If you had 50+ full-time employees during the last calendar year, you are an Applicable Large Employer (ALE), and your company is obligated to complete Form 1095-C.
This form has been a critical component of Affordable Care Act (ACA) compliance for a decade now. Yet every year, as January transitions to February, we receive countless calls from large employers asking the same questions: What is this 1095-C form? What am I supposed to do with it? Similarly, some employees struggle to understand its complexities and why it matters to them.
Primarily, this form is another complaint document to avoid IRS (Internal Revenue Service) penalties. From an HRM lens, it can be key in attracting and retaining top talent.
This guide breaks everything you need to know about Form 1095-C: what it is, why it matters, who should file it, the information required, and how it can affect your taxes.
What is Form 1095-C and Why Does it Matter?
Form 1095-C is an information document under the Internal Revenue Service (IRS).
ALEs use it to report health insurance coverage offered to their employees during the tax year as required under sections 6055 and 6056 the Affordable Care Act (ACA).
It provides full details about the type of health coverage the employer offered to each employee and their dependents, including the months the coverage was available and the employee’s premium contribution.
Here’s why it matters:
- Employees use this form when filing their annual returns to provide proof of coverage and demonstrate eligibility for the Premium Tax Credit.
- The IRS uses it to confirm that the self-insured health insurance coverage offered by the ALE meets the minimum essential and affordable standards as required under the ACA employer shared responsibility provision.
1095-A vs. 1095-B vs. 1095-C
The IRS requires ALEs and health providers to share a series of 1095 Forms, namely Form 1095-A, 1095-B, and 1095-C.
Each of these forms serves a distinct purpose as shown in the table below:
| ASPECTS | FORM 1095-A | FORM 1095-B | FORM 1095-C |
|---|---|---|---|
| What It Is | Health Insurance Marketplace Statement | A statement form of Health coverage that is not employer-sponsored or a marketplace plan | A tax document of health insurance coverage offered by an ALE to its employees |
| Issued By | Health Insurance Marketplace | Health Insurers, government programs like Medicare and Medicaid. | Applicable Large Employer with at least 50 full-time employees or full-time-equivalent employees |
| Who Receives It | Individuals who enroll in coverage through the marketplace | Individuals with non-marketplace coverage and who are not employees of an ALE who enroll for coverage through an insurance company, small employer, or public programs | Full-time employees of the ALEs |
| Serves As | Mandatory requirement when reconciling Premium Credit Tax | Proof insured and their dependents had minimum essential coverage | Confirmation that ALE is compliant with the Affordable Care Act requirements to provide affordable, minimum-value health insurance coverage to its full-time staff. |
The ACA reporting and compliance can be hectic; that’s why you should consider getting professional help.
At Ethos Benefits, we offer employee benefits consultation to address your benefits administration, including ensuring ACA compliance. Our proactive fiduciary approach includes benefits renewal support to avoid last-minute rushes.
Book a call with us, and achieve accurate ACA reporting with our expert compliance guidance.
Who is Required to File the 1095-C Form?
All ALEs must file Forms 1095-C with the IRS before 28th February if filing on paper and 31st March if filing electronically. They must also furnish copies to all full-time employees before January 31st.
These are employees who worked for one or more months during the previous year, whether or not they enrolled in the plan.
Employers who miss these set deadlines may pay penalties ranging from $683,000 to $4,098,500. The rates depend on the duration of the delay, unless the ALE requests an extension by submitting IRS Form 8809.
Note: The IRS can impose penalties of up to $680 per return on employers who deliberately fail to file the form.
What Information is Included in Form 1095-C?
Form 1095-C has three main parts that capture specific details of the employer’s health coverage.
Part I: Employee and Employer Information
This section records the basic information about the employee:
Lines 1-6: Capture the employee’s name, address, Social Security Number (SSN), and date of birth (DOB).
Lines 7-13: The employer’s legal name, Employer Identification Number (EIN), addresses, and contact phone number.
Part II: Employee Offer of Coverage
This is the most complex part. It documents the full details of the health coverage offered to each employee from January to December, including its cost and whether the employer is subject to a penalty.
Line 14: Uses offer of coverage codes, and each code describes the type of health insurance coverage that was offered to the employee (if any). The codes help the IRS determine whether the offer complies with the Minimum Essential Coverage (MEC) and Minimum Value (MV) standards.
Line 15: Reports the employee’s monthly contribution (monthly premium amount) for the health insurance coverage offered. This information is used to determine whether the coverage was affordable under the ACA.
Line 16: Captures codes for safe harbor provisions and other relief codes under section 4980H, if any were applied. The information provided here justifies the offer and determines whether a penalty is appropriate.
Line 17: It captures the zip code used to determine the affordability of the ICHRA coverage offered.
Part III: Covered Individuals
This section lists all individuals (the employee and their dependents) covered under the health insurance plan.
Their information, including name, SSN, DOB, and coverage details for each month, is captured in columns (a) to (e).
How Does the 1095-C Form Affect My Taxes?
Form 1095-C does not affect your tax returns. It just proves that your employer offered health coverage to you and your dependents. Though you don’t need it to file your returns, the information in it helps you fill them out accurately.
It also comes in handy in determining your eligibility for the premium tax credit, and the IRS will use it to verify your eligibility.
Similarly, it does not affect ALEs’ income tax returns, but the IRS uses it to assess their compliance with the Affordable Care Act.
