Deadlines Ahead as Employers Prep for ACA Reporting in 2021

[An earlier version of this article was posted on Oct. 6, 2020, as "IRS Extends Form 1095 Distribution Deadline to March 2."]

Employers should keep in mind approaching 2021 deadlines for distributing health care reporting forms to employees and filing these forms with the IRS, as required under the Affordable Care Act (ACA).

On Oct. 2, 2020, the IRS announced it would extend the deadline for employers to provide employees with a copy of their 1095-C or 1095-B reporting form, as required by the ACA, from Jan. 31, 2021, to March 2, 2021. In addition, the IRS again extended "good-faith effort" transition relief to employers for plan year 2020 reporting.

The deadlines were not extended for filing 1095 forms with the IRS, and they are still Feb. 28 for paper filing or March 31 for electronic filing.

The relief was announced in IRS Notice 2020-76. The IRS has extended the Jan. 31 deadline for distributing ACA information reporting forms for the past four years, although the COVID-19 pandemic—and the strain it has put on HR resources—may make the extension particularly welcome this year.

The IRS said it will not grant an additional 30-day extension beyond this deadline for distributing forms and encouraged employers to send the forms to employees as soon as possible.

"With the COVID-19 pandemic still forcing businesses to work from home, it's important to consider your distribution plan for 2021," advised Lauren Brown at Bernard Health, a benefits brokerage based in Nashville, Tenn. "Acceptable ways to distribute 1095-C forms to your employees include mail, hand delivery (if you're not operating remotely), or e-mail (if prior consent is given)."

2021 Furnishing and Filing Deadlines

The critical filing deadlines for 2020 coverage are as follows:

*Employers that file 250 or more information returns with the IRS must file the returns electronically.
Source: IRS.

"Employers should not count on any additional extensions and should work diligently to complete their reporting forms on time," said Danielle Capilla, Chicago-based director of employee benefits compliance at Alera Group, an insurance and financial services firm.

Many employers prefer to distribute the 1095 forms alongside the W-2 tax forms by Jan. 31, she noted. For this and upcoming years, "employers that are ready to go by the original deadline should not hesitate to go ahead," Capilla advised.

Comment Deadline

As in previous years, the IRS said the extended deadline for furnishing forms to employees followed its determination that "a substantial number of employers, insurers, and other providers of minimum essential coverage need additional time beyond the Jan. 31, 2021, due date to gather and analyze the information and prepare the 2020 Forms 1095-B and 1095-C to be furnished to individuals."

The IRS added, however, that unless it receives "comments that explain why this relief continues to be necessary," the 30-day extension will not be available in future years. Comments, via the Federal eRulemaking Portal at www.regulations.gov, were due by Feb. 1, 2021.

Requesting a Filing Extension

While the date for filing forms with the IRS was not automatically extended, filers can obtain a 30-day extension by submitting Form 8809—Application for Extension of Time to File Information Returns—by the filing due date.

ACA Requirements

By filing Forms 1095-C with the IRS and providing employees with copies, employers with 50 or more full-time or equivalent employees, known as applicable large employers (ALEs), show they offered eligible employees health coverage that was compliant with the ACA.

ALEs are required to provide full-time workers with minimum essential coverage that meets affordability and minimum value thresholds, and they face penalties for failing to do so. Smaller employers are not required to provide health care coverage, but if they choose to do so, then the coverage must meet ACA criteria.

In addition:

• If fully insured plans are offered by ALEs to employees, the insurance carrier provides Form 1095-B to covered individuals in addition to the Form 1095-C provided by the ALE, unless the carrier is taking advantage of the furnishing relief described below.
  

• If the plan is self-insured, all of the ACA reporting information for ALEs is included in the Form 1095-C and covered individuals will not receive a Form 1095-B.
  

• Smaller organizations (non-ALEs) sponsoring a self-insured plan must provide covered individuals with Form 1095-B but not Form 1095-C, subject to certain exceptions, noted below.
  

"Employers are dealing with a lot of issues as the COVID-19 crisis continues to impact almost every employer in the country," noted Ryan Moulder, a Los Angeles-based partner at Health Care Attorneys PC and general counsel at Accord Systems LLC, an ACA-compliance software firm. "However, it is important for employers to remain compliant with the always-evolving ACA rules and regulations," he said.

Exceptions to Distribution Requirement

Notice 2020-76 states that the IRS will not penalize insurers and small self-insured employers for failing to furnish a Form 1095-B to plan enrollees if two conditions are met:

• The insurer or employer prominently posts a notice on its website that an individual may receive a copy of his or her 2020 Form 1095-B on request. The notice must include an e-mail address and a physical address to which the request may be sent and a phone number that employees can call with questions.
  

• The insurer or employer provides a Form 1095-B within 30 days to any individual who requests it. These forms may be furnished electronically if certain conditions are met.
  

In light of this relief, some insurers announced that for reporting year 2020 they will not be automatically printing and mailing Form 1095-Bs to covered employees of companies with fewer than 50 employees (non-ALEs). Insurers should continue to furnish Form 1095-Bs to employees of smaller organizations in states or jurisdictions that have established their own individual mandates for health coverage, so they can show they had coverage, as discussed below.

"A similar transition-relief provision was not extended to the Form 1095-C except in an extremely limited circumstance," Moulder noted. If a self-insured ALE extended coverage to an individual who was not a full-time employee for any month during 2020, the IRS will not assess a penalty against the employer with respect to that employee so long as the two conditions discussed above are satisfied.

