The IRS has finalized two significant changes to electronic filing requirements for various information returns, including not just the Forms 1094-C and 1095-C filings required of many employers by the Affordable Care Act (ACA), but common payee statements like Forms W-2 and 1099. All but the very smallest employers will be required to file these forms electronically for filing due dates falling in 2024 and beyond. Employers wishing to engage an ACA reporting and/or payroll vendor to comply with electronic filing requirements will need to begin contracting with a vendor in the coming weeks.
Background: ACA filings and electronic media
Under current e-filing rules, an employer subject to the ACA’s employer mandate is not required to file its Forms 1094-C and 1095-C electronically unless the employer submits at least 250 of the forms to the IRS. When determining whether the employer crosses the 250-return threshold, the employer separately counts the different returns it files, such as Forms 1094-C and 1095-C, and even payee statements like Forms W-2, 1099, etc.
For example, an employer with 150 ACA full-time employees and 50 part-time employees over the course of the calendar year may be required to file 200 Forms W-2, 150 Forms 1095-C, and one Form 1094-C, but because the employer is not filing at least 250 of the same form, the employer is not required to file any of the forms electronically.
The new rule: Nearly every employer will be filing electronically
The new rules drop the 250-return threshold to 10 for returns due in 2024 or later years, and, most significantly, require employers to aggregate the number of different returns it files when determining whether the 10-return threshold is reached. In the example above, for returns due in 2024, the employer would aggregate the 200 Forms W-2, 150 Forms 1095-C and the one Form 1094-C, for a total of 351 returns. Because the aggregated total of returns due from the employer is well over 10 returns, all the returns must be filed electronically. IRS can grant a waiver from electronic filing if the employer can demonstrate undue hardship.
Lockton Comment: The proposed regulations contained a transition period where the return-threshold would first be reduced from 250 to 100 before being reduced to 10. However, these final regulations do not contain this transition.
Lining up an ACA (and perhaps payroll) reporting vendor
Many employers that until now have filed their Forms 1094-C/1095-C, W-2, 1099, etc., on paper will be required to submit those forms to the IRS electronically for filings due in 2024. For employers wishing to engage a vendor to conduct electronic filing – particularly those for whom the e-filing status quo will change next year – the search for an e-filing vendor should begin quickly. If you would like assistance, contact your Lockton account service team, who can connect you with our HR Technology practice.