QUESTION: We are an applicable large employer as defined in Code § 4980H, but we employed fewer than 100 full-time employees in 2014, so we understand we’re not subject to penalties for 2015. We know that we still have to file Forms 1094-C and 1095-C for 2015, but how do we indicate that we are exempt from possible Code § 4980H penalties for 2015?
ANSWER: “Smaller” applicable large employers (ALEs) claiming relief from Code § 4980H penalties must certify eligibility for the relief on Form 1094-C as follows:
Part II, Line 22: Check Box C, “Section 4980H Transition Relief.”
Part III, Column (e): Enter Code A. Code A ties back to Part II, Line 22 and specifies the type of transition relief that applies to the ALE.
This information will be completed only on the ALE’s authoritative transmittal to the IRS—i.e., the Form 1094-C that reports aggregate employer-level data for all full-time employees of the ALE.
In preparing the form, note that penalty relief for smaller ALEs is not automatic. Rather, in addition to certifying eligibility for the relief on Form 1094-C, the following three criteria must be satisfied:
The ALE, in combination with other employers in its aggregated ALE group, had on average fewer than 100 full-time employees—taking into account full-time equivalent employees—on business days in 2014;
During the period February 9 through December 31, 2014, the ALE (or its aggregated ALE group—i.e., members of its controlled group) did not reduce the size of its workforce or reduce overall hours of its employees to qualify for the relief; and
During the period February 9 through December 31, 2014 (or, if the ALE has non-calendar-year plans, through the last day of the 2015 plan year), the ALE (or its aggregated ALE group) did not eliminate or materially reduce the health coverage, if any, it offered as of February 9, 2014.
There are limited exceptions to the second criterion for bona fide business reasons, such as workforce reductions due to market conditions or terminations for poor performance. However, the transition relief is not available to an employer that modified its plan year after February 9, 2014 to begin on a later calendar date (for example, changing the start day of the plan year from January 1 to December ).
If you qualify for the transition relief, be sure to complete the form as indicated above and file it with the IRS by the applicable deadline: May 31, 2016 if you are filing on paper, or June 30, 2016 if you are filing electronically.
For more information, see EBIA’s Form 1094/1095 Workbook at Section VII.C (“Completing Form 1094-C”); see also EBIA’s Health Care Reform manual at Sections XXVIII.F.2 (“Transition Rules: ALEs With Fewer Than 100 Full-Time Employees”) and XXXVI.D.6.c (“Reporting for ALE Members With Fewer Than 100 Full-Time Employees”).
Contributing Editors: EBIA Staff.