IRS Proposes Delayed Effective Dates for Affordable Care Act (“ACA”) Filing Requirements

The IRS has, in years past, extended deadlines for employer and group health plan ACA reporting. The IRS will not issue extended deadlines for 2021 reporting due in the first quarter of 2022. In lieu of the deadline extension, the IRS has issued new regulations that provide for an automatic extension of the deadline for issuing reports to employees and an alternate method of reporting that may be utilized in lieu of mailing the returns to employees or providing them to employees with their Forms W-2. Although the deadline to file the required information returns with the IRS has not been extended and there is no automatic extension, an extension can be obtained by filing a request for an extension with the IRS on or before the deadline for filing.

Section 6055 of the Internal Revenue Code (the “Code”) requires group health plans that provide minimum essential coverage to an individual to report certain information to the IRS. The group health plan must also furnish statements to the covered individual containing the same information. The plan sponsor must report this information to the IRS by February 28 (March 31 if the information is provided by electronic filing) of the year following the taxable year to which it relates, and to the individual by January 31 of the year following the year to which it relates (the last permissible date for providing an employee with his or her W-2 statement). Employers that file 250 or more information returns with the IRS are required to file electronically.

Section 6056 of the Code requires applicable large employers to file annual information returns with the IRS reporting the health coverage it offers to its full-time employees, and to furnish the full-time employees with the written statements containing the information that the employer is also required to report to the IRS. The timing for information returns under Code Section 6056 is the same as under Code Section 6055. Under current guidance, the IRS is authorized to grant an extension of time of up to 30 days to furnish information returns to individuals. Additionally, by filing Form 8809, filers of the applicable information returns will receive an automatic extension of the deadline to file with the IRS. In proposed regulations, which would be immediately effective for 2021, the IRS provides an automatic extension of 30 days for providing an employee with Form 1095-B, to indicate the months in which the individual had minimum essential coverage.

*Extension may be requested by filing Form 8809 by the deadline.

In the preamble to the proposed regulations, the IRS announced the end of the transitional good faith relief policy it had been applying to inaccurate or incomplete filings. Beginning in 2022 with respect to filings for the 2021 year, the penalties under Code Section 6721 (for incorrect filings with an employee) and Code Section 6722 (for incorrect filings with the IRS) are each $280, if the responsible entity does not meet applicable deadlines. With a penalty of $280 for failing to timely report to an employee and an additional penalty of $280 for failing to timely report to the IRS, an employer could be penalized $560 per employee for failing to furnish accurate returns.

It will be interesting to see if, in practice, the IRS actually imposes penalties when errors are made on the forms. A common error is for an employer to check the “no” box in response to the question of whether coverage is provided to at least 95% of the employer’s full-time employees when, in fact, the employer does provide coverage. Such an error often produces an assessment of a very large penalty (based on the number of full-time employees minus 30), which usually can be quickly resolved once a corrected report is provided. In the past, the IRS does not appear to have imposed penalties for such errors. If that practice changes, service providers completing the forms will need to be extra cautious in avoiding errors.

When these Code provisions were enacted, there was an associated penalty for not satisfying the individual mandate. However, when Congress reduced the penalty for the individual mandate to zero, the information returns given to individuals no longer had any effect on their individual income tax returns. So long as the individual mandate remains at zero, therefore, the IRS proposes an alternative method of notifying individuals in lieu of mailing notices to the individual’s last known permanent address. A plan sponsor or insurer may utilize this alternative method if it:

• provides a clear and conspicuous notice on its website that is reasonably accessible to all responsible individuals stating that they may receive a copy of their statement on request. The notice must include an e-mail address, a physical address to which a request for a statement may be sent, and a telephone number that responsible individuals may use to contact the reporting entity with any questions. The notice must be written in plain, non-technical terms, calling to a viewer’s attention that the information pertains to tax statements reporting that individuals had health coverage. The proposed regulations provide an example of a clear and conspicuous notice;
• retains the notice in the same location on its website through October 15 of the year following the year to which the statements relate; and
• furnishes the statement to a requesting responsible individual within 30 days of the request.

The IRS has issued ACA reporting forms for 2021 reporting as follows:

Transmittal Forms:

1094-B—for transmitting Forms 1095-B to the IRS.

1094-C—for transmitting Forms 1095-C to the IRS.

Reporting Forms:

1095-B—used by small, self-funded employers and insurers to report employees and their family members enrolled in minimum essential coverage.

1095-C—used by Applicable Large Employers (50 or more full-time and full-time equivalent employees), whether fully insured or self-funded, to report offers of coverage made to full-time employees.

Employers should ensure that they and their service providers are prepared to furnish health care reporting forms (Form 1095s) to employees by the applicable deadline and file these forms with the IRS by the applicable deadlines or request an extension (Form 8809), as the IRS will no longer grant penalty relief on a showing of good faith efforts to comply. Penalty relief will still be available on a showing of good cause, but this is a higher standard. In addition, employers wishing to use the alternative method of reporting to employees need to consider making the changes necessary to utilize the alternative method and should discuss those changes with their service providers.