The IRS recently issued final forms and instructions for Forms 1094-C and 1095-C with some changes that impact all filers and other amendments impacting only those who have added Individual Coverage HRAs (ICHRAs). Keep reading to learn more:
Deadlines for Affordable Care Act (ACA) Reporting
The IRS issued an extended deadline of March 2, 2021 for Form 1095-C. This provides an extension for employers furnishing the form to their employees. Employers must submit their filing to the IRS by February 28, 2021 if filing on paper or April 1, 2021 if filing electronically. Employers can opt to complete Form 8809 to receive an automatic 30-day extension for filing Forms 1094-C and 1095-C with the IRS.
2020 Changes to ACA Reporting
Plan start month on Form 1095-C Part II:
In prior years, the plan start month box was optional when filing Form 1095-C. However, it will need to be completed for 2020. To show the start date in the given plan year that employers began offering their health plan to employees, an employer will need to complete this box with a two-digit number (01 through 12). In the event that multiple plan years apply for individuals, employers are to enter the earliest applicable month. Employers that utilize the multiemployer interim rule relief can enter 00 on their forms. Note that employers must use a two-digit code, meaning “01” is used for January rather than just “1.”
Employee’s Age on January 1 Form 1095-C Part II:
If employees are offered an ICHRA, then the new box “Employee’s age on January 1” must be completed in Part II. If there is no ICHRA, then it may be left blank.
Changes for Employers Offering ICHRAs
Being a Health Reimbursement Arrangement (HRA,) an ICHRA is leveraged in combination with individual health coverage, including but not limited to, a state exchange or Medicare, and may satisfy the ACA requirement for offering coverage if the contributions meet the affordability rules. The ICHRA is available to all sizes of employers; however, it is anticipated to primarily benefit small employers. Further, employers have some flexibility in offering the ICHRA only to certain portions of the organization—and if conditions are met, are not subject to nondiscrimination rules. Please note, though, that employers cannot offer the same class of employees a choice between an ICHRA and coverage under a group health plan.
Under the ICHRA, employees must first enroll in individual coverage. Individual coverage includes individual policies, student health coverage and Medicare Part A, B or C Premiums. Individual coverage does not include coverage under a spouse’s group plan, short-term, limited duration policies and health care sharing ministries.
Once an employee obtains eligible coverage, the employee may submit qualifying Section 213(d) medical expenses for reimbursement under the ICHRA. The employer must require monthly substantiation that the employee has individual coverage each month in which benefits are provided under the ICHRA.
These programs were first made available beginning on January 1, 2020 and are considered a self-insured group health plan and employer sponsored. An ICHRA satisfies the minimum essential coverage threshold and—if it meets the affordability standards—can be considered eligible in meeting the minimum value requirements. The IRS has created a series of codes to report these new arrangements.
Summary of changes on the 2020 Form 1095-C reporting for employers that adopted ICHRA
- The employee’s age as of January 1 will need to be completed on Form 1095-C part II
- Line 14: Choose from eight new coverage codes
- Line 15, Cost of Coverage: Completion is dependent on which line 14 code is used. Complete unless codes 1A, 1F, 1G, 1H, 1R or 1S are entered on line 14
- Line 16: Use only codes 2C (employee enrolls in ICHRA), 2F if the ICHRA was affordable based on the W-2 safe harbor, 2G if using the federal poverty line safe harbor and 2H if using the rate of pay safe harbor. If none of these apply, leave the line blank, which would expose the employer to a potential section 4980H penalty
- Line 17: This is a new line. If an employer sponsors an ICHRA and used one of the new line 14 codes, then the employer must enter a zip code on Line 17. If the employer used codes 1L, 1M or 1N, the zip code should be the employee’s residence. If the employer used code 1O, 1P or IQ, the employer should use the zip code of the employee’s primary site of employment
- Part III of Form 1095-C: Must be completed, as an ICHRA is considered a self-insured group health plan using the existing rules for self-insured plans
- If an employer fails to correctly file an information return or provide a correct payee statement, the penalty was increased from $270 to $280 per return/statement
- The IRS’s total penalty cap, under Sections 6721 and 6722, was increased to $3,392,000 in 2020, compared to $3,339,000 in 2019
- The affordability threshold for plan years beginning in 2020 is 9.78%, compared to 9.86%
State reporting requirements
In response to the repeal of the individual mandate, several states, including California, New Jersey, Rhode Island, Vermont and the District of Columbia, have begun to impose their own state mandate in order to stabilize their state health insurance exchanges. Employers should continue to monitor state filing requirements for any states that their employees pay taxes in. Several of these states have enacted legislation effective for 2019 reporting, requiring separate filings with the state and additional states for 2020. Each state has their own regulations and process for complying. For example, Massachusetts enacted an individual mandate in which reporting is carried out by insurance carriers. Employers should review the states where they employ workers to ensure all requirements have been satisfied.
Contact your Sikich representative for help with your Forms 1095-C and 1094-C. Our advisory team is readily available to assist you with any questions regarding addressing responses, requesting extensions and filing appropriate forms.