Blog Post

Help Preserve ACA Filing Extensions

November 6, 2020

The IRS recently announced a 30-day extension for employers to file their 1095 info. But they also announced that this will be the last extension they grant unless they hear from people explaining why the extensions should continue.

We believe the extended deadline is critical for employers. That’s why we’re asking you to join us in submitting comments to the IRS. It’s easy to do and only takes a few minutes.

Here are a few things to consider sharing with the IRS when you submit your comments:

Filing 1095 Info is Time Consuming and Difficult

Generating 1095 forms and filing that information with the IRS is a challenge for most employers. It typically requires gathering data from multiple systems: payroll, HRIS, enrollment systems, etc. This often requires a lot of time from IT team members, as well as time spent auditing the data for accuracy.

With the data gathered and audited, the code generation process begins. Some employers do this themselves, while many others use a vendor to do this for them. Regardless of who does it, it takes time to do it right. It also requires data that is often not available until late January each year.

Form 1095 rules are complex. It often involves carefully reviewing an employee’s unique circumstances to determine the correct codes to apply. Incorrect codes leave the employer exposed to fines and penalties. They can also negatively impact individuals who receive a premium tax credit through a public exchange.

Complicating matters further is the fact the forms change each year. Everyone needs time to adjust to the changes and start using the new codes. Expecting that this can be done by January 31 each year is unrealistic.

Enrollment Data

Employers must have accurate and complete enrollment data to generate 1095 forms. This data has to be accurate through the last day of each calendar year. A January 31 filing deadline doesn’t account for the reality of how enrollment data works:

  • Most employers don’t have access to real-time enrollment information. Carriers and vendors often lag in updating and providing this information. This can make it hard to know who has coverage under their plans at any given time. But employers need this information to create 1095 forms.
  • Life status events that result in end of the year enrollment changes create an extra burden. These events typically allow employees thirty days to complete enrollment. That means December enrollment data may not be available until almost the end of January.
  • This issue is even more problematic with COBRA enrollment. Because qualified beneficiaries have sixty days to elect, their enrollment data gets pushed out even further.

These timelines make it almost impossible for employers to issue accurate forms by the January 31 deadline.

The W-2 Affordability Safe Harbor

There are three “safe harbors” available to employers when determining affordability: rate of pay, W-2, and federal poverty line (FPL). The W-2 safe harbor is the only option available for many employers due to their plan and pay structures.

Employers who rely on the W-2 safe harbor must have W-2 information complete before determining the correct codes for line 16 for the Form 1095-C.

And that’s where it gets tricky.

  • The deadline for issuing W-2 forms is January 31. Meeting this deadline is a serious challenge for many employers.
  • Without an extension, the 1095 filing deadline is also January 31.
  • If an employer uses the W-2 safe harbor, they must have their W-2 forms complete before they can calculate the codes for line 16 of the Form 1095-C
  • If that’s the case, then employers must complete their W-2 forms early, so they have enough time to complete their 1095 forms

How many employers can complete their W-2 forms in time to also complete their 1095 forms by a shared January 31 deadline?

Individual Health Reimbursement Arrangements (ICHRA)

Individual Health Reimbursement Arrangements (ICHRAs) count as an offer of minimal essential coverage. But these plans make it even more challenging to determine affordability.

One particularly troublesome aspect involves a sixty-day deadline to use the correct geographic cost ratings when employees move. When this happens near the end of the year, it further limits the employer’s ability to meet the January 31 deadline.

Zero Impact on Taxpayers or the IRS

Taxpayers are not required to include a copy of their 1095 form when filing their taxes. A statement about their health coverage status is all that’s needed. 

And since there’s no longer a penalty for not having coverage, there’s no impact to taxpayers if they receive their 1095 forms after January 31.

Avoiding Penalties

There are substantial penalties for mailing and filing incorrect 1095 information. And unfortunately, this is the last year the IRS will apply “good faith” standards to 1095 filing content.

Employers must carefully review their final 1095 information to ensure accuracy and avoid penalties. But this review process takes significant time. For example, an employee with no covered family members has 36 fields that require review. Employees with dependents can have as many as 100 fields to review.

With so much content to review, it’s clear that even small and mid-size employers will struggle to meet a January 31 deadline.

Working with Vendors

As we’ve seen, complying with the ACA can be very challenging, and there’s a genuine risk of significant penalties. That’s why many employers use a vendor to do this work for them.

Of course, using a vendor doesn’t change any of the timelines we discussed above. Employers must still gather all of the same information, and they need the same amount of time to do it.

But now it’s up to the vendor to take that information, do the calculations, prepare and mail the forms, and then file the information with the IRS. This must all be done within a very narrow timeframe. And vendors need to leave enough time for employers to review and approve the information before the vendor submits it to the IRS.

Without an extension, it will be incredibly difficult for vendors to perform this work at scale while meeting a January 31 deadline. It’s not hard to imagine some vendors will stop offering the service.

How You Can Help

We think the 1095 filing deadline should be permanently extended by thirty days. If not, then the IRS should continue to offer the extension each year. But this will only happen if the IRS hears from a large number of people concerned about the January 31 deadline.

You can help by submitting comments to the IRS. They have asked for comments about the deadline in years past, but they received only a single comment. They are now asking for comments one last time:

“Unless we receive comments that explain why this relief continues to be necessary, no relief related to the furnishing requirements under sections 6055 and 6056 will be granted in future years. Taxpayers and reporting entities are strongly encouraged to submit comments electronically via the Federal eRulemaking Portal at www.regulations.gov. 

Please join us in submitting comments to help ensure employers will continue to have the time they need to file accurate information on time each year.

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