July 17, 2020
IRS issues draft forms for calendar-year 2020 ACA employer reporting
On July 13, 2020, the IRS issued drafts of the 2020 Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and 2020 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. While the Form 1094-C remains unchanged from 2019, the 2020 Form 1095-C includes new information requirements for health reimbursement arrangements (HRAs).
As of the time of this Alert, the IRS has not issued draft instructions for the 2020 Forms 1094-C and 1095-C. Moreover, the IRS has not updated its data schema or its business rules for electronically filing these forms through the ACA Information Reporting (AIR) system.
Large employers — those with 50 or more full-time employees (including full-time equivalent employees) in the previous year — must use Forms 1094-C and 1095-C to report information required under IRC Sections 6055 and 6056 about the offer of employer-sponsored health care coverage and the employees' enrollment in that coverage. Under IRC Section 6055, an employer with a self-insured health care plan must file a return with the IRS and furnish a statement to the employees who enrolled in the coverage with information about the employees' and dependents' coverage and the months they are covered. Under IRC Section 6056, every large employer, together with the other members in its aggregated group, must file a return with the IRS and furnish a statement to the employees reporting the terms and conditions of the health care coverage offered by the employer during the year. Large employers report the information required under IRC Sections 6055 and 6056 on (1) Form 1094-C, which is the transmittal form filed with the IRS and (2) Form 1095-C, which is the statement furnished to employees. These forms are used by the IRS to administer the ACA's employer shared responsibility provisions (i.e., the ACA's "employer mandate").1
Individual coverage HRAs
In June 2019, the IRS and the Departments of Labor and Health and Human Services issued regulations (TD 9867) allowing employers of any size, beginning in 2020, to offer employees HRAs that, for the first time, can reimburse employees for the cost of obtaining individual medical coverage or Medicare (individual coverage HRAs). Employers offering individual coverage HRAs may not also offer participation in a traditional group health plan.
The IRS subsequently clarified in proposed regulations (REG-136401-18) issued September 30, 2019, how the employer shared responsibility provisions and certain IRC nondiscrimination rules regarding affordability of coverage apply to individual coverage HRAs and other account-based group health plans integrated with individual health insurance coverage or Medicare. The proposed regulations also created safe harbors for applying those provisions.
The Form 1094-C remains unchanged from prior years.
The updated draft 2020 Form 1095-C includes new fields to report information required to administer the final and proposed regulations covering individual coverage HRAs. This will allow the IRS to determine whether the individual coverage HRAs meet the proposed regulations' requirements of affordable coverage for purposes of the employer shared responsibility provisions.
The changes to the Form 1095-C include:
While awaiting further updates to the Form 1095-C instructions and AIR system schemas, large employers should prepare for potential challenges in updating data and system requirements to adopt the form changes before the furnishing and filing deadlines for calendar-year 2020 reporting. Employers that do not offer individual coverage HRAs might not need to complete some of the new fields, though they will still need to deal with the form's new layout. How states with individual mandates will react to the changes in draft Form 1095-C is unclear.
1 Before 2019, these forms also provided information to individuals that could be used to demonstrate compliance with the ACA's individual shared responsibility provisions (i.e., the individual mandate). The Tax Cut and Jobs Act of 2017 reduced the ACA's individual shared responsibility penalty to $0. While a federal individual mandate no longer exists, several states have adopted their own individual mandates since 2017. Those states rely on the federal forms being furnished and filed with states to supply the state taxing authorities with the information needed to enforce the state-level mandates.