Employers Receive Expanded Relief for Furnishing Forms 1095-B or 1095-C to Employees
The amendments to the ACA now provide only a six-year period for collecting any penalties from employers, starting from the due date for the 1095 Forms or the actual filing date, whichever is later.
On December 23, 2024, President Biden signed into law the Employer Reporting Improvement Act and the Paperwork Burden Reduction Act (together, the "Acts"). The Acts change the requirements for distributing IRS Forms 1095-B and 1095-C under the Affordable Care Act ("ACA") to all employees and covered individuals.
The Details:
Under the ACA, all entities offering health coverage (including employers as well as health insurers) were required to disclose information about any health coverage offered to a covered individual and full-time employees by utilizing Forms 1095-B or 1095-C. These forms are also required to be filed with the IRS, along with Forms 1094-B or 1094-C.
Covered individuals are reported on Forms 1095-C by applicable large employers (ALEs) and Forms 1095-B are used by coverage providers (including health insurers and small, self-insured employers).
Generally, the term "applicable large employer" means, with respect to a calendar year, an employer who employed an average of at least 50 full-time employees on business days during the preceding calendar year.
Forms 1095-B and 1095-C are utilized by the Internal Revenue Service (IRS) in determining whether any penalties are due by the employer under the ACA reporting and disclosure requirements, as well as Employer Shared Responsibility provisions. Although the Tax Cuts and Jobs Act (TCJA) enacted in December of 2017 reduced the individual mandate payment to zero for tax year 2019 and all subsequent years, the TCJA did not eliminate the requirement that Forms 1095-B and 1095-C be provided to employees and other covered individuals.
Under the ACA, these forms are generally required to be provided to employees by January 31st, or an additional 30 days later if utilizing the automatic extension, following the calendar year in which the coverage was provided.
Amendments to ACA:
Forms 1095-B and 1095-C
The Paperwork Burden Reduction Act ("PBRA") provides that Plan sponsors and health insurance providers for fully insured plans are no longer required to send these Forms 1095-B or 1095-C to all eligible (full-time) employees and covered individuals so long as the Plan sponsor provides "clear, conspicuous, and accessible" notice that an employee may request a Form 1095 to be provided by the later of January 31st of the year following the coverage year or 30 days after the date of the request.
The Employer Reporting Improvement Act ("ERIA") formalizes the current permitted practice for those Plan sponsors furnishing Forms 1095 electronically. An employer is currently allowed to furnish the Forms to individuals electronically if the individual consents to receive the Form electronically. The ERIA provides that an individual consent to receive the forms electronically is effective if they have affirmatively consented at any prior time (unless they revoke the consent). The ERIA also extends the time a Plan sponsor must respond to a penalty assessment letter (Letter 226J) from 30 to 90 days.
The PBRA effective date is for all calendar years after 2023. The effective date for the ERIA is for returns due after December 31, 2024.
Consequently, most employers (assuming the employer provides the employee with the required notice) will be relieved of the IRS Form 1095-B and 1095-C requirements for distribution to employees for returns that are due January 31, 2025, or March 3, 2025, if utilizing the automatic extension, for the 2024 year.
NOTE: The Form 1095-B or 1095-C must still be prepared and remitted to the IRS with the corresponding Form 1094 to determine if the health care provider or employer is to be assessed penalties for failure to disclose required information or Employer Shared Responsibility penalties for failure to provide minimum essential coverage. The Acts only change the distribution requirements to employees and covered individuals in group health plans. Review examples of "minimum essential coverage" here.
Extension of Response Time to Penalty Letters
Under the ACA, based upon data from the ACA's Exchange/Marketplace and these Forms 1095, the IRS would determine if any Employer Shared Responsibility Payments (penalties) were due and send the employer a letter (IRS 226J letter) asking for any clarification before the proposed penalties were assessed. Employers only had 30 days from the date of the letter to respond. If the response from the employer was late, the IRS could not only assess the proposed penalty, but additional penalties as well.
The Acts provide that plan sponsors will now have 90 days to respond to a proposed Employer Shared Responsibility Payment assessment letter from the IRS before any further action is taken.
Statute of Limitations on Penalty Assessment
Under the original ACA, there was no statute of limitations in relation to the IRS assessing and collecting penalties from employers for failure to provide minimum essential coverage.
The amendments to the ACA now provide only a six-year period for collecting any penalties from employers, starting from the due date for the 1095 Forms or the actual filing date, whichever is later.
Next Steps:
Employers who wish to take advantage of the Acts impacting Forms 1095-B and 1095-C, must provide a notice to covered individuals (e.g. employees) that they may request the applicable form. If such notice is not provided to the covered individual, Forms 1095-B or 1095-C must be furnished to the covered individual no later than January 31, 2025, or March 3, 2025, if utilizing the automatic extension.
ADP Compliance Resources
ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve. For the latest on how federal and state tax law changes may impact your business, visit the ADP Eye on Washington Web page located at www.adp.com/regulatorynews.
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Updated on January 9, 2025
