Frequently Asked Questions: Form 1094/1095
1. What codes does an employer use on Line 14 and Line 16 of Form 1095-C for the months an employee is in a limited non-assessment period, but enrolls in coverage?
For most employers, we are finding that the employer should use codes 1E (Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) and spouse) (or 1B/1C/1D/1F, if applicable) and 2C (Employee enrolled in coverage offered).
2. If an employee is hired as full-time mid-month (e.g., Jan 15) and is not offered coverage in that month, what code does the employer use on Line 14 of Form 1095-C for the month of hire? 2B (employee not full-time) because in most cases the employee wouldn’t have worked at an average of at least 30 hours/week (taking into account the entire month)/130 hours total, or 2D (limited non-assessment period)?
Different employers are taking different approaches, and we ultimately think either approach should be acceptable to the IRS. Some employers are using code 2B if the employee did not average 30/hour week based on all weeks in the month or 130 hours total. The code 2D description states that the employer should use that code rather than 2B if the employee is in an initial measurement period, but does not have similar ordering rule for new full-time employees not in an initial measurement period. However, the Instructions to Form 1095-C specifically define “limited non-assessment period” to include an employee’s first calendar month of employment if the employee’s first day of employment is a day other than the first day of the calendar month. Therefore, it also seems reasonable to use code 2D in this scenario.
3. If an employee is hired as FT and has a 90 day waiting period, how does an employer that qualifies for the non-calendar year plan relief report on Line 16 of Form 1095-C for the first three full months of employment – code 2D (limited non-assessment period) or 2I (non-calendar year transition relief)?
Because there is no ordering rule for Code 2I, it appears that the employer has flexibility to use code 2I over other codes (except for 2E and 2C, which have specific ordering rules). However, where an employee is in a limited non-assessment period, it seems preferable to code 2D rather than 2I just in case for some reason the IRS determines that the employer did not in fact qualify for the non-calendar year relief with respect to that employee. This will also ensure that the employee is not taken into account for purposes of the 70% test on Form 1094-C, Part III, column (a) (individuals in a limited non-assessment period aren’t taken into account, but full-time employees for whom the employer qualifies for the non-calendar year relief are).
4. If a company is acquired mid-year in a stock sale (i.e., its pre-sale employees remain its employees post-sale) by an ALE and the acquired company wasn’t an ALE prior to the sale, is it considered an ALE member and thus required to report for the entire year? What if the sale is an asset sale (i.e., its employees become employees of the buyer)?
The IRS has provided almost no guidance regarding how to report in the context of mid-year corporate acquisitions. It seems reasonable to take the position that in the case of an asset sale where the acquired company’s employees become employees of the buyer post-acquisition and the acquired company was not an ALE prior to the sale, the acquired company is not an ALE/ALE member for the months prior to the acquisition (and does not exist post-acquisition) and thus has no reporting obligation. However, in the case of a stock sale, a conservative position would be that the acquired company did become an ALE member for the post-acquisition part of the year, and thus does have a reporting obligation.
5. If an employer is a part of two ALE different groups during the year as a result of a corporate transaction, does it list the other employers in both ALE groups on the Form 1094-C, Part IV? If it only lists the employers in one ALE group, which one?
Neither the regulations nor the instructions to the forms address this situation, and thus, we think the ALE member has flexibility on which approach to use (and, based on the language in Notice 2014-49, the IRS seems to recognize the practical issues that arise in the context of corporate transactions). A literal reading of the instructions could be interpreted to mean that the ALE member should list all controlled group members of both groups. However, that approach will not accurately report the number of controlled group members for any month of the year. For example, if there are 10 other members of one group and 10 other members of the other group, the ALE member will report all 20 employers when it only had 10 other employers in its controlled group for each month of the year. As a result, any 4980H(a) penalty calculation will be incorrect because the 30 (80 in 2015) employee reduction will be spread across 21 employers instead of 11.
Alternative approaches would be to either to (1) report the members of the group in which the employer was a member for the majority of the year or (2) report the members of the group in which the employer was a member on the last day of the year. Of these two options, approach (1) might be preferable since that would accurately report for the majority of the year.
We do not think the ALE member should file two Forms 1094-C because only one can be the authoritative transmittal and Part IV is not supposed to be completed on the non-authoritative transmittal. (If it is completed, there is a chance the IRS will simply ignore that information or the AIR system could reject the filing.)
6. If an employee was covered under non-COBRA coverage for part of the month and, then as a result in a reduction in hours, was covered under COBRA coverage for the rest of the month, what cost of coverage is reported on Line 15 of Form 1095-C? A blended rate?
The best approach appears to be to report a blended rate of the lowest cost self-only coverage offered to the employee and the lowest cost self-only COBRA coverage offered to the employee.
7. We offered an employee (and his spouse and dependents) minimum value coverage, but he declined it. We’re planning on entering Code 1E on Line 14 of Form 1095-C for all 12 months because we made him a valid offer of coverage. Which 2 indicator code should be entered on Line 16 of Form 1095-C?
