Organizational changes such as mergers, layoffs, transfers and/or increased hiring may result in valid code count/coding variations within the Forms 1095-C. (Photo: Shutterstock)
The IRS has issued proposed regulations that would eliminate the "good-faith" waiver for accuracy-related penalties in Tax Year 2021 on Affordable Care Act (ACA) forms. By this time, most employers have already furnished, or are well on their way to furnishing, Tax Year 2021 Forms 1095-C to their employees. With employers soon turning their attention to transmitting those forms, along with Form 1094-C, to the IRS and various states, a key question is what steps employers can take to further reduce the potential for reporting inaccurate information that could lead to penalties.
Following are some potential strategies some employers often consider.
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Final year-end data
Many ACA reporting vendors require employers to provide final 2021 data files in early January to produce, print and mail forms by January 31. This timeline often makes it difficult for employers to provide accurate data. For instance, December enrollment information is often processed in mid-January. Another complication can occur when the final payroll period starts in December but ends in January. For an employee being measured monthly, the hours applicable to December could be enough for them to be determined full-time that month. If that payroll record is not processed in time, any missing December hours could impact the codes used on Form 1095-C for December.
In these instances, the employer may need to load additional data prior to transmitting to the IRS and states. With that updated data, a revised Form 1095-C can be furnished to the employee and the most up-to-date information will be transmitted to the IRS.
Checking for accuracy
When checking for accuracy, employers might want to ask the following questions:
Have all the Forms 1095-C been produced?
In a controlled group, every entity that is an applicable large employer (with at least 50 full-time employees) must produce Forms 1095-C for all employees who are considered full-time for ACA purposes (i.e., "ACA full-time") for at least one month or are enrolled in self-insured coverage for at least one day. Under the ACA, variable-hour workers can be considered full-time, so employers should determine if any of these employees meet the ACA full-time definition and require a Form 1095-C.
In addition, employees determined to be part-time under ACA regulations who enroll in self-insured coverage also require a Form 1095-C. Employers should verify that the number of Forms 1095-C produced approximates the number of ACA full-time employees throughout the year. As with Form W-2 counts, employers will likely have more Forms 1095-C than full-time employees at year-end due to turnover.
If there was a late-year acquisition or other groups were not included when the Forms 1095-C were furnished, the new groups should be included and applicable forms produced before the forms are filed with the IRS and applicable states.
Is the data consistent month-to-month?
It is important that the data on Lines 14 and 16 be consistent on a month-to-month basis. Line 14 lists the offer of coverage made to the employee and must be filled in for every month for every employee. Line 16 lists the applicable ACA safe harbor and is used to determine whether the employer could be subject to penalties. Consequently, it is important to review the monthly Line 14 and Line 16 data and corresponding codes. Organizational changes such as mergers, layoffs, transfers and/or increased hiring may result in valid code count/coding variations within the Forms 1095-C.
Are employees offered individual coverage health reimbursement arrangements (ICHRAs)?
If employees are offered ICHRAs, check Line 14. Only employees with ICHRAs should have Line 14 values of 1I through 1U for Tax Year 2021.
Are the Affordability Safe Harbor codes valid?
The IRS is able to quickly identify invalid Affordability Safe Harbor codes (e.g., a rate on Line 15 that is above the Federal Poverty Level safe harbor, even though the Federal Poverty Level safe harbor code of 2G was used on Line 16 for that particular month). Employers should review Forms 1095-C and confirm that the rate reported on Line 15 is consistent with the Affordability Safe Harbor code on Line 16.
Are there any multiemployer plans that qualify for interim relief?
Specific rules apply for multiemployer plans to qualify for interim relief, which allows the employer to use a Line 16 code of 2E for months in which an individual was offered coverage through the multiemployer plan. Employers that do not qualify for such interim relief related to multiemployer plans should not utilize the 2E code for Line 16 of the Form 1095-C.
Have the Forms 1095-C been reviewed for code combinations that are invalid or don't make sense?
Certain combinations of codes on Lines 14 and 15 may be invalid or highlight a possible data issue that needs to be addressed. Reviewing Forms 1095-C for these anomalies is expected from an accuracy-based perspective.
State transmission
In addition to transmitting information to the IRS, employers must also submit information to California, the District of Columbia, New Jersey, and Rhode Island. Currently, there do not appear to be any accuracy-related penalties at the state level – only from the IRS.
| State | Filing deadline | Special notes |
| California | March 31, 2022 | Only transmit forms for individuals enrolled in self-insured coverage |
| District of Columbia | April 30, 2022 | Do not use the IRS XML format |
| New Jersey | March 31, 2022 | Only transmit forms for individuals enrolled in self-insured coverage |
| Rhode Island | March 31, 2022 | N/A |
Thoroughness
With recent proposed regulations eliminating the "good-faith" waiver for accuracy-related penalties, the steps outlined here should help employers reduce the potential for reporting inaccurate information that could lead to penalties for 2021 and improve data parameters rolling into 2022 as well.
Ron Krupa is a senior manager in EY's National indirect tax practice with a focus on the Affordable Care Act and reporting,
*The views expressed in this article are those of the author and are not necessarily those of Ernst & Young LLP or other members of the global EY organization. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, legal or other professional advice. Please refer to your advisors for specific advice.
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