IRS makes dramatic change to ACA filing – Are your clients prepared?

For more than half a decade, employers have been filling out required ACA forms, sending them to employees, and filing those forms with the IRS. And for employers with fewer than 250 forms, that filing process could be fairly straightforward – they had the option to print the forms and mail them off. New regulations, though, mean that this process will become more involved when employers file their 2023 tax year forms in early 2024.

Recently issued final regulations implement Section 2301  of the Taxpayer First Act and will dramatically expand the electronic filing rules. Under the new regulations, any employer who files 10 or more aggregate returns will now be required to file electronically. This change could prove challenging to many employers who have previously relied on the ability to file paper copies and who may not have updated systems in place to comply with the new requirements.

This regulation will require virtually all employers subject to Form 1094/1095 filing to file electronically. In the past, employers were not required to aggregate its Forms 1095-C with other tax forms, most notably Forms W-2. This meant an employer could have 500 Forms W-2 it had to file electronically, but could file a paper copy of the 200 Forms 1095-C it was required to send. Under the new regulations, any employer with 10 or more total forms must file electronically.

Forms 1094-C & 1095-C

Employers with 50 or more full time equivalent employees are required to distribute and file Forms 1095-C and Form 1094-C to applicable employees and to the IRS each year.  Employees who meet the “full time” IRS threshold under the ACA rules are required to receive a form 1095-C.  Employers who sponsor a self-funded medical plan are also required to provide Forms 1095-C for any enrolled individual in the medical plan in the given tax year, even if they do not meet the threshold as a full-time employee.  Examples are COBRA participants, retirees and part time employees who are enrolled in the self-funded plan. 

Forms 1094-B & 1095-B

For employers with fewer than 50 full time equivalent employees who sponsor a self-funded medical plan, Forms 1095-B are required for any individuals enrolled in the medical plan for any part of the tax year.

Prepare now for new IRS electronic filing rules

Navigating the complexities of transmitting Forms 1094 and 1095 to the Internal Revenue Service (IRS) can be a challenging process for your clients, or even for you as their tax advisor. Ensuring compliance with regulatory requirements and avoiding penalties demands a high level of attention to detail and adherence to deadlines.  Here are some of the steps you or your client need to consider in being prepared to submit to IRS electronically:

Steps to successfully transmit these documents to the IRS:

1. First gather the necessary information for each full-time employee. This includes details on the health insurance coverage offered, the employee’s share of the lowest-cost monthly premium, and the months for which the coverage was available. Errors in these forms can lead to complications and potential penalties.
2. Once the forms are accurately completed, they need to be filed with the IRS. Electronic filing is mandatory for virtually all  employers starting 2024 (for 2023 reporting year)…
3. The electronic transmission of Forms 1094 and 1095 is carried out through the Affordable Care Act Information Returns (AIR) system. To utilize this system, employers must first obtain a Transmitter Control Code (TCC, a process that can take up to two months to complete. It is essential to factor in this timeline when preparing for the submission, as the deadline for submitting forms to the IRS is fixed and must be met to avoid penalties.
4. The TCC application process involves registering with the IRS e-Services, applying for the TCC, and passing a series of tests to ensure their systems can successfully transmit the forms. This is a crucial step, as it ensures that the employer’s software and communication systems are compatible with the IRS’s requirements.
5. Once the TCC is obtained and the software is tested, employers can proceed to submit Forms 1094 and 1095 electronically. It is essential to double-check the submitted information to avoid errors and potential penalties. In case of any errors, the IRS will send a notification, and employers must promptly correct and resubmit the forms.  The IRS requires the information to be submitted in a specific schema (file format) and the business rules can change each year.  Consolidating a client’s data to be compatible for the current year’s schema can be time consuming. 

In conclusion, the transmission of Forms 1094 and 1095 to the IRS can be a time-consuming and intricate process. Employers need to remain vigilant and adhere to strict timelines to ensure successful submission and avoid penalties. Careful planning, accurate data collection, and thorough understanding of the submission process are crucial in navigating this annual compliance challenge.

Considering the recent changes under Section 2301, your clients who now have to comply with electronic transmission should identify how they are going to comply, either by setting up their own account with the AIR system and educating themselves on the specific IRS electronic format or choosing to contract with a trusted partner to complete their annual Forms 1094 and 1095 filings.   

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