New Tax Forms Security Integrators Need to Know to Comply With Affordable Care Act
Working through the confusion of filing the necessary tax forms to ensure employers are following the law when it comes to providing health insurance.
Form 1094-C and Form 1095-C are tied to two key pillars of the Affordable Care Act.
They’re perhaps the most important tax forms the United States government has introduced since the W-2 came out in 1947. But a lot of security and systems integration company owners are not sure what they are and whether or not they have to file them.
The forms – the 1094-C and the 1095-C – are designed to track compliance with the Affordable Care Act (ACA or Obamacare) rule that mid- to large-sized employers may offer affordable health insurance to workers or face a fine. Wait, the ACA has a rather loose definition of “mid- to large-sized firms.” To complicate the situation even more, you will soon be inundated with official looking emails and posts on social media (in between the news release that Charles Manson is marrying Lady Gaga and that you have won the Tibetan Lottery) advising you that these forms must be filed.
There are two new forms: Form 1094-C and Form 1095-C. The 1094-C is used by companies to indicate to the IRS how they’ve complied with the new ACA rules, and 1095-C forms will indicate whether a worker and his dependents have received job-based health coverage. With the fifth birthday of the ACA approaching, this is a good time to update you as to which employers should file these forms.
The forms are tied to two key pillars of the Affordable Care Act. One requires employers with 50 or more employees who work 30 or more hours per week — considered “full-time equivalents” — to offer those workers affordable health insurance. The other key ACA mandate requires nearly all Americans to have some form of health coverage, or pay a fine.
For 2015, only employers with 100 or more full-time equivalents were required to offer health coverage or face a fine. In 2016, the mandate applies to all firms with 50 or more full-time workers. But all firms with 50 or more full-time workers must file the 1094-C forms for 2015 with the IRS, even if they weren’t legally responsible for offering health coverage to their workers in 2015. Many firms — and quite a few tax preparers — are not aware of this requirement and failing to file could cost your company in the form of penalties, interest, accounting fees and lost time on the phone with the IRS.
When employers file the 1094-Cs with the IRS, they also will have to file the 1095-Cs related to individual workers, indicating whether they received job-based coverage. The workers, however, aren’t required to file their own copy of the 1095-Cs with the IRS when they file their tax returns. The form is meant for the employee’s own tax records. The IRS requires individual filers only to check a single box on the 1040 or 1040EZ forms to indicate whether they had health coverage as required by Obamacare over the course of the year. If a person fails to have coverage for the year, they then have to file another form to calculate their penalty, which for 2015 was the higher of $325 per person, or 2% of taxable household income.
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Be ready for questions from your employees so read this paragraph closely. Many employers with 50-100 employees will fall into an expectation gap in which they weren’t required to insure their workers in 2015, but the workers failed to secure health insurance and will probably complain. Educate your workers beforehand or face calls and questions to your accounting department.
The potential fallout from such unpreparedness is that employees who must be issued 1095-C forms by their employers are either going to receive 1095-Cs late, or won’t receive them at all despite a recent deadline extension. In late December, the IRS gave employers a two-month extension of their deadlines related to the forms. They now have until March 31 to distribute the 1095-C forms to workers, and until May 31 to mail in their 1094-C forms to the IRS, or until June 30 if they file them electronically. If your business fails to file the forms, it can be fined $260 per worker whose data was supposed to be transmitted, with a maximum penalty of $6 million if a company is found to have blatantly disregarded rules requiring the new forms.
If you use a reputable payroll service and have informed advisors, you should be all right, but don’t leave this to chance. Ask your tax advisor for guidance and make sure that you understand your filing obligations before these forms must be distributed and/or filed.
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Bio: Mitch Reitman is managing principal at Reitman Consulting Group and specializes in the Security and Systems Integration firms. He can be reached at 817-698-9999.
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