In an era of evolving healthcare regulations and policies, the Affordable Care Act (ACA) stands as one of the most significant overhauls of the US healthcare system. For employers, compliance with the ACA involves understanding and properly using specific tax forms. Among these, Form 1095-C is paramount for Applicable Large Employers (ALEs). In this article, we aim to demystify Form 1095-C for employers, elucidating its purpose, contents, and key deadlines.

The ACA and Its Implications for Employers

The Affordable Care Act was established in 2010, which brought major shifts in US healthcare. For employers, the ACA brought forth notable responsibilities. 

Under the ACA employer mandate, ALEs must provide health insurance that’s affordable and minimum value. Failure to offer appropriate coverage can lead to hefty penalties for employers, especially if any of their employees receive a premium tax credit. 

• A plan is considered affordable if it does not exceed 9.5% (annually adjusted) of an employee’s household income. 
• A plan is considered of minimum value if it covers at least 60% of medical expenses.

In addition, ALEs are tasked with specific reporting duties, notably through IRS Form 1095-C and 1094-C, which detail the provided coverage. Amid ongoing legislative and political discussions surrounding the ACA, it remains crucial for employers to stay informed about their obligations and potential changes to the law.

What is Form 1095-C?

Form 1095-C, titled “Employer-Provided Health Insurance Offer and Coverage,” is an IRS tax form. It is used by ALEs to report the health coverage they offer to their full-time employees. The form plays a crucial role in enforcing the ACA’s employer mandate, which requires certain employers to offer health insurance that is affordable and provides minimum value. Here’s a brief overview:

• Purpose: The form serves as a record, detailing the health insurance coverage offered and provided by Applicable Large Employers (ALEs) to their full-time employees. The ACA requires ALEs—employers with 50 or more full-time or full-time equivalent employees—to offer specific health insurance coverage to their workers. Form 1095-C helps document and verify compliance with this mandate.
• Relevance for Employees: Beyond its role in employer reporting, Form 1095-C also provides essential information to employees. It helps them understand the type of coverage they had or were offered during a particular year, which becomes crucial when complying with the ACA’s individual mandate or when determining eligibility for premium tax credits.

In essence, Form 1095-C plays a dual role: it assists the IRS in enforcing the ACA’s employer mandate and provides individuals with clarity about their health insurance coverage status during a tax year.

Who Needs to File Form 1095-C?

The ACA introduced a series of requirements to ensure broader health insurance coverage across the U.S., one of which involves certain employers providing coverage details to the IRS via Form 1095-C. But which employers are subject to this?

Definition of an ALE

Under the ACA, an Applicable Large Employer (ALE) is defined as a company or organization that employed an average of 50 or more full-time employees, including full-time equivalent (FTE) employees, during the previous calendar year. It’s this specific group that is obligated to provide health insurance offers and coverage details using Form 1095-C.

Determining Full-Time and Full-Time Equivalent (FTE) Employees

• Full-Time Employees: Generally, any employee who works 30 hours or more per week, or 130 hours or more in a calendar month, is considered full-time.
• Full-Time Equivalent Employees: This category is a bit more complex. It’s used to account for part-time workers. To calculate FTEs, you combine the hours worked by all part-time employees in a month and divide by 120. For instance, if you have two part-time employees each working 60 hours a month, they collectively count as one FTE.

Why This Distinction Matters

The inclusion of FTEs in the ALE determination process means that even employers who might not have 50 individual full-time workers could still fall under the ALE category when their part-time staff hours are considered. This distinction ensures that larger companies can’t skirt ACA responsibilities by hiring a higher number of part-time workers instead of full-timers.

Responsibility Beyond Filing

Being classified as an ALE doesn’t just mean filing Form 1095-C. These employers also have to offer affordable health insurance that provides minimum value to at least 95% of their full-time staff (and their dependents up to age 26). Not adhering to this can lead to penalties, especially if one of their employees claims a premium tax credit on the Health Insurance Marketplace.

Breaking Down the Form: Key Sections

• Part I: This section captures basic information about the employer and the employee.
• Part II: This is where employers report details about the health coverage offered to the employee, if any, along with any safe harbors or relief that apply.
• Part III: Employers who offer self-insured plans fill out this section, listing covered individuals under the plan.

The Importance of Form 1095-C

There are two primary reasons why Form 1095-C is essential:

• Determining Employer Mandate Compliance: The IRS uses Form 1095-C to assess whether an ALE met its obligation to offer qualifying health coverage to 95% of its full-time employees and their dependents.
• Administering Premium Tax Credits: For employees, Form 1095-C provides the information needed to determine eligibility for premium tax credits on health insurance purchased through the ACA’s marketplace. If the ALE did not offer affordable coverage that meets the minimum value, the employee might qualify for these credits.

Deadlines to Remember

Typically, there are two main deadlines associated with Form 1095-C:

1. Furnishing to Employees: ALEs must provide their full-time employees with copies of Form 1095-C by March 2nd of the year following the reporting year. For example, forms for the 2023 tax year should be delivered to employees by March 2nd, 2024.
2. Filing with the IRS: Paper filings are due by February 28th, while electronic filings (required for ALEs filing 250 or more forms) are due by March 31st of the year following the reporting year.

Common Pitfalls and Mistakes

Several common errors can be costly for employers:

• Missing Deadlines: Late filing can lead to penalties.
• Inaccurate Information: Providing incorrect information about coverage can also result in fines.
• Failure to Offer Coverage: Not offering coverage to 95% of full-time employees can result in substantial penalties if even one employee receives a premium tax credit for marketplace coverage.

Conclusion

Understanding and correctly filing IRS Form 1095-C is crucial for any ALE under the ACA. It’s not only a matter of compliance but also an essential step in ensuring that employees have the information they need about their health coverage options. Employers are advised to seek guidance or utilize comprehensive ACA reporting software to ensure they meet all requirements and avoid potential penalties.