Tax Form 1095-C is an IRS form that was created when the Affordable Care Act (ACA) was implemented. This form must be distributed to all employees describing their health insurance cost, opportunities, and enrollment.
According to the ACA, certain companies must provide an option for health insurance to their employees if the companies are Applicable Large Employers, which we’ll get into a little later.
First, let’s dive deeper into the basics of Form 1095-C.
As with most IRS forms, Tax Form 1095-C acts as a way for the employer to report the health coverage that an employer made available to each employee.
Specifically, the form identifies the employee/employer relationship, what months the employee was eligible for coverage, and the cheapest monthly premium available to the employee under the plans offered.
This form is distributed to all employees — as well as the IRS — and indicates whether employees were offered insurance. If an eligible employee wasn’t offered insurance and that could leave the ALE liable for financial penalties.
An Applicable Large Employer (ALE) is a company that has 50 full-time employees or equivalents. According to the Affordable Care Act, a full-time employee is someone that works 30 hours a week.
However, to prevent companies from only hiring part-time employees, ACA also has something called the full-time equivalent. The government calculates the hours each employee (part-time and full-time) works and then divides that by 30 hours.
For example, if you have 10 part-time employees who each work 12 hours a week, that’s a total of 120 hours. If you divide 120 hours by 30 hours, your company has four full-time equivalent employees.
This is important because, once a company reaches the magic number of 50 full-time employees or equivalents, they're responsible for offering health insurance and, by default, are also mandated to provide each employee with a Tax Form 1095-C.
Now that that’s out of the way, how does this play a part in filing Tax Form 1095-C?
The actual form is broken up into three parts:
The employee information and the Applicable Large Employer (ALE) Member information
The employee offer and coverage section, which shows any costs
A review of the covered individuals under that individual employee’s plan
The following is a breakdown, line by line, of the form:
Line 1: Name of the employee
Line 2: Employee’s social security number
Lines 3-6: Street address, city, state, and country/zip code of the employee
Line 7: Name of ALE Member
Line 8: Employer Identification Number of ALE Member
Line 9: Street address of the ALE Member
Line 10: Telephone number of the person who can be contacted at the ALE Member
Line 11-13: City, state, and country/zip code of the ALE Member
Plan Start Month: This box is required for the 2022 Form 1095-C and the ALE Member may not leave it blank. To complete the box, enter the 2-digit number (01 through 12) indicating the calendar month during which the plan year begins of the health plan in which the employee is offered coverage (or would be offered coverage if the employee were eligible to participate in the plan). If more than one plan year could apply (for instance, if the ALE Member changes the plan year during the year), enter the earliest applicable month. If there is no health plan under which coverage is offered to the employee, enter “00.”
Line 14: This indicates what kind of coverage the employee was offered. The IRS has 9 acceptable codes that can go here from 1A-1I. An explanation of each of the codes can be found on the IRS website.
Line 15: This line should only be completed if 1B, 1C, 1D, 1E, 1J, 1K, 1L, 1M, 1N, 1O, 1P, 1Q, 1T, or 1U was entered on line 14 in either the “All 12 Months” box or any of the individual monthly boxes. This is the employee share of the “lowest-cost monthly premium for self-only minimum essential coverage providing minimum value that is offered to the employee.” In essence, what the employee is required to pay for their own insurance. If the employee doesn’t pay anything toward her insurance, put $0.00.
Line 16: This is an optional line that provides exceptions and explanations for line 14. There are 8 acceptable codes that can go here from 2A-2H. For example, 2A tells the IRS that the employee was not part of the company in one particular month. The IRS has a list of acceptable codes on its website.
Line 17-34: This section is for those companies that offer self-insured health plans. What this means is that, instead of using a third-party insurer, the employer acts as the insurer. Each person that gets coverage through that employee would have their information recorded on their own line. Here, the employer just puts their name, social security, date-of-birth if there is no social security number, and what months they were offered coverage.
When completed, forms need to be distributed to all employees. Unfortunately for companies, mistakes can lead to fines.
Generally, the deadline for filing Form 1095-C with the IRS is February 28th if filing on paper (or March 31st if filing electronically) of the year following the calendar year to which the return relates. The deadline for furnishing Form 1095-C to your employees is extended to March 2 of the year following the calendar year to which it relates.
In addition to the extension, the IRS is offering relief for failure to furnish statements to certain employees enrolled in a self-insured health plan. The IRS will not impose a penalty for failure to furnish Form 1095-C to any employee enrolled in an ALE’s self-insured health plan who is not a full-time employee for any month of the year if certain conditions are met.
Furthermore, the IRS will not impose a penalty for reporting incorrect or incomplete information on Tax Forms 1095-C if you make a good faith effort to comply with the information reporting requirements.
To read more about penalties, see IRS information on reporting penalties.
Professional Employer Organizations (PEOs), such as Justworks, can ensure that Form 1095-C is furnished to employees and filed with the IRS on time.
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