"Given the conditions required to not provide a Form 1095-C to an individual and how few Forms 1095-C are provided to individuals who are not full-time employees for any month during the calendar year, it is probably simplest just to provide a Form 1095-C to every required individual," Moulder said.

'Good-Faith Efforts'

The IRS may impose penalties of up to $280 per form for failing to furnish an accurate Form 1095-C or 1095-B to an employee (excluding the exceptions noted above). A separate $280 per-form penalty may be imposed for failing to file an accurate form with the IRS.

"As in prior years, the IRS indicated in Notice 2020-76 that it would not impose these penalties for incomplete or inaccurate forms for the 2020 calendar year (due in 2021) if the reporting entity can show that it 'made good-faith efforts to comply with the information-reporting requirements,' " wrote Tripp VanderWal and Brett N. Liefbroer, attorneys with Miller Johnson in Grand Rapids, Mich. "What may come as a surprise to some, the IRS announced that this extension will be the final extension of the good-faith reporting relief," they noted.

The good-faith reporting relief applies only to incorrect or incomplete information reported on 1095-C or 1095-B forms, and not to a failure to timely furnish or file the forms.

In determining good faith, the IRS will consider whether the employer or coverage provider made reasonable efforts to prepare for reporting information to individuals and the IRS, such as gathering and transmitting necessary data to an agent to prepare for data submission or testing its ability to transmit information to the IRS.

"Even with this relief, employers should focus on making sure reporting is accurate and timely, especially given that this is the last time the good-faith relief is expected to be extended," according to an alert by compliance firm Hub International. "While the deadline extension and good-faith relief will help an employer avoid penalties, the only way to do so is to make sure the forms are filed on time. Late or inaccurate forms could lead the IRS to issue a Letter 226J a year or two down the road, creating additional headaches at that time."

[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]

ACA Nonfiling Penalties

The ACA's employer penalties levied against ALEs that do not provide required coverage to full-time employees under the statute's shared-responsibility provisions remain fully in place. 

So, too, do requirements to furnish employees with 1095 forms annually and to file forms with the IRS on time, and employers that fail to do so could be subject to $280 per form IRS penalties.

Absence of Individual Mandate

The ACA's individual coverage mandate, which required adults in the U.S. to show they had ACA-compliant coverage, was effectively repealed as of January 2019, when tax legislation reduced the penalty for not having health insurance to zero. The elimination of the penalty led to a challenge to the constitutionality of the ACA itself, and that case will be decided by the U.S. Supreme Court before its term end in June 2021.

Even without the ACA's individual mandate, there are other reasons why providing employees with proof of employer coverage remains important.

"ACA reporting is used by the IRS to enforce the employer mandate and to determine eligibility for premium subsidies to purchase ACA marketplace coverage, neither of which were changed by the tax bill," noted Richard Stover, a principal at HR consultancy Buck, and Leslye Laderman, a principal in the firm's Knowledge Resource Center.

Employees are eligible to receive subsidies for health coverage purchased on an ACA marketplace exchange only if their employer does not provide coverage that meets ACA requirements for affordability and minimum essential coverage, as reported on forms 1095-C or 1095-B.

States' Individual Mandates

Five states—California, Massachusetts, New Jersey, Rhode Island and Vermont—along with Washington, D.C., have enacted individual health coverage mandates that mirror the former federal requirement and could require taxpayers to show proof of ACA-equivalent coverage or be fined by their states.

For the first time in 2021, for instance, employers who have employees who are California residents may have reporting responsibilities under California' individual mandate, which went into effect in 2020.

States may allow employers and employees to use the IRS ACA forms for satisfying reporting requirements, noted Stover and Laderman. However, they cautioned, "the IRS deadlines and extensions for filing and furnishing ACA forms may not apply to the state reporting requirements."

Employers should verify whether states with their own reporting requirements have updated their forms and know which states allow reporting using the federal forms.

In addition, employers should alert affected employees if their states of residence require coverage, what materials the employer will be providing, and what action the employees will need to take, said Kim Buckey, vice president of client services at DirectPath, a benefits education, enrollment and health care transparency firm. "If they haven't already done so, now is certainly a good time to begin such communications," she recommended.

Last Automatic Extension?

"It is likely that ACA reporting will finally have its standard due dates and penalty scheme in effect for the 2021 ACA reporting forms furnished and filed in 2022," noted Brian Gilmore, lead benefits counsel and vice president at ABD Insurance & Financial Services in San Mateo, Calif. In that case, "the Jan. 31, 2022 furnishing deadline will mirror the Form W-2 timeline with which employers and employees are of course already very familiar."

Gilmore also believes the IRS could revisit the requirement to report employee and dependent monthly enrollment information in Part III of Form 1095-C for ALEs sponsoring self-insured plans, on a separate Form 1095-B prepared by insurance carriers for fully insured plans, or on Form 1095-B by non-ALEs with self-insured plans.

"It is still not clear what federal tax purpose that portion of the ACA reporting requirements serves [after the effective repeal of the individual mandate], and therefore it seems possible there could be changes on that front," he suggested.

Related SHRM Articles:

How the Supreme Court Could Rule on the Affordable Care Act, SHRM Online, September 2020

IRS Issues Draft Form 1095-C for ACA Reporting in 2021, SHRM Online, July 2020

IRS Raises 2021 Employer Health Plan Affordability Threshold to 9.83% of Pay, SHRM Online, July 2020

ACA Reporting Checkup: What Employers Need to Know, SHRM Online, March 2020