Tax compliance with the filing requirements of the Affordable Care Act (ACA) has had several new developments. These new developments are a direct response to employer concerns regarding IRS Forms 1095-B and C for their employees.
Extension of time to file IRS Form 1095-B and C
The IRS announced on December 28, 2015, that it would extend the initial ACA reporting deadlines for employers and health insurance providers for the 2015 year. IRS Notice 2016-4 extended the filing deadlines by two months. The extension is automatic and taxpayers need take no action to make use of the extension.
The new deadlines to furnish payee information statements to employees and file information returns with the IRS are:
- March 31, 2016 – payee information statement deadline (IRS Forms 1095-B and C)
- May 31, 2016 – information return (manual/paper) filing deadline (IRS Forms 1094-B and C) for entities with less than 250 IRS Forms 1095-B and C
- June 30, 2016 – information returns (electronic) filing deadline (IRS Forms 1094-B and C) for entities with 250 or more IRS Forms 1095-B and C
The IRS extended these deadlines in an effort to provide employers, insurers and other coverage providers additional time to meet the requirements of the ACA in regards to preparing information returns to employees and participants in employer sponsored health benefit programs. Primary issues involved employers having difficulty completing the forms and finding vendors to print, distribute and electronically file the forms.
Potential relief from penalties for failure to comply
Internal Revenue Code Sections 6721 and 6722 impose significant penalties on employers and insurers who fail to either furnish correct payee statements and/or file correct information returns with the IRS. Penalties for failure to provide IRS Form 1095-B and C to employees/participants could range as high as $250 per form not provided to an employee/participant, up to a maximum of $3,000,000 per year.
However, the IRS announced in November additional relief for employers in this area. In a release entitled “Questions and Answers on Reporting of Offers of Health Insurance Coverage by Employers (Section 6056),“ the IRS announced that penalties under Internal Revenue Code Sections 6721 and 6722 would not be imposed for 2015 reporting requirements on those employers who made “good faith efforts to comply with the information reporting requirements.” This penalty relief is limited to incorrect or incomplete forms—and not for failure to provide forms.
Should I take advantage of the extension?
Clearly, an employer wants to prepare and distribute accurate forms to the employees/ participants and to the IRS. Inaccurate returns can harm the employer because they may raise unnecessary issues with the IRS that could lead to the imposition of the shared responsibility excise taxes contained in the ACA; the employer can contest the excise tax, but it is often more expensive to argue and correct an incorrect filing with the IRS than it is to complete it correctly the first time. If the employer is having trouble finding a suitable vendor to process Form 1095-B, Form 1095-C or can’t get complete information from a third-party administrator they should take the steps necessary to get accurate forms prepared and issued as soon as possible.
However, the IRS Forms 1095-B and C are used by employees in the completion of their personal federal income tax returns. The purpose of these forms is to allow individual taxpayers to establish that they had health coverage during a calendar year. Internal Revenue Code Section 5000A(c) (3) causes an individual taxpayer who does not have health coverage during a year to be assessed an excise tax of $325 (with a family maximum of $975) for the 2015 tax year. An employer who delays issuing the forms may have employees asking for the forms.
Looking for more details on how this may affect your business? As always, contact your Smith & Howard tax professional at 404-874-6244 prior to taking any action.