On Monday, December 23, 2024, President Biden signed into law two bills, H.R. 3797 (the “Paperwork Reduction Act”) and H.R. 3801 (the “Employer Reporting Improvement Act”), which will positively impact applicable large employers (“ALEs”) and other entities required to furnish forms 1095-B or 1095-C to individuals.
Background
Under the Affordable Care Act, ALEs (i.e., employers who have employed an average of 50 or more full-time equivalent employees in the prior year) must file forms 1094-C and 1095-C with the IRS and furnish forms 1095-C to full-time employees. Sponsors of self-funded plans must also furnish forms to covered individuals. The furnishing deadline is generally March 1 of each year.
The IRS issues a penalty letter (Letter 226J) when an employee of an ALE receives a premium tax credit for Marketplace coverage and the ALE reports the employee as full-time without a qualified reason for why affordable health insurance was not offered. An ALE’s response to Letter 226J is generally due 30 days from the date of the letter. If the ALE does not respond timely, the IRS will assess the penalty and issue a notice and demand for payment.
Summary of the New Laws
The Paperwork Reduction Act considers employers to meet their requirement to furnish forms 1095-B or 1095-C to employees if:
- The employer or reporting entity (e.g., insurance carrier) provides a clear, conspicuous, and accessible notice that any individual who is required to receive the form can request a copy.
- The employee can request a copy of the form, which the employer or reporting entity must provide no later than:
- January 31 of the year following the calendar year for which the return was required, or
- 30 days after the date of such request.
The Paperwork Reduction Act is effective for calendar year 2024 forms required to be furnished in 2025.
The Employer Reporting Improvement Act allows employers to provide forms 1095-B or 1095-C electronically if consent is given. Employers may use an individual’s date of birth in lieu of a social security number when completing the forms, except when reporting on form 1095-C.
It also provides employers more time—90 days instead of 30—to respond to IRS ESRP letters, giving them additional time to review Letter 226J and prepare an appeal. This applies to Letters 226J sent after December 23, 2024.
Additionally, the Act establishes a six-year statute of limitations for the IRS to seek an ESRP, effective for 2024 tax year forms and beyond.
Next Steps for Employers
While these new laws are effective, they do not impact an ALE’s obligation to:
- Offer affordable, minimum essential coverage meeting minimum value requirements to full-time employees.
- File forms 1094-C and 1095-C with the IRS by the applicable filing deadline.
Employers should:
- Be aware of changes related to using an individual’s birthdate instead of a social security number for filings.
- Work with filing vendors to amend contracts if mail furnishing is no longer required.
- Ensure electronic furnishing systems are in place for notifying individuals about how to access their forms.
- Establish processes to identify and route IRS Letters 226J to the correct department for timely responses.
- Ensure all forms are filed electronically if the company files 10 or more returns with the IRS.
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