The Affordable Care Act (ACA) doesn’t appear to be going anywhere. Applicable large employers (ALE) with more than 50 full-time equivalent employees in the prior year must file Forms 1095-C and 1094-C annually. Below, we cover important updates impacting employers’ 2021 filings, which are due in early 2022:
1. The draft instructions for ACA 2021 filings (Forms 1094-C and 1095-C) were issued in September with a few changes, listed below:
a. The draft added two additional codes to reflect 1T and 1U for affordable coverage provided under Individual Coverage HRA plans.
b. The draft removed automatic extensions to provide employee forms.
The ACA reporting deadline for providing forms to employees has historically been automatically extended from January 31 to February 28. However, the IRS had not indicated a similar extension would be provided for the 2021 filings. Employers should plan to provide copies to employees by January 31, 2022. The IRS filing deadline remains unchanged with electronic submissions due March 31, 2022 and those filed via paper on February 28, 2022.
c. The “Good-Faith Effort” waiver for penalties was excluded in the draft.
In previous years, the IRS extended good-faith relief for errors made by employers in reporting their Forms 1094-C and 1095-C. As this may no longer be the case, employers should ensure the information reported to the IRS is complete, accurate and error-free in order to avoid IRS penalties for the 2021 filing. Pay particular attention to the items relief historically covered, such as missing or inaccurate taxpayer identification numbers and dates of birth and pertinent required information for returns and statements.
d. The electronic filing requirements are anticipated to be mandatory for all employers.
The draft instructions continue to reference a 250-return threshold at which electronic filing is required and applies separately to each type of return. In July 2019, the Department of Treasury issued proposed regulations that lowered the threshold when electronic filing is required for ACA reports. The regulations referenced that only employers with 100 or more forms filed in the aggregate (including Forms 1095-C, W-2 and 1099) would be required to file electronically. In a future year, the number would also be lowered from 100 to 10.
Essentially, this would require all employers subject to ACA to file electronically. There was no mention of lowering the filing threshold in the instructions, so it is expected that the regulations may not be issued in time to impact the 2022 filings (but may apply to a subsequent year). While many employers already file electronically, it appears this will be mandatory for all in the near future. Employers should also pay attention to changes when the final instructions are issued for 2021 later this year.
2. State reporting requirements
In response to the repeal of the individual mandate, several states imposed their own mandate to stabilize their state health insurance exchanges. Employers should, as a result, continue to monitor state filing requirements for any states that their employees pay taxes in. Several states enacted legislation effective for 2021 reporting, thus requiring separate filings with the state. And with that, each state adopts their own regulations and process for complying. The following states, to date, have enacted requirements: California, the District of Columbia, Massachusetts, New Jersey, Rhode Island and Vermont. Hawaii, Washington, Connecticut, Minnesota and Maryland are currently considering their own state healthcare mandate.
3. Reminder: there is no statute of limitations for Employer Shared Responsibility Payments (ESRP) under Section 4980H
a. The IRS previously stated in 2019 that there is no statute of limitations on the assessment of the ESRP, as there is no tax return filed to report an employer’s liability.
b. This means that, although the IRS has assessed penalties in batches for certain years, the group can go back to earlier years and assess penalties as well.
c. Employers must be diligent in retaining sufficient records to support the data in their filings to support a request abatement of assessed penalties (if assessed).Employers should review their record retention policies and potentially maintain records to support the ACA filings longer than the standard seven-year period for other payroll records.
We will continue to monitor ACA-related requirements and provide employers with updates when available. If you have any questions, please consult your Sikich tax advisor.