August 29, 2016
In early August the draft instructions were released for the Forms 1094-C and 1095-C for 2016. While not much pertinent has changed, there are some differences in the Forms compared to 2015. This article is intended to provide an overview of the changes, provide helpful reminders, and point out things the IRS emphasized in the instructions to the Form 1095-C.
First, and most importantly, the deadline to furnish the 2016 Form 1095-C statement to employees is January 31, 2017. This is two months earlier than the generous extension granted by the IRS for the 2015 Forms. Considering the Form 1095-C is the bulk of the work, an employer must be on top of its Form 1095-C reporting in 2016. While it is certainly not feasible for all employees, Accord has already begun updating the Form 1095-C with the data it presently has available from its clients. This is highly recommended and will ease the burden in January 2017 when, at a minimum, every employer will have to be reporting the data gathered from December 2016.
The Form 1095-C information submitted to the IRS will be three or four months earlier in 2016 compared to 2015. The filing deadline for non-electronic filers for the 2016 Forms 1094-C and 1095-C is February 28, 2017. The filing deadline for electronic filers for the 2016 Forms 1094-C and 1095-C is March 31, 2017. However, both non-electronic filers and electronic filers can take advantage of an automatic 30 day extension by completing a Form 8809. This would delay the deadline to March 30, 2017 for non-electronic filers and May 1, 2017 (the 30th day is a Sunday which prolongs the extension deadline for electronic filers by one day in 2017) for electronic filers.
The penalty for the failure to file a correct information return (in this case the Form 1095-C) generally is $260 for each return for which a failure occurs. Similarly, the penalty for the failure to provide a correct payee statement (in this case the Form 1095-C statement provided to the employee) is $260 for each statement. These penalties are each capped at $3,193,000. The penalties can be waived if the failure was due to reasonable cause and not willful neglect. However, employers no longer have the protection of the good faith effort standard in 2016. Getting the Forms right will matter in 2016.
Part II presents the largest challenge with the Form 1095-C. First, similar to last year, the plan start month box continues to be optional for the 2016 Forms. Therefore, this box can be left blank for the 2016 Form 1095-C.
Lines 14, 15, and 16 of part II largely remain unchanged. However, the 1I code (qualifying offer transition relief 2015) and the 2I code (non-calendar year transition relief applies to this employee) have been eliminated from the 2016 Form 1095-C. Both of these codes are now labeled “Reserved” and should never be entered on the 2016 Form 1095-C.
Line 14 has two new codes that won’t be relevant to most employers. Both new codes were created to signify a conditional offer of coverage to a spouse. A conditional offer is an offer of coverage that is subject to one or more reasonable, objective conditions. The most common conditional offer of coverage is an employer offering an employee’s spouse coverage only if the spouse is not eligible for coverage under a group health plan sponsored by his/her employer. Code 1J should be entered if minimum essential coverage (MEC) providing minimum value is offered to an employee and at least MEC is conditionally offered to the employee’s spouse. If code 1J is used, MEC is not offered to the employee’s dependents. Code 1J is similar to code 1D. If an employer is entering code 1J, the employer is falling short of the Play or Pay standard because the employer is not offering the employee’s dependents coverage. Therefore, a 1J code entry could lead to a section 4980H penalty. Code 1K should be entered if MEC providing minimum value is offered to an employee, at least MEC is offered to the employee’s dependents, and at least MEC is conditionally offered to the employee’s spouse. Code 1K is similar to code 1E. If either new code is entered on line 14, the employer is responsible for completing line 15.
In 2015 lines 14, 15, and 16 had 200 possible combinations. With the changes discussed above there are now 11 possible entries for line 14 (1A, 1B, 1C, 1D, 1E, 1F, 1G, 1H, 1J, 1K and Leave Blank), two possible entries for line 15 (Complete or Leave Blank), and nine possible entries for line 16 (2A, 2B, 2C, 2D, 2E, 2F, 2G, 2H, and Leave Blank). This creates 198 possible code combinations for 2016. Some of the options are clearly always incorrect. For example, a code must be entered on line 14 for each calendar month, even if the employee was not a full-time employee for one or more of the calendar months. Therefore, the “Leave Blank” option for any month on line 14 is really not an option at all. However, we present this as a possible option because I reviewed countless Form 1095-Cs in my legal practice that had months with line 14 left blank. Furthermore, the Form 1095-C instructions make it clear that line 15 should only be completed if 1B, 1C, 1D, 1E, 1J, or 1K is entered on line 14. Taking the inverse of that statement, line 15 should not be completed if 1A, 1F, 1G, or 1H is entered on line 14.
