Update 12/20/22: On 12/15/22, the IRS and Treasury published final regulations to the rules proposed in late 2021 (discussed below). Among other items, the final regulations extend the ACA form distribution deadline, provide an alternative manner of furnishing 1095-B forms, and confirm the elimination of good faith relief.
On November 22, 2021, the IRS released Proposed Regulations which, among other things, impact Affordable Care Act (ACA) reporting.
The Proposed Regulations do the following:
- Provide an automatic 30-day extension to the form distribution deadline (from January 31st to March 2nd), beginning with 2021 ACA reporting;
- Permit 1095-B forms to be distributed via an online posting (if certain requirements are met); and
- Eliminate “good faith” relief for incomplete or inaccurate information reported or furnished on ACA reporting forms.
If finalized, these proposed regulations will go into effect for calendar years beginning after December 31, 2021. However, employers can rely on these provisions beginning with 2021 ACA reporting (which would be due in early 2022) before the regulations are finalized.
Automatic 30-Day Deadline Extension for Form Distribution
The ACA requires Applicable Large Employers or “ALEs” (those with 50+ full-time and full-time equivalent employees in the prior calendar year) and all self-insured employers to report certain healthcare coverage information to the IRS using forms 1094 and 1095. These employers must also furnish 1095 forms to covered individuals. Though the deadline to furnish these forms to individuals is January 31st, the IRS has extended this deadline for the last 6 years.
Proposed Regulation: The Proposed Regulation would provide a permanent automatic 30-day extension for the form distribution deadline, which would make the new deadline March 2nd. If, however, March 2nd falls on a weekend or holiday, the deadline would fall on the next business day. With the automatic extension, employers would no longer be able to request a 30-day extension for good cause.
Impact: The Proposed Regulation permits employers to rely on the deadline extension before it is finalized, meaning that the deadline for 2021 ACA form distribution would be extended to March 2, 2022. The Proposed Regulation does not extend the ACA reporting deadlines, which remain February 28th (for paper filing) or March 31st (for electronic filing), though employers could receive an automatic 30-day extension by submitting a Form 8809 prior to the reporting deadline.
Impact on State Individual Mandates: Currently, California, Massachusetts, New Jersey, Rhode Island, Vermont, and Washington, D.C. have individual mandates that require employers who provide coverage to residents to complete reporting and distribution requirements similar to those under the ACA. For many of the states, employers will satisfy the distribution requirement if they furnish IRS 1095 forms to residents, which some employers must already do pursuant their ACA reporting obligation.
The proposed automatic ACA form distribution deadline extension may impact certain state form distribution deadlines. If the Proposed Regulations are finalized, the form distribution deadline for Washington, D.C., which follows the ACA form distribution deadline, may be extended as a result. Though the New Jersey and Rhode Island form distribution deadlines to not automatically follow the ACA deadline, these states have announced extensions to coincide with ACA extensions in prior years and may extend their deadlines in response to the Proposed Regulations as well.
On the other hand, the California and Massachusetts form distribution deadlines have not traditionally been extended and both states’ deadlines will likely remain on January 31st. Employers should be aware of the state deadlines that do not follow the ACA distribution deadline, as employers will need to distribute 1095 forms earlier to satisfy state deadlines (where applicable).
Alternative Method of Distribution
The Proposed Regulations acknowledge that individuals no longer need information from 1095-B forms to file their tax returns after the federal individual mandate was reduced to $0 in 2019. Accordingly, the Proposed Regulations provide relief from furnishing 1095-B forms to individuals if certain requirements are met.
This relief would apply to reporting entities that must distribute 1095-B forms, which generally include insurance companies and small (non-ALE) employers that sponsor a self-insured plan. The relief would not apply to the ALE requirement to distribute 1095-C forms to full-time employees, though the Proposed Regulations would permit self-insured ALEs to use the alternative distribution method for furnishing 1095-B/1095-C forms to non-full-time employees (i.e., part-time employees) and non-employees (i.e., non-employee director, retirees, or COBRA beneficiary) enrolled in their self-insured plan.
Proposed Regulation: For any year the federal individual mandate is $0 (which it is currently), the Proposed Regulations permit 1095-B forms to be distributed via an alternative method, as outlined below.
