Staying Compliant When Providing Health Coverage: New IRS Form 1095-C

By Marco Mannone

5 min read

It’s safe to say that whenever the IRS issues a new tax form, small business owners don’t dance down the streets like it was Mardi Gras. New-anything from the IRS typically elicits the same dread as when one is awoken in the middle of the night by the sound of glass breaking. A bit much? Maybe. But remember, when it comes to the IRS and managing your business, the hyperbole of today is often the paperwork of tomorrow.

Does Form 1095-C Apply to You?

In this case, “tomorrow” happens to be next year, so you can almost breathe easy. Almost. Starting in tax filing season 2016 (for tax year 2015), under the Affordable Care Act (ACA), employers with between 50 and 99 full-time equivalent (FTE) workers are required to file new tax forms detailing what individual employees are being charged for their employer-sponsored plans.

If you have less than 50 employees, then you can go dancing down the street with some beads around your neck because you’re exempt. For everyone else, the IRS released this new form on February 8 under the name Form 1095-C.

Since employer reporting—which was supposed to go in effect in 2014—was delayed for one year, filing the forms is optional for tax year 2014. In spite of the form’s February 8 publication date, completed forms needed to be filed by February 28 (or March 31 if filed electronically), so it’s very unlikely that many employers, insurers or government programs will actually file for tax year 2014 at all. The proverbial bullet has been dodged… for now.

That said, even though employers with between 50 and 99 FTEs can take advantage of this one year of transitional relief, they’re still required to comply with the “pay or play” reporting requirement and the individual mandate reporting requirement if the employer sponsors a self-funded group health plan.

According to law firm Miller Johnson, “In order to qualify for the transitional relief, mid-size employers must certify to the IRS that it meets the necessary requirements. Form 1094-C is used to certify that the mid-size employer meets these requirements.”

What Does it Cover? Who Gets One?

So what does Form 1095-C entail, exactly? It requires you to measure every individual full-time worker’s (not FTE) total monthly out-of-pocket cost for an employer health plan this year. This doesn’t apply to your part-time workers, even though said part-timers are used to calculate whether your company is big enough to require reporting. Let’s look at the example below.

Your business employs 40 full-time workers, which are defined by the ACA as working 30+ hours per week. It also employs 20 part-time workers that work 15 hours a week. Those part-time employees’ hours are combined to calculate how much work they do equivalent to a full-time employee. To break down this equation another way: two workers who each put in 15 hours a week, for example, would make up one full-time equivalent worker (2 part-timers x 15 hours = 30 hours = 1 FTE).

In addition to your full-timers, you also have 20 part-timers working 15 hours each per week. Multiplying your 20 part-timers by their 15-hours-per-week shifts equals 300 hours. Divide 300 hours by 30, and you get 10 FTEs. Now, add your part-timers’ FTE quantity of 10 to your existing full-time workforce of 40, and you get 50 FTEs, or just enough to require Form 1095-C reporting.

Remember you only need to fill out 40 Form 1095-Cs for each of your full-time workers, not your part-timers. If you’ve gone completely cross-eyed, don’t worry–that’s a perfectly natural reaction that will clear up sometime after Tax Day 2016.

Why Does the IRS Need This Information?

You may be asking why the cheerful folks at the IRS would mandate such a pain-staking, time-consuming process? This information is used to figure out whether employers are complying with the law’s requirement that businesses offer affordable health coverage to full-time employees and their dependents. It will also be used to establish employee eligibility for premium tax credits if the employer in question does not offer affordable and adequate coverage.

Why are some small business owners finding the new forms so demoralizing? Because rather than simply ask employers to record the price tag for a given health plan, they require employers to calculate the lowest-cost plan available to each full-time worker on a month-by-month basis; a figure than can vary as wages or working hours change.

For example, if you happen to own a retail store, restaurant, day-care service or any other business where workers’ hours can vary from part-time to full-time, keep in mind that under the new law, you aren’t required to offer coverage to part-timers. For this very reason, small business employers are being encouraged to start collecting this information ASAP or risk having a nervous breakdown come next tax season.

If anyone tries to skirt around these reporting requirements, they’ll get slapped with a $3,000 penalty per employee. So if you have at least 50 FTEs and you get caught, that’s at least a $150,000 penalty. That might not be affordable for your business, which is why you should start to take this seriously sooner as opposed to later.

Is This Something I Can Outsource?

If you manage your own payroll and are a little overwhelmed, you could outsource this process to a third party company. That said, some payroll services are charging up to $400, plus 40 cents per employee (according to Victoria Braden, as reported in the Wall Street Journal). If you can afford to shell out a little extra dough, it might be worth it. But if you can’t, it’s really nothing a spreadsheet and a little elbow grease can’t fix–though you better get started. You can find a 14-page PDF detailing the instructions here.

Still at wit’s end? Check out this Affordable Care Act webinar to help give you some pointers on how to go about handling this. For some more information, take a look at this overview of the new tax forms related to the Affordable Care Act.

As Benjamin Franklin famously said, “the only two certainties in life are death and taxes.” That said, with a little research and planning, there’s no reason why one should lead to the other. In fact, for additional tax help, read our article on tax deductions your small business could be missing.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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