September 5, 2017
Last week the draft instructions to the Forms 1094-C and 1095-C were released with minimal changes compared to the final instructions from 2016. Most of the changes made in the draft instructions are the elimination of discussions related to the transition relief provisions that applied in previous years, but can never apply for the 2017 Forms. Pleasantly this makes the instructions a bit shorter yet just as fun to read. This article provides a brief summary of the changes and new notes added to the draft instructions for the Forms 1094-C and 1095-C, discusses key dates, and provides a brief overview of penalties associated with the Forms. The article concludes by discussing a problem that persists related to the code 2F on line 16 of the Form 1095-C.
Changes to the Form 1094-C
There are two differences the draft instructions discuss with regards to the Form 1094-C. First, both boxes “B” and “C” on line 22 are now labeled “Reserved”. These boxes will never apply in 2017 as the transition relief for which boxes “B” and “C” could have been checked are no longer applicable. The second change is column (e) in Part III of the Form 1094-C is also labeled “Reserved”. Column (e) in Part III of the Form 1094-C was tied to box “C” on line 22 so it is logical that both the box and the column are labeled “Reserved” now that the transition relief provision that related to the box and column can never apply. There are no other substantive changes to the Form 1094-C.
New Language Associated with the 1095-C
A new note was added when discussing whether a corrected return needs to be filed because of an error on line 15 of the Form 1095-C. The draft instructions reference Notice 2017-9 which discusses de minimis errors that may occur on certain tax forms, including the Form 1095-C, that will not result in a penalty. In general, the safe harbor only applies if the line 15 amount does not differ from the correct amount by more than $100. One thing that is not clear is whether the $100 limit applies to the sum of line 15 for the entire calendar year or each of the 12 months of the calendar year. To us, the better interpretation is the $100 total applies to the entire year. This is supported by the fact that many employers complete the Form 1095-C using the “All 12 Months” box. Further clarity on this point would be appreciated in the final instructions or in the regulations the notice states the IRS plans on releasing in the near future.
Notice 2017-9 is clear that an employer who intentionally misreports a dollar amount or has a pattern of non-compliance will not be able to utilize the de minimis safe harbor. Additionally, the safe harbor would not apply for failure to file or furnish the Form 1095-C to the IRS or the employee even if the employer would otherwise qualify for the safe harbor. Presumably, this also means the Form 1095-C must be timely filed or furnished to utilize the safe harbor.
If the safe harbor applies, an employer will not have to file a corrected Form 1095-C with the IRS and employee (or recipient of the Form 1095-C). However, if the employee (or recipient of the Form 1095-C) elects for the safe harbor to not apply, the employer would have to file a corrected Form 1095-C and furnish a corrected statement to the employee (or recipient of the Form 1095-C). For additional details, please review Notice 2017-9.
The only other addition worth mentioning is a new note before the line 16 codes stating that “There is no specific code to enter on line 16 to indicate that a full-time employee offered coverage either did not enroll in the coverage or waived the coverage.” It appears the IRS is trying to clarify that if an employer does not qualify for one of the affordability safe harbor codes (codes 2F, 2G, and 2H) and the employee does not enroll in coverage or waives coverage line 16 should be left blank. This is not a change from previous years. It is never ideal to have line 16 left blank as it leaves the employer subject to a potential section 4980H(b) penalty. Therefore, if it is at all possible an employer should try to see if one of the other line 16 codes would be appropriate.
As of now an employer will have to furnish the 2017 Form 1095-C to certain employees by January 31, 2018. Last year, the IRS provided every employer an automatic 30 day extension pushing the deadline to furnish the necessary employees with a statement until March 2, 2017. No similar extension has been communicated by the IRS to date. The Form 1095-C is by far the more complicated Form and providers who are not automating the process will undoubtedly struggle to meet this deadline.
The deadline to file the Forms 1094-C and 1095-C with the IRS is February 28, 2018 if the employer is filing on paper. If an employer is filing electronically, the deadline is March 31, 2018. However, March 31, 2018 is a Saturday. Therefore, employers filing electronically have until the following Monday, April 2, 2018 to file the Forms 1094-C and 1095-C with the IRS.
