Employers face a great deal of challenges in 2020 related to COVID-19, including lock down orders, supply chain disruptions, and virtually unprecedented economic uncertainty. The patchwork of state and federal responses to assist business, ranging from forgivable loans to deadline relief, does not currently extend to relief from the annual information reporting requirement under the Affordable Care Act. Applicable Large Employers (“ALEs”) are still required to file Form 1094-C and 1095-C with the IRS to report offers of health coverage made to eligible employees and their dependents, and this information will continue to be used to determine employee eligibility for Premium Tax Credits to purchase individual coverage on the Marketplace.
The deadline to provide 1095-C forms to employees and covered individuals is February 1, 2021 for tax year 2020. The content of these forms may be slightly different in 2020 to account for coverage provided through Individual Coverage Health Reimbursement Accounts (“ICHRAs”). If you do not sponsor an ICHRA benefit, the coding and data used to prepare the forms should not be any different than prior years. Additionally, state level reporting requirements in New Jersey and Washington, D.C. remain in effect. California is also implementing a new reporting requirement for tax year 2020. While the content of the forms filed with the states should be the same as those filed at the federal level, the process behind the filing may vary depending on the state’s requirements.
Employers who averaged over 50 full-time equivalent (“FTE”) employees per month in 2019 are considered ALEs and required to file Forms 1094/1095 for tax year 2020. This remains the case even where the employer is operating with a reduced workforce and expects to average fewer than 50 FTE employees per month in 2020. However, this reduction in workforce may result in the employer no longer being considered an ALE in 2021; this status change would in turn affect how the employer selects health coverage (large vs. small group status) and the ACA reporting obligation for tax year 2021. Looking ahead to 2021, the IRS has also released the affordability percentage for ACA calculations, setting the percentage at 9.83%. This constitutes a slight increase from 2020’s affordability percentage of 9.78%.
Employers who have not experienced ACA penalties/information requests in prior years may look to 2020’s ACA reporting as an area to cut costs by avoiding/delaying the filing for 2020. Given that the IRS has taken the position that no statute of limitations exists for assessing Employer Shared Responsibility Payments (“ESRPs”) where coverage was not offered (or the IRS believes coverage was not offered to due missing Form 1094s/1095s), this is a dangerous approach that could result in substantial penalties in the future. For assistance with ACA reporting, whether that comes in the form of outsourcing the entire process to a third-party, help with completing the forms on your own, or responding to ESRP notices for prior years, please contact firstname.lastname@example.org for more information.
Please be aware that the determination of the requirements and the application of specific laws and regulations to each employee welfare plan and/or employer may differ due to a number of variables. Nothing in this newsletter should be construed as tax or legal advice.