The employer must:
- Post a “clear and conspicuous” notice on its website stating that individuals may receive a copy of their 1095-B form upon request. The notice must include an email address, a physical address to which the request may be sent, and a telephone number that individuals may use to contact the employer with any questions. The Proposed Regulations provide the following example that would satisfy the “clear and conspicuous” notice requirement: (1) the statement, in capital letters, “IMPORTANT HEALTH COVERAGE TAX DOCUMENTS” on the main page of the website (or a link on the main page reading “Tax Information” to a secondary page with the statement) (2) an explanation of how individuals may request a copy of the 1095-B form, and (3) the employer’s email address, mailing address, and telephone number.
- The notice must be posted until October 15th of the year following the calendar year in which the 1095-B form relates.
- Provide a 1095-B form to individuals within 30 days of a request.
Self-insured ALEs can also use this online posting method for the distribution of 1095-C forms to non-full-time employees and 1095-B/1095-C forms non-employees enrolled on their self-insured plan.
Impact: This relief would primarily benefit small (non-ALE) employers that sponsor a self-insured plan. It is important to note that these small self-insured employers will still be required to submit the 1095-B forms to the IRS.
This relief would not apply to 1095-C forms, which ALEs must still furnish to their full-time employees using the traditional distribution method (i.e., in paper format or electronically with prior notice and affirmative consent). On the other hand, under the Proposed Regulations, self-insured ALEs, who are required to complete a 1095-C form for all covered employees (including part-time employees) and a 1095-B or 1095-C form for any covered non-employee, can use the alternative method of distribution for 1095-B/1095-C forms that must be provided to part-time or non-employees enrolled in their self-insured plan. In practice, most self-insured ALEs will use a reporting vendor who will likely distribute 1095 forms using the same traditional method of distribution for all required recipients, whether a full-time employee, part-time employee, or non-employee.
Impact on State Individual Mandates: Though the Proposed Regulations may permit employers to distribute 1095-B forms via an online posting, employers should be aware that this alternative method may not satisfy the state mandate distribution requirements. For the 2020 and 2021 reporting, New Jersey explicitly stated that an online posting would not satisfy the New Jersey mandate form distribution requirement and 1095 forms must be sent to each primary enrollee. Therefore, employers subject to state mandate distribution requirements may want to distribute 1095-B forms via mail to satisfy both the state and federal ACA requirements.
Elimination of “Good Faith” Relief
For the last 6 years, the IRS has provided reporting entities with “good faith” relief from penalties if they reported incorrect or incomplete information on the forms but showed good faith efforts to comply. This relief usually applied to missing or inaccurate taxpayer identification numbers (TINS), dates of birth (DOB), and other information required on the returns. Good faith relief was meant to be temporary while reporting entities became familiarized with the reporting requirements. The Proposed Regulations note that reporting entities should now be accustomed to the requirements and, as such, the IRS will no longer provide this good faith relief.
Proposed Regulation: The Proposed Regulations would eliminate “good faith” relief permanently, beginning with 2021 ACA reporting.
Impact: If an employer submits to the IRS or furnishes to an individual a form with incorrect or missing information, they could be subject to an ACA reporting penalty. For 2021 ACA reporting, the potential penalty is $280 per return. Incorrect or incomplete information on one 1095 form could result in a penalty of $560, one $280 penalty for submitting incorrect/incomplete information to the IRS and one $280 penalty for furnishing incorrect/incomplete information to the individual.
With the elimination of the good faith relief, employers should ensure they relay correct and complete data to their ACA reporting vendor and review reporting for accuracy before reporting is submitted, as no good faith relief will shelter an employer from potential penalties from errors.
If an employer is subject to an accuracy-related penalty, the employer still may have the opportunity to appeal under the “reasonable cause” standard, though this standard is stricter than the “good faith” standard.
Employer Next Steps
- Employers may want to work with their ACA reporting vendor to take advantage of the extended form distribution deadline.
- Small self-insured employers may want to distribute 1095-B forms using the alternative method of form distribution.
- Self insured ALEs may want to use the alternative method to distribute 1095-B/1095-C forms to part-time and non-employees.
- Employers should be extra careful to review their reporting for accuracy before it is submitted, as there will no longer be “good faith” relief from penalties for incorrect or incomplete information on returns.
Additional Resources
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