The Form 1095-C is an IRS form created when the Affordable Care Act (ACA) was implemented, and that 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 — or click here [anchor link to ALE section] to skip ahead.
First, let’s dive deeper into the basics of Form 1095-C.
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What Is Form 1095-C and What Is It Used For?
As with most IRS forms, the 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.
Applicable Large Employers: What Are They?
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 4 full-time equivalent employees.
This is important because once a company reaches the magic number 50 full-time employees or equivalents, they are responsible for offering health insurance and, by default, are mandated to also provide each employee with a IRS Form 1095-C.
Now that that’s out of the way, how does this play a part in filing the Form 1095-C?
How to Read Form 1095-C
The actual form is broken up into three parts.
The employee information and the Applicable Large Employer 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 employee
Line 8: Employer Identification Number of Employer
Line 9: Street address of the employer
Line 10: Telephone number of the person who can be contacted at the company
Line 11-13: City, state, and country/zip code of the employer
Plan Start Month: This is an unnumbered line that is optional for the 2015 Form 1095-C, but the IRS anticipates it’ll be mandatory for the 2016 version. Put a two-digit number (01 through 12), which indicates the month that the plan year begins for the health insurance. In other words, if the plan starts in April, you would put 04. If the plan starts in November, you would put 11.
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, or 1E 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 her 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 the forms are completed, they should be distributed to all employees. Because this is a new form, there are bound to be mistakes. Unfortunately for companies, mistakes can lead to fines. Getting help from a trained accountant is certainly advisable.
Extension on Filing and Other Updates
The federal deadline for furnishing Form 1095-C to your employees is extended from January 31, 2021 to March 2, 2021.
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 2020 if certain conditions are met.
Furthermore, the IRS will not impose a penalty for reporting incorrect or incomplete information on the Forms 1095-C if you make a good faith effort to comply with the information reporting requirements.
Another option is to trust a Professional Employer Organization (PEO), such as Justworks. What a PEO does is handle all the compliance paperwork and ensure that all documents are distributed to employees and the IRS on time.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.