Forms 1094-C and 1095-C

What Is Forms 1094-C and 1095-C?

Forms 1094-C and 1095-C are used by employers to report health coverage information as required under the Affordable Care Act (ACA).

Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, is used to report summary information for each employer and to transmit Forms 1095-C to the IRS.

Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is used to report information about each employee's health coverage offered by large employers (generally those with 50 or more full-time employees).

What Is the History of Forms 1094-C and 1095-C?

Forms 1094-C and 1095-C were introduced as part of the implementation of the Affordable Care Act (ACA), also known as Obamacare, which was signed into law by President Barack Obama on March 23, 2010. The ACA significantly transformed the U.S. health care system and introduced new reporting requirements for many employers.

With the ACA, large employers (those with 50 or more full-time equivalent employees) became obligated to offer affordable, minimum essential health coverage to their full-time employees or face potential penalties. This requirement is often referred to as the Employer Mandate.

The role of Forms 1094-C and 1095-C is to facilitate the administration of the Employer Mandate. They are used to report information about the healthcare coverage offered by large employers, for the IRS to verify compliance with the law and for employees when filing their taxes.

The use of Forms 1094-C and 1095-C started for the calendar year 2015 reporting, which was due in early 2016. The IRS initially provided transition relief and phased-in enforcement due to the complexity of these requirements. Eventually, the completion and filing of these forms have become an annual routine for applicable large employers.

As of today, despite various political discussions and attempts to repeal the ACA, these reporting requirements remain in place, and Forms 1094-C and 1095-C continue to play a crucial role in ACA's enforcement mechanism.

How Do You Calculate Forms 1094-C and 1095-C?

The calculation of the information for Forms 1094-C and 1095-C is complex and depends on specific situations. Here's a simplified view of what's involved:

1. Plan Year: Identify your organization's health coverage plan year. This will determine when you need to perform the reporting.

2. Full-Time Employees: Determine the number of full-time employees each month. Full-time, according to the ACA, is defined as an employee who works 30 or more hours a week on average. It also includes full-time equivalent employees, which consider the hours worked by part-time employees.

3. Health Coverage Offered: Determine if minimum essential coverage was offered to at least 95% of full-time employees and their dependents.

4. Affordability and Minimum Value: You must also verify whether the coverage met affordability and minimum value standards. Affordability is based on whether the employee's required contribution for the lowest cost self-only coverage does not exceed a specific percentage of the employee's household income. Minimum value means the plan is designed to pay at least 60% of the total cost of medical services for a standard population.

5. Reporting: On Form 1095-C, for each employee, you would provide information about the offer of coverage, the employee's share of the lowest cost monthly premium for self-only minimum essential coverage, and the months the employee was enrolled in the coverage. Form 1094-C is used to transmit Forms 1095-C to the IRS, and provide summary information.

As the rules can be complex and the reporting obligations are significant, it's often recommended that you seek professional help to ensure accuracy if you're required to complete these forms. This can involve using dedicated software or hiring a tax professional who is familiar with the specifics of the ACA and these forms.

What's the Difference Between Forms 1094-C and 1095-C and Affordable Care Act (ACA) Reporting?

Forms 1094-C and 1095-C are actually essential components of the Affordable Care Act (ACA) reporting requirements for certain employers.

ACA Reporting refers to the requirement under the Affordable Care Act that certain employers (those with 50 or more full-time-equivalent employees) must report to the Internal Revenue Service (IRS) and employees about health insurance coverage offered, provided, or not provided to their full-time employees.

• Form 1094-C: This serves as a transmittal form or a cover sheet for submitting Form 1095-C. It includes a summary of aggregate, organization-level data about the employer's offered coverage. Employers complete one or more Forms 1094-C (including a designated authoritative transmittal), depending on their size and structure.

• Form 1095-C: This form is an individual statement for each full-time employee that includes month-by-month data about the health insurance coverage offerings and contributions. The data includes whether the employee was offered coverage, whether they enrolled, and the employee's share of the cheapest, self-only minimum premium.

So, in summary, ACA Reporting and Forms 1094-C and 1095-C aren't separate elements; the forms are the key tools used to comply with ACA Reporting requirements.