You likely will be entering either Code 2F, 2G, or 2H on Line 16- the codes that correspond with the “affordability safe harbors.”
Remember that the purpose of Line 16 is to signal to the IRS that no employer mandate penalty is owed with regard to that employee- for whatever reason. Therefore, on Line 16 the employer wants to enter a code that signals to the IRS that no penalty applies with regard to that employee.
If a full-time employee declines coverage, most employers are looking to using one of the “affordability safe harbor” codes- 2F, 2G, or 2H- on Line 16. No penalty could apply with regard to that employee if you made them an offer of coverage that was both affordable and provided minimum value. On Line 14, the employer has (presumably) told the IRS that they’ve made the employee an offer of coverage that met the minimum value standard. So in this scenario, on Line 16 they want to tell the IRS that the offer of coverage was affordable, as well (assuming none of the other codes apply).
Leaving Line 16 blank does not necessarily result in an employer incurring an employer mandate penalty for that month, but if the employee in question happens to be eligible for a premium tax credit for that month, then it will likely trigger a potential penalty in the IRS system. Therefore, it is preferable to enter some Code in Line 16, if one applies.
8. How do we handle Form 1095-C reporting for interns?
Probably the most important concept to keep in mind is that under the employer mandate rules, interns are treated like all other employees. A full-time employee is generally someone who averages 30 hours of service per week (or 130 hours of service per month). An hour of service is generally an hour for which an employee is paid or entitled to payment (including periods during which no work is performed, like vacation, sickness, etc.) Under the general rules, an unpaid intern will not have any hours of service and therefore will not be a full-time employee. But an intern, who is paid, or entitled to payment, for the performance of duties (or for a period of time during which no duties are performed) will have hours of service and could be a full-time employee. That would subject them to employer mandate reporting and you would have to complete a Form 1095-C on his/her behalf.
It is also worth keeping in mind that the employer mandate rules generally allow you to treat seasonal employees as “variable hour” employees under the look back measurement method. (Note: not all interns will be considered seasonal employees under this rule.) If an intern is accurately categorized as a “seasonal employee,” you would only have to report for him/her on Form 1095-C if he/she works for a full initial measurement period and works sufficient hours to be considered a full-time employee.
Similarly, if an intern works less than 3 full calendar months (plus, if he/she starts on a day other than the first of the month, the time period between his/her start date and the 1st of the next month), you may not have to report on him/her. This is because under the employer mandate rules, even if someone is working full-time hours, he/she is generally considered to be in a “limited non-assessment period” for his/her first 3 calendar months of employment (plus, if he/she starts on a day other than the first of the month, the time period between his/her start date and the 1st of the next month). If a full-time employee does not work outside of his/her limited non-assessment period, there is no obligation to file a Form 1095-C on his/her behalf.
9. We are a PEO and have a large client that transitioned from a different PEO effective June 1. Will the client’s former PEO be responsible for filing Forms 1095-C for the client for January though May? Or will we have to get the information regarding January through May from them and include that date on the Forms 1095-C we will submit?
The instructions for Form 1095-C state: “For each full-time employee of an employer, there must be only one Form 1095-C filed for employment with that employer.” Most PEOs take the position that the employer mandate requirement (and related reporting requirement) apply at the client employer level, not the PEO level. Therefore, there can only be one Form 1095-C for each employee under these circumstances (reflecting the client employer information) and it will have to incorporate data for the entire year (including the period during which the former PEO had the relationship with the client employer).In theory, there could be multiple Forms 1094-C for the employer. For example, the former PEO could prepare Forms 1095-C for anyone who was employed at the beginning of the year but terminated prior to the transition, and the client employer could then file those with the IRS with a Form 1094-C. However, there would still need to be one or more additional transmittals for Forms 1095-C relating to all other full-time employees (including those who worked for the client employer when the former PEO was providing services, but continued to work post-transition), including an “authoritative transmittal” summarizing the entire filing for the year, so as a practical matter this approach may not be workable.
10. We are a PEO and have a large client that transitioned from a different PEO effective June 1. The client’s coverage when they were working with the former PEO was self-insured, but when they transitioned to our PEO their coverage became fully insured. Does the client only have to complete Parts I and II of Form 1095-C?
If the client was self-insured when with the former PEO, Part III of the Form 1095-C will have to be completed to reflect the months in which the individual was actually enrolled in the self-insured coverage. So if an employee was enrolled in coverage for all 12 months- January through June under the arrangement with the former PEO, and July through December through a fully-insured arrangement with the current PEO- Part III of the employee’s Form 1095-C would reflect that he was in enrolled in coverage for January through June. (The employee will also get a Form 1095-B from the insurance carrier providing the coverage, which will reflect that he was enrolled under that carrier’s insured arrangement for July through December.) On Part II, Line 16 of the employee’s Form 1095-C, Code 2C will presumably be entered for all 12 months (reflecting that Joe was enrolled in coverage offered by the employer).