Final Rule Provides Permanent Automatic Extension of Time to Furnish Certain Affordable Care Act Tax Forms
SARAH KANTER, December 21, 2022
On December 12, 2022, the Treasury Department (“Treasury”) and the Internal Revenue Service (IRS) released a “Final Rule” that automatically extends the timeframe for employers and other reporting entities to furnish IRS Forms 1095-B and 1095-C to individuals, regarding their health coverage each year, to March 2 of the following year (March 1 if a leap year). The Final Rule also provides an alternate method for furnishing Form 1095-B (but not Form 1095-C). This Final Rule is effective for calendar years beginning after December 31, 2021, so will apply to the furnishing of forms required for the 2022 calendar year.
The Patient Protection and Affordable Care Act (ACA) went into effect on March 23, 2010, and contained, among many other things, two mandates intended to reshape the healthcare landscape in the United States — the individual mandate and the employer mandate. The individual mandate required individuals, beginning in 2014, to hold “minimum essential coverage”1 or pay a “shared responsibility” penalty. The individual mandate was effectively eliminated in 2017 with the passage of the Tax Cuts and Jobs Act of 2017 (“Tax Cuts and Jobs Act”) which zeroed out the shared responsibility penalty, although it did not eliminate the requirement for individuals to maintain minimum essential coverage. However, as discussed below, a small number of states have implemented their own version of the individual mandate which may include reporting and furnishing requirements. The employer mandate, which became effective in 2015,2 applies to “applicable large employers”3 and can subject those employers to a shared responsibility penalty if the employer fails to offer minimum essential coverage that is “affordable”4 and provides “minimum value”5 to its full-time employees (and their dependents).6 The ACA created new Internal Revenue Code (“Code”) provisions containing various reporting requirements to assist the IRS in the enforcement of the individual and employer mandates (described below).
Code Section 6055 is used to enforce the individual mandate and requires entities (e.g., health insurers or multiemployer trusts) that provide minimum essential coverage to an individual to report certain information to the IRS and to furnish a statement to the “responsible individual”7 with the same information. IRS Forms 1094-B and 1095-B are used for this purpose, with Form 1095-B being the form that is furnished to individuals. Applicable large employers that provide self-funded health coverage to their full-time employees must use Part III of Form 1095-C to report this information instead of Form 1095-B. Applicable large employers who provide self-funded health coverage to part-time employees or non-employees may use either Part III of Form 1095-C or Form 1095-B for this purpose.
Code Section 6056 is used to enforce the employer mandate and requires applicable large employers to file information returns annually with the IRS and to furnish written statements to the employee with respect to the health coverage it offered to its full-time employees. Forms 1094-C and 1095-C are used for this purpose, with Form 1095-C being the form that is furnished to employees.
The statutory deadline for filing these forms with the IRS is February 28 (or March 31 if filed electronically) of the following year. The statutory deadline for furnishing these forms to applicable individuals is January 31 of the following year. Statements must be furnished to the applicable individual, and generally must be furnished on paper by mail (or hand-delivered), unless the recipient affirmatively consents to receive the statement in an electronic format. If mailed, the statement must be sent to the recipient’s last known permanent address, or, if no permanent address is known, to the recipient’s temporary address. Failure to timely furnish or file an information return can subject an entity to certain penalties under the Code.
In recognition of the short turnaround time (i.e., one month) to prepare and furnish the statements, the IRS has, every year the mandates have been in effect, provided an automatic extension for entities to furnish the forms to individuals.
In 2021, the IRS proposed regulations which, if finalized would (among other things) grant reporting entities an automatic extension of time (not to exceed 30 days after January 31) in which to furnish the statements, and would also provide an alternate method for furnishing Form 1095-B to the responsible individual.
The Final Rule
The Final Rule largely adopted the proposed rule with few changes. As noted above, the Final Rule contains two key changes to ACA reporting requirements: (1) an automatic extension of time to furnish Forms 1095-B and 1095-C to the applicable individual; and (2) an alternate method for furnishing Form 1095-B (but not Form 1095-C). Each change is described below.
Permanent Automatic Extension of Time to Furnish Forms
Employers and other reporting entities are given an automatic extension of time (not to exceed 30 days after January 31) to furnish the 1095-B and 1095-C to individuals. These forms will now need to be furnished on March 2 of the following calendar year (March 1, if it is a leap year). For example, for the 2022 calendar year, Forms 1095-B and 1095-C will need to be provided to applicable individuals by March 2, 2023.
