The Affordable Care Act (ACA) requires each Applicable Large Employer (ALE) to report to the IRS on its compliance with the ACA’s Employer Mandate at the conclusion of the compliance calendar year. Copies of such reports must also be distributed to employees by ALEs.
ALEs are employers that must comply with the Employer Mandate. An ALE may be a single company or may consist of multiple companies that are combined because of common ownership (such as parent and subsidiary entities or other related/affiliated businesses), which the IRS calls a Controlled Group.
ALE status is determined annually at the start of each year, by averaging the employer’s workforce size over all 12 months of the preceding calendar year. An employer resulting with 50 or more Full Time (FT) plus Full Time Equivalent (FTE) employees in this calculation is considered an ALE for the entire new calendar year.
At the completion of the calendar year, the ALE must report to the IRS on its compliance with the ACA’s employer mandate. During reporting season, the ALE must create a report using IRS Form 1095-C, for any person employed full time for at least one full calendar month of the compliance year. Those reports must detail the coverage offered, the cost of coverage (after the employer’s contribution, at the employee only rate), affordability safe harbors, and more.
Employers that are considered ALEs in 2022 are conducting their ACA IRS reporting now in Q1 2023, to demonstrate compliance with the mandate during the 2022 calendar year. Forms must be submitted to the IRS by the end of February if submitting via paper, or by the end of March if submitting electronically; copies must be furnished to all employees by March 2, 2023.
Purpose of ACA IRS Reporting
At the conclusion of an ALE’s calendar year, each ALE must report the coverage it offered (or did not offer) to any person employed full time for at least one calendar month to the IRS, for that previous tax year. The ACA IRS reporting determines two major items:
- 1. Employees’ eligibility for Premium Tax Credits (PTCs, subsidies) on the state Exchange/Marketplace (i.e., Covered California, Nevada Health Link, etc.). Employees and families who are made offers of affordable ACA-compliant coverage by an employer are not eligible for Premium Tax Credits/premium subsidies on a state Exchange.
- 2. The ALE’s compliance with the ACA employer mandate. This may include potential noncompliance penalty assessments on the ALE by the IRS. ALEs must report on the coverage offered – or not offered – to FT employees and their dependents, but at the employee-only rate (after the employer’s contribution). ALEs do not report on the coverage in which the employee is enrolled. ALEs only report on the lowest-cost ACA-compliant plan offered, at the employee-only rate (after the employer’s contribution).
Who Reports?
ALEs must report on their compliance with the employer mandate, detailing coverage offered to eligible full-time employees. Additionally, employers of all sizes that sponsor self-funded plans must report on coverage maintained by employees and their dependents. This is to enforce the individual mandate, which requires all Americans to obtain and maintain health coverage. At the federal level, there is no penalty for noncompliance. However, several states (including California, but not Nevada) have enacted their own individual mandates with noncompliance penalties. California’s individual mandate mirrors the ACA’s requirements, with noncompliance penalties in effect since 1/1/2020.
Fully insured health insurance carriers also report on the coverage obtained and maintained by individuals and families to enforce the federal and state individual mandates.
Fully insured carriers and non-ALEs with self-funded plans report using IRS Form 1095-B. Copies must be furnished to covered individuals. Forms are due to the IRS by the end of March if filing electronically, and copies are due to covered individuals by March 2, 2023.
ALEs with fully insured and self-funded plans conduct reporting on IRS Form 1095-C. One form must be generated for any person who was employed full-time for at least one or more full calendar month of the calendar year. Each form must be submitted to IRS and copies must be furnished to employees.
Overview of ACA IRS forms
IRS Form 1094-C must be generated by ALEs and is filed with the IRS. This form contains company information, which tells the IRS who the employer is, how many reports it is submitting, certificates of eligibility, affiliated companies (common ownership), employee count, etc.
