February 26, 2019
The fourth reporting season for the Affordable Care Act (ACA) is fast approaching. Employers who are filing for the 2018 calendar year electronically will have until April 1, 2019 to report the Forms 1094-C and 1095-C to the IRS. Unfortunately, most employers are in the problematic, yet understandable, position of being unaware of what the service provider is reporting to the IRS on their behalf. The purpose of this paper is to provide an employer a few tools to check to see if its service provider is fulfilling its obligation of accurately reporting on the Forms 1094-C and 1095-C. If an employer encounters or has encountered in previous years one or more of the five issues discussed in this paper, it is probably time to find a new service provider.
Is the “Yes” box checked on line 23 (or, alternatively, on lines 24 through 35) of the Form 1094-C?
By checking the “Yes” box on line 23 an employer is telling the IRS that it offered 95 percent of its full-time employees and their dependents minimum essential coverage for each calendar month of the year. If an employer only offered 95 percent of its full-time employees and their dependents minimum essential coverage for certain calendar months within a year, the employer should check the “Yes” boxes of each month (shown on lines 24 through 35) for which the 95 percent threshold was satisfied. Shockingly, many employers, or the service providers filing on an employer’s behalf, forgot to check the “Yes” box when an employer has offered 95 percent of its full-time employees and their dependents minimum essential coverage. This is an alarming problem, as any month in which the “No” box is checked or neither the “Yes” nor “No” box is checked, the employer will be subject to the exponentially larger section 4980H(a) penalty should an employee trigger a penalty. Therefore, if you offered 95 percent of your full-time employees and their dependents minimum essential coverage for each calendar month of the year, make sure the “Yes” box is checked on line 23.
Make sure line 14 is completed on all 12 months for each Form 1095-C
The instructions are extremely clear that a code must be entered on line 14 of the Form 1095-C for all 12 months of the year. This includes months in which the individual was not an employee of the employer in which case code 1H should be placed on line 14, line 15 should be left blank, and line 16 should be completed with code 2A. It is startling how many lines 14 are still left blank by employers and their service providers.
Is line 15 completed properly?
The instructions to the Form 1095-C are equally clear as to how line 15 should be completed. Therefore, it is a good source for an employer to tell if the service provider it selected knows the basics of reporting. 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. Furthermore, line 15 should be left blank, meaning nothing (not 0.00 or .00) is entered on line 15, if 1A, 1F, 1G, or 1H, is entered on line 14. If the code is not written in a way that truly leaves line 15 blank (meaning no zeros are on the line), it is unlikely the software is programmed in a way to be able to analyze lines 14, 15, and 16 in any meaningful way. If your service provider is not completing line 15 correctly, who knows what else it is doing incorrectly.
Are there any months in which line 16 is left blank?
Any month, unless code 1A or 1G is on line 14, in which line 16 is left blank needs to be examined closely. These are the months that could trigger a section 4980H penalty if an employee received a premium tax credit. An employer who sees months in which line 16 is left blank has to explore every possible line 16 which could absolve it from that particular month triggering a section 4980H penalty with respect to that employee. While we would never advocate lying to the IRS, many service providers have inadvertently left line 16 blank when a line 16 code was clearly appropriate. This has led to the employer receiving a Letter 226J and having to deal with that mess. Accord customers have access to multiple reports which among other things flag employees who could trigger a section 4980H penalty. This allows the employer and Accord to review the data (which is almost always what is causing the issue in the case of Accord customers) to address the cause of what is leaving the employer exposed to a section 4980H penalty.
An Employer Received a Letter 226J in 2015 or 2016
Finally, if an employer received a Letter 226J for 2015 or 2016 (the IRS has not started to send out the Letter 226J for 2017 yet), it is likely the service provider has fallen short of its obligation to the employer. In a vast majority of cases, an employer received a Letter 226J as a result of the service provider erroneously completing the Forms 1094-C and 1095-C. Any service provider with quality software who had a basic understanding of the rules, regulations, and instructions should have been able to warn employers regarding problematic months for each employee receiving a Form 1095-C. If this occurred, the service provider and the employer could have then reviewed each situation causing a potential section 4980H problem to see if there was a code combination that could be entered on lines 14 and 16 that would absolve the employer from a section 4980H penalty. Handling the matter proactively allows an employer to avoid the Letter 226J all together. Accord has successfully taken this approach with its customers who have filed millions of Forms 1095-C and to-date each Accord customer has avoided a Letter 226J. Completing the Forms 1094-C and 1095-C should be a seamless routine for every compliant employer with a reputable service provider.
Many service providers have come up well short of the standard an employer should be receiving when it comes to filing the Forms 1094-C and 1095-C. A lot of service providers, who already operated in the payroll space, underestimated the complexity of the Forms 1094-C and 1095-C particularly lines 14, 15, and 16. Every employer filing the Forms 1094-C and 1095-C should review these five items to gain a better understanding of its service provider’s expertise. Correcting simple errors before filing the Forms 1094-C and 1095-C will prevent the employer from having to appeal unnecessary Letter 226J inquiries from the IRS. Accord Systems has automated the process of completing the Forms 1094-C and 1095-C. Automation assures the Forms 1094-C and 1095-C are completed correctly. Please contact us if you need assistance tracking the hours of service of your workforce or have questions regarding the filing of the Forms 1094-C and 1095-C.
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.
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 © 2019 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.