Alternate Method to Furnish Form 1095-B. The Final Rule also provides an alternate method that reporting entities (e.g., health insurance carriers, etc.) can use to furnish Form 1095-B to the responsible individual. The Final Rule permits a reporting entity to post a clear and conspicuous notice on the entity’s website in a location that is reasonably accessible to the individual. The notice must:
- state that individuals may receive a copy of their statement upon request;
- include an email address, a physical address to which a request may be sent, and a telephone number that individuals may use to contact a reporting entity with any questions; and
- be written in plain, non-technical terms and with letters of a font size large enough, including any visual clues or graphical figures, to call to a viewer’s attention that the information pertains to tax statements reporting that individuals had health coverage.
A reporting entity must post the notice on its website by March 2 (March 1 in a leap year) of the following calendar year and retain the notice in the same location on its website until October 15. The reporting entity must provide a Form 1095–B within 30 days of receipt of the responsible individual’s request.
The alternate manner of furnishing will apply only to taxable years when the individual shared responsibility payment remains zero (in other words, if a future law reinstates a penalty associated with the individual mandate, the alternate method of furnishing will no longer apply). The preamble to the Final Rule explains that the rationale for this alternate method is that the Tax Cuts and Jobs Act effectively mooted the primary purpose for which individuals would need a Form 1095-B (by zeroing out the penalty). This alternate method does not apply to the furnishing of Form 1095-C. Also, as noted above, this would not apply to applicable large employers who provide self-funded health coverage to their full-time employees, as employers must report this information on Part III of the 1095-C, and the alternate method does not apply to the furnishing of the 1095-C. See below for a discussion of the requirement to furnish this information in states that maintain their own version of the individual mandate.
State Reporting / Furnishing Requirements
A small number of states have their own individual mandate, and thereby their own furnishing and reporting requirements. States with their own version of the individual mandate include California, Massachusetts, New Jersey, Rhode Island, and Vermont, as well as the District of Columbia. In the preamble to the Final Rule, Treasury and the IRS note that they have no authority over state reporting and furnishing requirements, and whether state deadlines for filing or furnishing will align with the Final Rule is a matter of state law. For example, in California the deadline to furnish information to individuals regarding their health coverage is January 31, but the Franchise Tax Board has stated that it will not impose a penalty for a failure to furnish this information by that date. Employers and other reporting entities located in a state with an individual mandate should review the requirements in their state with regard to the deadline (if any) to furnish information regarding health coverage to individuals, and determine whether or not the new alternate method of furnishing Form 1095-B, as described above, would satisfy state requirements.
1 Minimum essential coverage includes most kinds of health coverage such as employer sponsored coverage, government sponsored coverage and individual health insurance. Code Section 5000A(f)(1).
2 The employer mandate was initially effective in 2014, but its enforcement was delayed until 2015.
3 An “applicable large employer” generally means with respect to a calendar year, an employer who employed an average of at least 50 full-time employees during the preceding calendar year. Code Section 6056.
4 Employer-provided coverage is considered affordable for an employee if the employee required contribution is no more than 9.5 percent (adjusted annually, 9.12% in 2023) of that employee’s household income. In general, the employee required contribution is the employee’s cost of enrolling in the least expensive coverage offered by the employer that provides minimum value.
5 A plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan and provides substantial coverage of inpatient hospitalization services and physician services..
6 There are two kinds of employer mandate penalties: (i) the penalty under Code Section 4980H(a) (also known as the “sledgehammer penalty”) which can apply if the employer fails to offer minimum essential coverage to 95% of its full-time employees (and their dependents) and at least one of those employees receives a premium tax credit to help purchase coverage on the Health Insurance Marketplace; and (ii) the 4980H(b) penalty which applies if the employer does offer coverage to at least 95% of its full-time employees (and their dependents), but at least one full-time employee receives a premium tax credit to help purchase coverage on the Health Insurance Marketplace.
7 The “responsible individual” is the person who, based on a relationship to the covered individuals, the primary name on the coverage, or some other circumstances, should receive the statement. Generally, the statement recipient should be the primary taxpayer, if that person is known.