An employer who is unable to meet the deadlines discussed above can file an extension. Unfortunately, there is no automatic extension for the tightest deadline of furnishing the Form 1095-C to certain employees by January 31, 2018. However, an employer may request an extension of time to furnish the statement by sending a letter to the IRS with the filer’s name, TIN, address, the type of return for which the extension is being requested, a statement that the extension request is for providing statements to employees, the reason for the delay, and the signature of the filer or authorized agent. This extension request must be postmarked by or before the January 31, 2018 deadline. If the government is lenient, something an employer should not anticipate, the extension will generally only be granted for 30 days bringing the new due date to March 2, 2018. If an employer completes the Form 8809, it will receive an automatic 30 day extension for filing the Forms 1094-C and 1095-C with the IRS. With the 30 day automatic extension, the deadline for filing on paper is March 30, 2018. With the 30 day automatic extension, the deadline for filing electronically is April 30, 2018.
One big change from previous years is an employer will no longer be able to use the good faith efforts standard to protect itself from filing information returns or payee statements with inaccurate or incorrect information. This could change, as it did last year, but as of the publication of this article no good faith efforts standard has been communicated by the IRS. In 2015 and 2016, if the Forms 1094-C and 1095-C were filed on time, the IRS did not assess a penalty for filing an information return or payee statement with inaccurate or incorrect information so long as a good faith effort was made by the employer. An employer can be penalized $260 per return for failing to file a correct information return (the Forms 1094-C and 1095-C filed with the IRS). Similarly, an employer can be penalized $260 per statement for failing to provide a correct payee statement (the Form 1095-C that must be furnished to certain employees by January 31, 2018). Each penalty is separately capped. This amount has risen to $3,218,500 in 2017 compared to $3,193,000 in 2016. However, these penalties can be increased if there is intentional disregard for the filing requirements. It is easy to envision the worst case scenario of the same Form 1095-C that is furnished to an employee with incorrect information being provided to the IRS at the later deadline with the same incorrect information. In this worst case scenario, that Form 1095-C with incorrect information could trigger a penalty of $520.
Problems with Code 2F
As explained more thoroughly in our previous publication, when discussing line 16 code 2F, the form w-2 affordability safe harbor code, the draft instructions like the final instructions last year state “If an ALE Member uses this safe harbor for an employee, it must be used for all months of the calendar year for which the employee is offered health coverage (emphasis added).” This is a strong statement.
First, the calendar year language means there is no exception made for plans that do not operate on a calendar year. This seems like a clear oversight. Combined with the “offered health coverage” language, there are only a few line 16 codes that can be entered in the same calendar year with code 2F. The only other codes that could be appropriate with code 2F on a Form 1095-C are codes 2A (employee not employed during that month), 2B (employee not a full-time employee), 2D (employee in a section 4980H(b) limited non-assessment period), or leaving line 16 blank. Importantly, code 2C (employee enrolled in health coverage offered) is not an appropriate code on the same Form 1095-C as code 2F according to the final instructions in both 2015 and 2016. This is a problem.
The way the instructions are currently written could force an employer to submit a Form 1095-C with an inaccurate narrative for the 12 months on the Form 1095-C. There are many scenarios that commonly occur where an employer should be able to have line 16 completed with 2C and 2F in the same calendar year. Furthermore, and importantly, nothing in the final regulations requires the form w-2 affordability safe harbor to be “used for all months of the calendar year for which the employee is offered health coverage” as the draft instructions to the Form 1095-C require. It is our hope the final instructions will finally address this issue that is impacting so many Form 1095-Cs.
Not much has changed from previous years with regard to the Forms 1094-C and 1095-C. To date the IRS has not released any extensions to furnish statements to the necessary employees or provided a good faith efforts standard. Therefore, timeliness and accuracy is essential when completing the Forms 1094-C and 1095-C to avoid potential penalties. If you have any questions or need assistance completing the Forms, 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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