By Carol Potaczek, J.D.
The good news for employers looking ahead to upcoming filing requirements is that deadlines for Forms 1094-B, 1094-C, 1095-B, and 1095-C have been extended. The less favorable news is that penalties for improperly completed and late forms have risen significantly. In a recent webinar, ADP, LLC explained what these recent changes mean for employers.
Deadlines extended. On a positive note, the IRS has recently stated, in Notice 2016-4, that the due dates for the above IRS Forms have been extended. For the 2015 tax year, as required by the Patient Protection and Affordable Care Act (ACA), the IRS will receive and process information returns reporting on individual’s health insurance coverage from insurance companies, self-insured companies, and businesses that provide health insurance to their employees. These particular returns are classified as information returns under the Internal Revenue Code, which means that any person or corporation that is required to file 250 or more information returns must do so electronically.
According to ADP, Forms 1095-B and 1095-C, which were to be provided to individuals by February 1, 2016, are now due by March 31, 2016. The due date for paper filings with the IRS of Forms 1094-C and 1095-C was originally February 29, 2016, and it is now May 31, 2016. Electronic filings with the IRS have a later due date, and Forms 1094-C and 1095-C, which were originally due March 31, 2016, are now due June 30, 2016.
Increase in penalties. On a less positive note, penalties for the failure to file timely, correct, and complete statements have increased, ADP warned. The penalty per form, originally $100, has now increased, thanks to the Trade Preferences Extension Act (P.L. 114-27) to $260, and total maximum penalties have increased to $3,178,500 per year. These penalties are reduced to $50 per return and a maximum of up to $529,500, for returns filed within 30 days of the due date. Returns filed more than 30 days from the due date, but prior to August 1, 2016, carry a penalty of $100 per return, with an annual maximum of $1,589,000.
It is possible, says ADP, that the IRS could consider penalty waivers, especially for employers with data that contains errors or is incomplete, if they can demonstrate good faith compliance efforts. Speakers at the webinar pointed to IRS Notice 2016-4, which encourages those not meeting the extended due dates to file, and states that the IRS “…will take such furnishing and filing into consideration when determining whether to abate penalties for reasonable cause.”
The ADP presenters added that the IRS has indicated that employers and other coverage providers who make a reasonable effort to file properly, by, for example, gathering and transmitting necessary data to an agent in preparation for its submission to the IRS, and testing their ability to transmit information to the IRS, may be eligible for a penalty waiver. Furthermore, the extent to which steps are being taken to ensure compliance with 2016 reporting requirements will also be taken into account by the IRS, according to information contained in recently-issued IRS Notice 2016-4.
How to address employee concerns. The ADP presenters pointed out that some employees may be concerned if they receive their Form W-2 on time, but not their Form 1095-C, especially if their tax preparer asks them for the latter. It is probably a good idea for employers to anticipate these concerns, and ADP points out that the IRS states in the 2015 Form 1040 instructions that filers do not have to attach Form 1095-C to their returns. Most employees will not need the information contained on Form 1095-C, especially if they know whether or not they had health coverage during the previous year.
Information on Form 1095-C is only needed in two instances, ADP advised. First, if an employee had a gap in coverage of at least three months in 2015, they need the form to apply for an exemption from the individual mandate penalty. Second, if they received health coverage through the Marketplace, along with a premium tax credit, they need the form for employer coverage offer information, in order to complete Form 8962 (Premium Tax Credit).
ADP also recommended several explanations employers could provide to workers, in order to alleviate any concerns about not having Form 1095-C when taxes are being filed. For example, employers could point out that other forms of documentation would be acceptable proof of insurance coverage, such as insurance cards, explanations of benefits, statements from insurers, Form W-2 or payroll statements, and records of advance payments of the premium tax credit.
Employers could also point out that employees do not have to send the IRS proof of health coverage, and, if they were covered for the entire year, they are free to check the full-year coverage box on their returns. ADP adds, however, that employees should keep relevant copies of documentation with their tax records. ADP also advised employers to consider sending a message to employees, to minimize confusion and calls, using these explanations.
ADP did point to a potential problem for employees who do not receive their Form 1095-C prior to filing their tax returns. Employees who obtained health insurance from the Marketplace but did not receive a determination that their employer-sponsored coverage was unaffordable could be adversely affected by the extension granted to employers for providing forms, since they might file their tax returns before receiving Form 1095-C. Therefore, the IRS states in Notice 2016-4, that, for 2015 only, employees who rely on other information from their employers about offers of health coverage for purposes of premium tax credit eligibility do not need to amend their returns once they do receive the Form 1095-C.
Next year’s deadlines. Looking ahead to next year, ADP reminded webinar viewers that the 2016 Forms 1095-B and 1095-C have to be given to individuals by January 31, 2017, presuming there is not another extension. The 2016 Forms 1094-C and 1095-C have to be filed with the IRS by March 31, 2017, unless they are being filed on paper, in which case they have to be filed with the IRS by February 28, 2017.