5165. This is a detailed guide for e-filing of Forms 1094 and 1095. The publication explains how various entities will apply for access to the AIR system and identify themselves when using the system. These entities include:

  • Issuers (the IRS term for reporting entities),
  • Software developers (entities writing origination or transmission software according to IRS specifications), and
  • Transmitters (third parties filing information returns on behalf of reporting entities).

Technical details are provided surrounding the formatting of electronic documents, permitted ways to transmit information to the IRS, potential transmission errors, and how to make corrections.

Draft Publication 5164. This explains the process — including who must test, what must be tested and when — for software and electronic transmissions before users are accepted into the AIR system. It also provides testing guidelines for software developers.

AIR presentation. This separate presentation elaborates on the information provided in the publication, noting that AIR system testing will begin in July and voluntary filing of 2014 returns will be permitted starting in October. A significant portion of the presentation is devoted to describing the process for filing corrected returns.

Another extensive section of the presentation addresses questions and answers on topics such as error reporting, software testing and the electronic interface with the IRS. Also discussed are electronic signatures, including a mention of signature requirements being waived for voluntary filings made in 2015.

The AIR system will be used only for Form 1094 and 1095 filings. E-filing of all other IRS information returns is done through the Filing Information Returns Electronically (FIRE) system.


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