One of the administrative burdens under the Affordable Care Act (ACA) is for employers (and insurers) to (1) report to the IRS on the coverage provided to their employees, and (2) send such reporting forms to the covered employees. That typically requires the employer to provide a paper copy of the form unless the employee has agreed to an electronic copy. Congress has just passed two laws, which President Biden is expected to sign, that simplify these rules going forward.
Specifically, one of the new laws would require these forms only to be sent to covered individuals upon request. Another law would amend the ACA to incorporate IRS regulations allowing employers and insurers to send the 1095-B/1095-C tax forms electronically.
While this is welcome news, it does not change the ACA reporting requirements for the handful of states that have individual health insurance mandates.
Executive Summary:
Starting with the 2024 calendar year reporting (i.e., effective now), employers (and insurers) will not have to furnish the 1095-C (and -B) forms to individuals unless they request it.
Note that this is contingent upon the employer providing notice to individuals of their right to request the form. We are awaiting guidance on the details of such notice.
If requested, the employer must provide the form by the later of: (1) Jan. 31 or (2) 30 days after the request.
The form may be provided electronically.
If an individual’s Social Security number (Tax ID number) is not available, their date of birth may be used in substitution on the 1095-C and -B forms.
With respect to IRS-proposed penalties under the employer mandate, employers will have 90 days to submit their responses. Previously, employers had 30 days to respond to the IRS.
The IRS issues 226-J letters to employers when it proposes the employer owes a penalty when an ACA full-time employee purchases coverage on the state marketplace and receives a tax credit to offset their premium costs.
The new laws clarify that a six-year statute of limitations applies for collecting employer mandate penalties. The IRS had previously indicated that no statute of limitations applied.
What action must an employer take?
For 2024 ACA reporting, you can continue to distribute paper 1095-C forms.
If you would like to halt sending paper ACA tax forms to individuals (unless they request it), you must ensure proper notice is given. More information to come on that.
Check with your ACA reporting vendor if you want to take advantage of sending the above forms to individuals electronically.
Alternative manner of furnishing statements to individuals
Since the ACA’s inception, employers must annually report to the IRS via the Forms 1095-C, whether or not they provide ACA-compliant coverage for their ACA full-time employees and provide the employee with a copy of the form. Separately, if the plan is insured, the insurer must issue a Form 1095-B to the employee and file a copy with the IRS. The due date to furnish individuals with the forms originally was Jan. 31 immediately following the calendar year in which the coverage was provided, although in recent years, the IRS granted a permanent extension of the deadline to March 2 (assuming no leap year).
Starting with statements applicable to the 2024 calendar year (i.e., what would have been a March 2, 2025 deadline), an employer will only have to furnish individuals with their 1095-C if the individual has requested a copy. In addition, the form would need to be furnished within 30 days of the request or Jan. 31 of the year following the calendar year for which the return is to be made (whichever is later).
The IRS requires that a clear, conspicuous, and accessible notice be given to individuals. The IRS has promised to provide guidance when such notice should be provided and in what manner.
Lockton comment: This relief only applies to federal reporting. For the handful of states (California, New Jersey, Massachusetts, Rhode Island, Vermont and Washington, DC) that require state tax reporting, employers may still be obligated to distribute paper copies.
Social security number reporting flexibility
If an employer who provides self-funded coverage does not have the individual’s Social Security number of the individual for whom the form is being prepared, effective for returns due after Dec. 31, 2024, the IRS will accept the individual’s full name and date of birth instead.
Electronic statements
The new statutory changes codify previous regulations allowing for electronic delivery of the 1095s (-B and -C), as long as consent is provided. This amendment is effective for statements due in 2025 and beyond.
Lockton comment: Treasury regulations already provide for the furnishing of statements to employees with their affirmative consent so, in that regard, the practical playout may be minimal. However, employers should check their agreements with ACA vendors to see if there is any leeway to send forms electronically prior to March 2, 2025 (or whether the agreement obligates the employer to send – and pay for – paper reporting).
The dreaded 226J letter and timely responses
When the IRS assesses penalties because an employer did not offer ACA-qualifying coverage to an ACA full-time employees, or the coverage did not meet minimum value and affordability standards, the IRS sends a proposed “226J” letter in which it provides an employer with 30 days to respond. The new law will provide the employer with at least 90 days to respond.
Six-year statute of limitations period
The period for the IRS to assess a penalty runs for six years, measured from the due date for filing the return (or, if later, the date the return was filed). Previously, the IRS has indicated that there was no statute of limitation that would apply. This change applies for Forms 1095-C and -B due after Dec. 31, 2024.
What action must an employer take?
Employers may proceed as usual and provide paper copies of the Forms 1095-C to employees.
To take advantage of the new rules allowing distribution to employees on request, employers must ensure proper notice is given. Again, the IRS will be providing more information on proper notice. And again, ensure affirmative consent is received prior to sending the requested forms electronically.
These new provisions should offer some relief for employers as they ease a portion of the otherwise stringent ACA reporting requirements. For more information on this topic, click here (opens a new window) to register for Lockton’s Jan. 16 webcast about ACA reporting for 2024.
Not legal advice: Nothing in this alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Compliance Consulting group are not privileged under the attorney-client privilege.
For more alerts, insights and additional information, click here (opens a new window) to visit Lockton's ERISA Compliance Consulting page.
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