1095-C and 1094-C

What is IRS Form 1095-C?

IRS Form 1095-C, Employer-Provided Health Insurance Offer and Coverage is a tax-related document that certain employers must submit annually to the Internal Revenue Service (IRS). According to the Affordable Care Act (ACA), all Applicable Large Employers (ALEs) in the US must file Form 1095-C for each individual who worked for the employer as a full-time employee for one or more months during the previous calendar year. When the employer files Form 1095-C with the IRS, it must also provide the employee with a copy of the same form.

Form 1095-C requires the employer to provide the following information:

• The employee's name, Social Security Number (SSN), and home address

• The employer's name, Employer Identification Number (EIN), and address

• Details about the health insurance the employer offered to the employee

• The least costly premium the employer offered to the employee

• Which months of the calendar year the coverage was available

What is Form 1094-C and how is it related to Form 1095-C?

Related Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns is a document that contains a summary of the information the employer is filing with the IRS for all of their employees. Essentially, Form 1094-C acts as a cover sheet that contains a brief rundown of all of the employer's individual 1095-C forms. Form 1094-C contains information regarding:

• The employer, including its EIN, address, and phone number

• The number of employees the employer has

• The name of a contact person for the employer

• The number of 1095 forms the employer is filing for this calendar year

What qualifies an employer as an Applicable Large Employer (ALE)?

Under the ACA's additions to the Internal Revenue Code (IRC sections 4980H and 6056), an Applicable Large Employer, or ALE, is an employer that has an average of at least 50 full-time employees or full-time equivalent employees (FTEs).

If an employer had an average of fewer than 50 FTEs for the prior calendar year, it is not considered an ALE for the current calendar year. 

If the employer had an average of at least 50 FTEs for the prior calendar year, it is considered an ALE for the current calendar year. As such, the ACA's employer shared responsibility provisions and the employer information reporting provisions apply.

Who counts as an FTE?

According to the ACA, any employee who works a minimum of 30 hours per week qualifies as an FTE. 

When determining its ALE status, the employer should also calculate the number of part-time employees who count as FTEs.

How can an employer calculate its number of FTEs?

To calculate FTEs manually, add the number of actual hours worked for all part-time employees, including seasonal workers, during any calendar month. Divide this total by 120 to determine the number of FTEs within the organization's part-time workforce. This number plus the number of actual full-time employees indicates the number of FTEs the employer has. 

What happens if an ALE fails to file Form 1095-C for each full-time employee?

Under IRC Sections 6721/6722, the IRS will penalize any ALE that fails to distribute, file, or correctly fill out a copy of Form 1095-C for each FTE they employ. The penalty differs depending on when the return is submitted or corrected.

As of 2023, the penalty for failing to file or correct an informational return or payee statement before the tax deadline is $120 per return or payee statement. The maximum penalty for most businesses is $1,891,500, although the IRS set the cap for small businesses at $630,500. 

The penalty for failing to file or correct these forms in time (or at all) is $310 per return or payee statement. The maximum penalty is $3,783,000 or $1,891,500 for small businesses. 

The IRS also charges an intentional disregard penalty, which is at least $630 per return or payee statement. The IRS considers a person or entity to have committed intentional disregard when they knowingly or willfully fail to file a return on time or fail to include accurate information in their return.