What Are Some Examples of Affordable Care Act (ACA) Reporting?

The Affordable Care Act (ACA) Reporting requires employers to provide information to the Internal Revenue Service (IRS) and to their employees about the health coverage they offer. Here are some examples:

Example 1: Suppose a company with 100 full-time employees offers a health plan that meets all ACA requirements. In their ACA Reporting, they would provide data (using Forms 1094-C and 1095-C) showing that they offered adequate and affordable health coverage to more than 95% of their full-time employees and their dependents for each month of the year.

Example 2: If an employer doesn't offer health coverage to more than 95% of its full-time employees, they must use the ACA Reporting to show this fact. The IRS could potentially levy penalties against the employer for non-compliance with the ACA's employer mandate.

Example 3: If an organization has multiple affiliated companies (each with its own Employer Identification Number (EIN)), and the combined employee total makes the organization an Applicable Large Employer (ALE), all companies are subject to ACA Reporting requirements. An authoritative Form 1094-C must be filed reporting aggregate employer-level data, and Forms 1095-C must be sent to full-time employees in each company and the IRS, detailing the offer of coverage.

Example 4: Suppose an employer offers a health plan, but it's considered unaffordable for some employees because it costs more than a certain percentage of their household income. This fact would also need to be reported on the Forms 1094-C and 1095-C as part of the ACA Reporting.

Please note that the actual process of ACA Reporting involves compiling detailed information about each full-time employee, including their coverage, premiums, dependent coverage, and the affordability of the offered coverage. This information is then carefully entered into the appropriate forms, which are delivered to the employees and electronically transmitted to the IRS.

What's the Relationship Between Forms 1094-C, 1095-C and the Employer Shared Responsibility Provisions?

The Employer Shared Responsibility Provisions (ESRP) are a part of the Affordable Care Act (ACA) that requires certain employers, those with 50 or more full-time or full-time equivalent employees, to offer affordable and adequate health insurance coverage to their full-time employees and their dependents.

Forms 1094-C and 1095-C are intricately related to the ESRP as the core mechanisms that the IRS uses to enforce these provisions:

• Form 1095-C: This form is essentially a report for each full-time employee, providing specific details about the health insurance offer and coverage. The employer must distribute a copy of this form to each eligible employee and transmit a copy to the IRS.

• Form 1094-C: This form serves as a transmittal form that aggregates information from all the 1095-Cs and presents a company-wide view of the health coverage offered. This form also contains questions about the ESRP and is transmitted to the IRS along with all the 1095-Cs.

Through these forms, the IRS can verify whether an employer is meeting its obligations under the ESRP. If an employer fails to offer required coverage and a full-time worker obtains a premium tax credit for purchasing individual health insurance through a Health Insurance Marketplace, the employer may be liable for an ESRP payment.

So, these forms not only facilitate ESRP compliance but also provide the IRS with the necessary data to identify non-compliance and administer any potential penalties.

What Are Some Examples of Employer Shared Responsibility Provisions (ESRP)?

The Employer Shared Responsibility Provisions (ESRP) under the Affordable Care Act (ACA) require certain employers, known as Applicable Large Employers (ALEs), to offer minimum essential coverage that's affordable and meets a minimum value to their full-time employees and their dependents.

Here are a few examples:

Example 1: A company with 60 full-time equivalent employees offers health insurance, but the coverage does not meet the minimum value—meaning it doesn't cover at least 60% of total allowed costs of benefits. This is a violation of ESRP, which can lead to penalties.

Example 2: An employer with 200 full-time employees offers a health plan, but it's unaffordable for many employees, meaning the employee's share of the premium costs for the lowest priced option available exceeds 9.83% (in 2021) of their household income. That company would not be complying with ESRP requirements and could face penalties.

Example 3: A business with 75 full-time employees offers affordable and good coverage to all its administrative staff, but not to those working in its warehouse. This is a violation of the ESRP, as the ACA requires coverage be offered to all full-time employees, regardless of their role or position.

