QUESTION: We added a large number of full-time employees in 2017 and became an applicable large employer (ALE) in 2018. We are getting ready to file Forms 1094-C and 1095-C with the IRS in early 2019. 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 May 2018, the IRS issued proposed regulations that would have aggregated all information returns that the ALE member was required to file (including, for example, Forms W-2) to determine whether the ALE member reached the 250-return threshold. Although the proposed regulations were intended to become effective for returns filed after December 31, 2018, the instructions for Forms 1094-C and 1095-C indicate that aggregation will not apply to 2018 forms filed with the IRS in 2019.
Regardless of the filing method 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)”). You may also be interested in our recorded webinar “1094/1095 Reporting for 2018” (recorded on 11/15/18).
Contributing Editors: EBIA Staff.