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Must Applicable Large Employers File ACA Information Returns Electronically?

EBIA  

EBIA  

QUESTION: We added a large number of full-time employees in 2021 and became an applicable large employer (ALE) in 2022. We are preparing to file Forms 1094-C and 1095-C with the IRS in early 2023. Do we have to file the forms electronically?

ANSWER: The filing method—paper or electronic—depends on the size of the ALE. As background, the Affordable Care (ACA) enacted Code § 4980H, which imposes employer shared responsibility penalties on ALEs that fail to offer full-time employees adequate employer-sponsored health coverage. There are two types of penalties: Under Code § 4980H(a), an ALE may be subject to a monthly penalty for failure to offer substantially all (generally, at least 95%) of its full-time employees and their dependents the opportunity to enroll in eligible employer-sponsored group health coverage. Under Code § 4980H(b), an ALE may be subject to a monthly penalty if it offers coverage to the required number of full-time employees (and their dependents), but the coverage offered to full-time employees does not provide “minimum value” or is not “affordable.”

The IRS uses Forms 1094-C and 1095-C to gather the information necessary to administer employer shared responsibility penalties. Form 1094-C generally indicates whether the ALE offered coverage to enough employees to avoid Code § 4980H(a) penalties. Form 1095-C generally indicates whether the ALE offered affordable, minimum value coverage to each full-time employee. Both forms are filed with the IRS; Form 1095-C is also furnished to employees.

Electronic filing with the IRS is required for ALE members who file at least 250 Forms 1095-C for a tax year. Only Forms 1095-C are counted in determining whether the ALE member reaches the 250-return threshold. Like transmittals of other information returns, the Form 1094-C is not treated as a separate return but must be filed electronically when the Form 1095-C must be filed electronically. ALE members filing fewer than 250 Forms 1095-C may file either on paper or electronically; the IRS encourages electronic filing.

In July 2021, the IRS issued proposed regulations that would substantially expand mandatory electronic filing of information returns. Generally, the new thresholds would be 100 returns for due dates during calendar year 2022, and 10 returns for subsequent calendar years. To calculate these thresholds, the proposed regulations would require aggregation of most information returns. However, the proposed regulations have not yet been finalized or taken effect.

Regardless of the method used for filing with the IRS, ALEs must furnish Form 1095-C to each employee on paper, unless the employee affirmatively consents to electronic distribution. The consent must be specific to Form 1095-C, with clear and conspicuous disclosure of information required by IRS regulations.

For more information, see EBIA’s Form 1094/1095 Workbook for Employers and Advisors at Sections IX.E (“Method of Furnishing Statements”) and X.C (“Filing Methods: Paper or Electronic”). See also EBIA’s Health Care Reform manual at Section XXXVI.D (“Information Reporting of Employer-Sponsored Coverage (Applicable Large Employers)”).

Contributing Editors: EBIA Staff.

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