Example 4: A company with 80 full-time employees provides no health insurance benefits. This is a clear violation of ESRP since any employer with 50 or more full-time or full-time equivalent employees must offer health coverage.

The IRS uses Forms 1094-C and 1095-C to determine whether an ALE member met its shared responsibility under the ACA and to administer the employer shared responsibility payment.

What Advantages Do Employers Gain by Properly Utilizing Forms 1094-C and 1095-C?

Employers gain several advantages by properly completing and utilizing Forms 1094-C and 1095-C:

1. Compliance with Law: Proper utilization of the forms allows employers to meet their reporting obligations under the Affordable Care Act (ACA). Compliance helps avoid potential penalties from the IRS.

2. Avoiding Penalties: The IRS can levy substantial penalties for non-compliance with the ACA's employer mandate or for failing to accurately complete, return, or file these forms.

3. Employee Trust: These forms, once shared with employees, provide proof that the employer is providing the required health insurance coverage. This can foster increased employee trust and satisfaction.

4. Proactive Management: Keeping accurate and up-to-date records of health coverage offerings helps employers maintain a solid grasp of their healthcare-related expenses and liabilities. This proactive management can help with benefits decision-making.

5. Audit Readiness: Should the IRS decide to conduct an audit, having these forms properly completed and filed will show that the business is organized and prepared.

6. Subsidy Claims: The forms provide critical information for employees who might be eligible to claim a premium tax credit (or subsidy) for individual health insurance purchased through a Health Insurance Marketplace.

Remember, while fulfilling these requirements does take resources and time, doing so correctly can provide important protections for the business.

What Challenges or Difficulties Can Employers Encounter With the Implementation of Forms 1094-C and 1095-C?

Implementing and complying with the requirements related to Forms 1094-C and 1095-C can bring several challenges and difficulties for employers:

1. Complexity of the Law and Forms: Understanding the intricacies of the Affordable Care Act (ACA), the Employer Shared Responsibility Provisions, and the specific information required on Forms 1094-C and 1095-C can be challenging. The forms ask for detailed month by month information by employee, which adds to the complexity.

2. Administration Burden: For large employers with many employees, the process of completing forms 1094-C and 1095-C can be time-consuming and administratively burdensome. Data must be accurately collected, managed, and reported which often requires dedicated staffing or software.

3. Changes in Employee Status: Tracking changes in employees’ work hours, especially in industries with variable or seasonal work hours, can be challenging. Particularly as these changes may affect whether an employee is categorized as full-time.

4. Data Privacy Concerns: These forms require personal employee information, so employers must ensure they comply with privacy laws and regulations, adding another level of complexity to this process.

5. Lack of Clarity: The ACA and these reporting requirements continue to be politically debated and have faced various legal challenges. This creates some degree of uncertainty for employers around what future compliance will look like.

6. Timeliness: These forms must be provided to employees and then filed with the IRS on a strict schedule. Once the year is over, employers have a finite timeline to compile all necessary information, complete the forms, and distribute or file them.

Given these challenges, some employers opt to use specialized software or hire external consultants or vendors to help manage their ACA compliance and reporting responsibilities.

Which Employers Are Likely to Be Affected by Forms 1094-C and 1095-C?

Forms 1094-C and 1095-C are likely to affect Applicable Large Employers (ALEs). An ALE is any employer that had an average of at least 50 full-time employees, including full-time equivalent employees, during the preceding calendar year.

"Full-time" means any employee who works an average of at least 30 hours per week or 130 hours in a calendar month. The calculation of "full-time equivalent" is slightly more complex and involves considering the hours of service of employees who are not full-time.

These organizations can range from large corporates to non-profits and even government agencies. All of these are necessary to adhere to the Affordable Care Act (ACA) reporting requirements and use Forms 1094-C and 1095-C to report insurance coverage information.

If a company is part of a larger controlled group (companies under a common source of control), each member entity of the group is considered part of the ALE, regardless of the size of each individual company.

Smaller employers with fewer than 50 full-time equivalent employees are generally not required to report using Forms 1094-C and 1095-C unless they are self-insured. In those cases, they would use Forms 1094-B and 1095-B instead.