Applying these two rules eliminates 108 of the 198 possible combinations for line 14, 15 and 16. Of the remaining 90 possible outcomes only 39 are true outcomes. We have updated our proprietary software, Form Patrol, to check for impossible code combinations.
The 2016 instructions add a new way to look at the line 16 codes. The instructions break the nine possible outcomes into five bullet points. The five bullets and the corresponding codes are:
- The employee was not employed or was not a full-time employee (codes 2A and 2B);
- The employee enrolled in MEC (code 2C);
- The employee was in a limited non-assessment period with respect to section 4980H(b) (code 2D);
- The employer met one of the affordability safe harbors with respect to the employee (2F, 2G, 2H); or
- The employer was eligible for multiemployer interim rule relief for this employee (2E)
The ninth and final option, Leave Blank, applies if none of the provisions above apply. This is a creative way of looking at line 16. In some circumstances two or more line 16 codes may apply. While there is an ordering scenario that applies for line 16, it is impossible to create one concise chart to cover all scenarios. The one statement that is always true regarding the line 16 ordering is if the multiemployer interim rule relief code is applicable, code 2E, it should be entered on line 16. In other words, code 2E is the ace of spades for line 16.
Line 14, 15, and 16 tell the IRS a 12 chapter narrative (each month is a chapter) regarding the employee. If the employer is inserting impossible code combinations, it could be subject to the $260 penalties discussed earlier. In the worst case scenario, the employer would be subject to a $260 penalty for failing to file a correct information return and a separate $260 penalty for failing to provide a correct payee statement. This is realistic because the code combinations furnished to the employee and the IRS are likely to be identical. Additionally, an employer submitting impossible code combinations is likely to enhance its chances of being audited by the IRS as the IRS will be unable to properly process the Forms. It is vital that the Form 1095-C has accurate codes inserted for each employee for all 12 months. This was a major shortcoming for many employers in 2015. In 2016 there will be no participation awards handed out by the IRS. Accuracy is essential in 2016.
Part III of the Form 1095-C also caused a lot of confusion for employers in 2016. Part III should only be completed by an employer who sponsors a self-insured plan in which the employee or another individual enrolled. If the employee is enrolled in coverage for any day of the year, he/she should be listed on line 17. All other family members who are enrolled for any day of the year should be listed on the subsequent lines. For part III, if an individual is covered for one day in a calendar month, that month should be checked in column (e). This is different than part II where an employee needs to be offered coverage for each day of a calendar month for it to count as an offer of coverage. Part III only requires one day of coverage because it is replacing part IV of the Form 1095-B for the employee. Part IV of the Form 1095-B only requires an employee to be covered for one day of the month for a box to be checked so it is logical that part III of the Form 1095-C has a similar requirement.
The changes made to the Form 1095-C for 2016 are not dramatic. However, an employer will only have one month to accurately complete the Form 1095-C and provide the Form to its employees by the January 31, 2017 deadline. Many employers struggled to accurately complete the Form 1095-C in 2015. If inaccurate Forms are submitted to the IRS, an employer could be subject to penalties and it will likely increase its risk of an IRS audit. Inaccurate Form 1095-Cs will be a costly expense in 2016. Employers should already be preparing for the 2016 reporting season. Should you have additional questions about the Form 1095-C or need assistance filing for 2016 please contact us.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorney's P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the newly created Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
The information contained on this site is not, nor is it intended to be, legal advice. An attorney should be consulted for advice regarding your situation. Copyright © 2016 by Accord Systems, LLC. All rights reserved. You may reproduce materials available at this site for your own personal use and for non-commercial distribution. All copies must include this copyright statement.