November 29, 2021
Last week the IRS published proposed regulations that provide employers, health insurance issuers, and government agencies an automatic extension to furnish individual statements for the Forms 1095-B and 1095-C. The proposed regulations also made some subtle changes to other Affordable Care Act (ACA) provisions. The remainder of this article discusses the changes made by the proposed regulations and the impact those changes will have on employers.
Deadline to Furnish Forms 1095-B and 1095-C Automatically Extended 30 Days
In each of the six previous years of ACA reporting the IRS had automatically extended the due date to furnish the Forms 1095-B and 1095-C to individuals by at least 30 days (in 2015, the first year of reporting, the deadline was extended by 60 days). The proposed regulations provide an automatic 30 day extension from the January 31 deadline to furnish the Forms 1095-B and 1095-C to individuals. As a result of the automatic 30 day extension, the new deadline will be March 2. However, if the new deadline falls on a weekend or legal holiday, the Forms 1095-B and 1095-C would be due on the next business day. Furthermore, as a result of the 30 day extension, employers will no longer be able to request a 30 day extension for good cause. As a result, the new deadline to furnish the Forms 1095-B and 1095-C for the 2021 reporting season is Wednesday March 2, 2022.
Preamble to Proposed Regulations Clarifies the Good Faith Relief from Penalties Under Section 6721 and 6722 No Longer Applies
The preamble to the proposed regulations reiterated that employers would no longer be able to utilize the good faith relief from penalties under sections 6721 and 6722 for reporting incorrect or incomplete Forms 1094-B, 1095-B, 1094-C and 1095-C for the 2021 tax year and all subsequent tax years. Section 6721 penalizes an employer who fails to timely file or files an incorrect or incomplete Form 1094-B, Form 1095-B, Form 1094-C, or Form 1095-C to the IRS. Similarly, section 6722 penalizes an employer who fails to timely furnish or who furnishes an incorrect or incomplete Form 1095-B or 1095-C to an individual. For the 2021 reporting season the penalty under both sections 6721 and 6722 is $280 per return.
As a result of the good faith relief no longer applying, if an employer submits a Form 1095-C to the IRS or furnishes a Form 1095-C to an employee that is incorrect or incomplete, the employer could be penalized $280 per return. It should be noted that this penalty could apply twice to the same Form 1095-C, once for the Form 1095-C that is furnished to the employee and once for the Form 1095-C that is submitted to the IRS for a total of $560.
The chart below details the cost an employer could incur depending on the percentage of its Forms 1095-C that are filed incorrectly or incompletely. While the chart only discusses the penalty under section 6721, if the IRS were to aggressively penalize an employer, the penalty could be doubled by the IRS by utilizing the penalty under section 6722. The column labeled “# of Forms 1095-C” states the number of Forms 1095-C filed by the employer. The columns labeled with an “x%” state the presumed number of Forms 1095-C that are hypothetically filed incorrectly or incompletely. The dollar figure in the chart states the hypothetical penalty.
| # of Forms 1095-C | 1% | 3% | 5% | 10% | 15% | 20% | 25% |
|---|---|---|---|---|---|---|---|
| 100 | $280 | $840 | $1,400 | $2,800 | $4,200 | $5,600 | $7,000 |
| 500 | $1,400 | $4,200 | $7,000 | $14,000 | $21,000 | $28,000 | $35,000 |
| 1,000 | $2,800 | $8,400 | $14,000 | $28,000 | $42,000 | $56,000 | $70,000 |
| 2,500 | $7,000 | $21,000 | $35,000 | $70,000 | $105,000 | $140,000 | $175,000 |
| 5,000 | $14,000 | $42,000 | $70,000 | $140,000 | $210,000 | $280,000 | $350,000 |
| 10,000 | $28,000 | $84,000 | $140,000 | $280,000 | $420,000 | $560,000 | $700,000 |
| 25,000 | $70,000 | $210,000 | $350,000 | $700,000 | $1,050,000 | $1,400,000 | $1,750,000 |
As the chart above displays, an employer who submits 500 Forms 1095-C to the IRS with 10 percent of the Forms 1095-C being incorrect could be subject to a penalty of $14,000 under section 6721. Additionally, that employer could be subject to a separate $14,000 penalty for furnishing incorrect Forms 1095-C to employees under section 6722. Many employers and service providers in the ACA space have submitted Forms 1095-C to the IRS that have a much higher error rate than 10 percent in previous years. Consequently, it is easy to envision staggering penalties under sections 6721 and 6722 if the IRS stringently enforces these penalties. As a result, employers must be confident that the information reported to the IRS on the Forms 1094-C and 1095-C is complete, meticulous and error free in order to avoid IRS penalties.
Alternative Manner of Furnishing Forms 1095-B to Individuals
The proposed regulations provide relief from the penalty under section 6722 for entities required to furnish the Form 1095-B to individuals in certain cases. So long as the individual shared responsibility payment remains $0, the IRS will not penalize a reporting entity under section 6722 for failure to furnish a Form 1095-B to an individual if the following two conditions are satisfied:
The reporting entity prominently posts a notice on its website that an individual may receive a copy of their 2021 Form 1095-B upon request. The prominently placed notice must include an email address and a physical address to which the request for the Form 1095-B may be made. Additionally, the notice on the website must include a phone number that individuals can contact with questions.
The reporting entity must provide a Form 1095-B within 30 days to any individual who requests their Form 1095-B.
The proposed regulations include an example showing how a reporting entity can provide a clear and conspicuous notice. Any reporting entity wishing to utilize the alternative manner of furnishing the Forms 1095-B to individuals should closely follow the example in the proposed regulations.
Unfortunately, a similar transition relief provision was not extended to the Forms 1095-C except in an extremely limited circumstance. For self-insured employers who use combined reporting by completing the Form 1095-C Parts I, II, and III, the rule is the employer must furnish a Form 1095-C to any full-time employee by the March 2, 2022 deadline. However, if an employer extended coverage to an individual who was not a full-time employee for any month during 2021, an section 6722 penalty will not be assessed against an employer with respect to that individual so long as the two conditions discussed above are satisfied. Given the conditions required to not provide a Form 1095-C to an individual and how few Forms 1095-C are provided to individuals who are not full-time employees for any month during the calendar year, it is probably simplest just to provide a Form 1095-C to every required individual.
Medicaid Coverage Limited to COVID-19 testing and Diagnostics is Not Minimum Essential Coverage
The proposed regulations add a new section to existing regulations that specify that Medicaid coverage for COVID-19 testing and diagnostic services do not qualify for minimum essential coverage under a government-sponsored plan. This is relevant and important as if it were not the case and these types of plans did qualify as minimum essential coverage, those individuals participating in such plans would not be eligible to receive a premium tax credit. To avoid such a harsh result, the IRS added the clarifying language which states Medicaid coverage for COVID testing and diagnostic services does not qualify as minimum essential coverage.
Conclusion
The proposed regulations provide a welcome automatic extension to the deadline to furnish the Forms 1095-B and 1095-C to individuals. However, the proposed regulations make it equally clear that the IRS is no longer going to continue to ignore Forms 1094-B, 1095-B, 1094-C, and 1095-C that are submitted incorrectly or incompletely. Many service providers have struggled to submit the Forms accurately on behalf of employers. Beginning this year, incorrect or incomplete Forms could result in large penalties. As a result, it is essential that employers make sure that every line 14 and 16 code combination submitted to the IRS is error free. Accord Systems has proprietary software that will automatically audit every single line 14 and 16 code combination. If you would like to learn more about our services, including our licensing agreement, or you have any questions regarding ACA reporting, please contact us.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorneys 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 Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
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