IRS Form 1095-C contains employee information, related to the coverage offered by the ALE. An ALE must complete one form for any person employed FT for one full calendar month of the reporting year. State health insurance exchanges and health insurance carriers also use Form 1095 to report coverage held/maintained by the taxpayer. There are three versions of IRS Form 1095, and forms must be filed with the IRS and copies must be furnished to the taxpayer whose information is reported.
Most taxpayers receive multiple Forms 1095 from different entities as follows:
- * IRS Form 1095-A is used by the state exchanges, which demonstrates possession of minimum essential coverage (MEC) to the IRS as part of the ACA’s Individual Mandate. Anyone with coverage on the state individual exchange (Covered California, Nevada Health Link, etc.) will get this form.
- * IRS Form 1095-B is used by health insurance carriers (and non-ALEs with self-funded plans), which demonstrates possession of MEC to the IRS as part of the ACA’s individual mandate. This form tells the IRS what coverage was elected and held by the taxpayer. Anyone enrolled in health coverage will receive this form or will have access to it by requesting it from the insurance carrier or health plan. In California, these forms are also submitted to the California Franchise Tax Board to enforce California’s individual mandate.
- * IRS Form 1095-C is used by ALEs, with both fully insured and self-funded plans. It demonstrates the ALE’s compliance with the employer mandate, and reports on coverage offered to employees. For self-funded employers, additional reporting is required to demonstrate possession of MEC health coverage to the IRS for enforcement of the ACA’s individual mandate. In California, these forms are also submitted to the California Franchise Tax Board to enforce California’s individual mandate.
Word & Brown has made available employee-facing references to help them understand these three 1095 forms, and what to do with them.
- * IRS Form 1095 Reference Sheet for Covered Individuals and Employees
- * IRS Form 1095 Reference Sheet for Covered Individuals and Employees – Spanish
- * IRS Form 1095 Reference Sheet for Covered Individuals and Employees – Chinese
- * IRS Form 1095 Reference Sheet for Covered Individuals and Employees – Korean
- * IRS Form 1095 Reference Sheet for Covered Individuals and Employees – Vietnamese
ACA IRS Reporting Due Dates
Copies of forms 1095-C and 1095-B must be furnished to employees/covered subscribers by March 2, 2023.
If filing via paper, forms 1094 and 1095 are due to IRS by the end of February. If filing electronically, the forms are due by the end of March. The IRS requires employers/entities with 250+ Forms 1095 to submit electronically.
If employers need additional time to report to the IRS, an automatic 30-day extension is available via request, utilizing IRS Form 8809. Note: this 30-day extension only applies to filing dates with the IRS. Employers and plans cannot delay the deadline to furnish copies to covered individuals/employees.
ACA IRS Reporting – Noncompliance Penalties
ALEs and plans that do not file as required by the ACA are subject to reporting noncompliance penalties, in addition to potential noncompliance penalties for violations of the ACA’s employer mandate. An employer can be penalized for not submitting forms to IRS, and for not remitting copies of forms to covered individuals – making the penalties effectively double.
For forms submitted not more than 30 days late, the penalty is $50/form. For forms submitted more than 31 days late but before August 1, 2023, the penalty is $110/form. For forms submitted after August 1st, the penalty is $290/form. For intentional disregard, the penalty is $580/form – and there is no limitation on the maximum penalty amount. Noncompliance penalties are capped between $206,000 and $3,532,500/employer, depending on the size of the employer and the tardiness of the forms’ submission.
The IRS may impose fines of $280/form upon ALEs that submit ACA IRS forms with incomplete or inaccurate information. ALEs working with third-party vendors to facilitate ACA reporting should review their forms for accuracy before submitting them to the IRS to avoid such penalty.
Additional Support
Word & Brown General Agency annually conducts an online webinar series to help employers better understand their reporting obligations. Further ACA resources are also available – including IRS Codes, employer mandate penalty references, and more. Check out Word & Brown’s ACA IRS Reporting: Don’t Fear the Forms website for more information.