Where to Get the 1095-C Form
The employer provides Form 1095-C within 30 days of an employee’s formal request or by January 31st each year. Most ALEs share the form on the company’s employee portal or through mail.
If you lost an old 1095-C form and, for some reason, the employer can’t trace it, you can request a transcript from the IRS.
How to Get My 1095-C Form Online
There are three ways through which you can get your 1095-C form:
- Email: If you consented to receiving their Form 1095-C electronically, the employer will send you an email notification once the form is ready, on 31st Jan. The email may contain a link that you must log in to access the form.
- Mail: The forms are printed and mailed to your permanent address.
- HR Request: If you’re no longer working with the company, you can contact the HR department via email or phone to request a copy of the form. It will be mailed or emailed directly to you.
How to File 1095-C Electronically
To file forms 1095-C electronically, Applicable Large Employers must use the ACA Information Reports (AIR) system.
Here are the six main steps to follow:
Step 1: Create an IRS e-Services Account: This gives access to the Affordable Care Act Information Returns (AIR) system.
Step 2: Obtain a Transmitter Control Code: A unique five-character, alphanumeric code that identifies the ALE’s company obtained by submitting an Information Returns (IR) Application.
Step 3: Use an Approved E-File Provider to Prepare and Transmit the 1095-C Form: this can be ACAwise, Independent tax preparers, or third-party software providers.
Step 4: Review the Forms to Ensure Data Accuracy: Remember, errors on Form 1095-C can trigger penalties for the ALE.
Step 5: Submit the Forms to IRS: Keep the forms in XML format
Step 6: Furnish Employee Copies: Provide electronic access to the company’s portal or mail them directly.
Common Mistakes Employers Make with Form 1095-C
Here are common mistakes that many ALEs make when preparing 1095-C forms, which can have significant consequences, rejection of the filings, penalties, or being ranked as non-compliant with the Affordable Care Act:
1. Code Errors
Using an incorrect offer of coverage code (in line 14) or failing to use safe harbor codes (line 16) when applicable.
Using software that validates codes against IRS rules when preparing the form can help eliminate such errors. Double-check the entries before submitting the form to the IRS.
2. Missing Deadlines
The IRS clearly states that deadlines must be met, and late reporting can result in penalties unless a request for an extension is approved.
Conducting an employee benefit plan audit earlier, especially in the fourth quarter, can help avoid missed deadlines.
3. Inputting the Wrong Amount on Line 15
Instead of entering the monthly amount of the Employee Required Contribution, some employers enter the total amount the employee paid, which is usually higher than the ACA affordability index amount.
4. Not Including Individuals Covered Under a Self-insured Plan on Part III
Employers offering self-insured plans must list details of the employees’ dependents in Part 3 of the 1095-C form.
Understanding the information required for each plan type can help avoid this mistake.
5. Missing or Incorrect Employee Information
Some forms are rejected due to wrong SSNs.
Using verified data that’s on your payroll system and double-checking entries on the form can help prevent such oversights.
6. Entrusting Everything to Third-party Administrators
The obligation to file Form 1095-C with the IRS and distribute it to employees lies entirely with the employer (ALE).
While it’s okay to outsource the service, the employer must maintain oversight during the entire process.
Frequently Asked Questions (FAQs)
Below are common questions that most large-organization employers and employees ask about the 1095-C form:
What is the Difference Between 1095-C and W-2 Forms?
The employer provides both Forms 1095-C and W-2 early in the year to aid in filing federal tax returns, but they serve different regulatory functions.
The W-2 form is directly tied to filing annual tax returns. In contrast, the Form 1095-C is used to demonstrate compliance with Affordable Care Act provisions and is not always required for tax return preparation.
Can I Have Multiple 1095-C Forms In One Year?
Yes, if you worked as a full-time employee with multiple applicable large employers during the year.
Each employer must furnish Form 1095-C covering the months you were enrolled in their health plan.
Can Part-Time Employees Receive a 1095-C Form?
Form 1095-C is primarily issued to full-time employees.
Still, applicable large employers may issue it to part-time employees who were enrolled in an employer-sponsored self-insured health plan.
What If My Employer Went Out of Business?
Obtaining Form 1095-C from a former employer that’s out of business can be tricky, but you can reach out to their successor.
If this proves challenging, contact the benefits administrator who serviced the plan. Most tend to keep records of the employees covered and may be able to provide the form.
Conclusion
Form 1095-C is not just a tax reporting document, but it also confirms that the employer’s coverage was adequate under ACA standards. It provides employees with key insights into how the coverage offered affects their tax returns. ALEs must ensure the timely and accurate submission of the forms to the IRS. They must also distribute copies to employees in advance.
Failure to meet deadlines or to enter the correct codes, SSNs, or premium amounts can easily expose an ALE to compliance risks. That is why it is crucial for ALEs and their HR teams to understand specific IRS deadlines and data requirements for filing Form 1095, as well as what to do if errors occur.
There’s a lot that goes into preparing and filing a 1095-C, and many ALEs lack the confidence to navigate the entire process on their own.
At Ethos Benefits, we provide employee benefits consulting and administration support to help you with automating benefits plan reporting and audits. We operate on a flat-fee, transparent model, so you don’t have to deal with surprise charges.
Schedule a discovery call today, and let’s discuss how you can remain compliant and avoid penalties.
