IRS Forms 1094-C and 1095-C collect information on health coverage offered by applicable large employers (ALEs). Both these forms are required by the IRS and, if not filed, can result in a significant amount of fines or penalties. If you qualify as an ALE, you must file these forms every year to stay compliant with the Affordable Care Act.
ALEs must file a 1095-C form for every full-time employee (FTE) and a 1094-C to summarize the information from the 1095 forms. In other words, there will be a separate 1095-C form for every employee, but only one 1094-C form every tax year. Keep reading to get an overview of the requirements and the penalties for noncompliance.
What is IRS Letter 5699?
Generally, if you receive IRS Letter 5699 (Missing Information Return Form 1094/1095-C), that means that your business qualifies as an applicable large employer (ALE) and you failed to file the necessary forms required by the IRS. Letter 5699 asks you to confirm your details with the IRS so that the agency can determine if you are in compliance with the ACA rules or not.
After you respond to Letter 5699, the IRS usually sends Letter 5698, letting you know your liability related to Forms 1094-C and 1095-C. Once the IRS assesses a penalty against you, it will generally send you an ACA Employer Mandate non-compliance penalty notice, which is often Letter 3064C. You may also receive Letter 226-J about penalties.
What to Do if You Receive Letter 5699?
If you qualify as an ALE, file both Forms 1094-C and 1095-C as soon as possible. If you believe the IRS is incorrect in its statement that your business is an ALE, respond as soon as possible with a written, formal explanation and include any evidence to support your reasoning.
If you filed your 1094-C and 1095-C forms, compare the EIN on those forms with the EIN on the letter sent by the IRS. If you see discrepancies, you should contact the IRS and let them know that you filed under a different EIN.
Note that it is the responsibility of the business to know whether or not you qualify as an ALE. If you were unaware of your status, you still must meet the ACA compliance rules, and pleading ignorance generally won’t lead to penalty relief. However, the IRS has provisions to help businesses that are transitioning from being small to qualifying as ALEs. An experienced business tax attorney can help defend you against proposed penalties, help you learn about the requirements, and ensure you stay compliant.
Connections to the Affordable Care Act
The IRS uses these forms to track large businesses’ compliance with the Affordable Care Act. These forms provide information that details the coverage for each individual employee and specifics about the health coverage the employer is offering.
The Affordable Care Act was established during the Obama administration to provide reliable and affordable healthcare to all people. The ACA holds large employers responsible for providing their full-time and full-time equivalent (FTE) employees with health insurance or requires them to pay a shared responsibility payment.
Who Needs to File Forms 1094-C and 1095-C?
Businesses that are considered applicable large employers (ALEs) are required to file forms 1094-C and 1095-C. Businesses that qualify as ALEs have over 50 full-time employees, including full-time equivalent (FTE) employees.
ALEs must provide all FTE employees with Form 1095-C and send a copy to the IRS. Employees must be sent these forms by March 1. Then, the employer must also complete Form 1094-C, which provides an overall summary of the coverage offered and the employees who are receiving coverage.
If filing electronically, employers have until April 1st to submit the forms to the IRS, but if they file on paper, the deadline is February 28th. Businesses based in D.C., New Jersey, Massachusetts, California, and Rhode Island must also submit these ACA forms to their state revenue agencies. The due dates vary from state to state.
How to Complete the Required Forms
To complete Form 1095-C, you need contact details and tax ID numbers for your business and your employees. Then, you need to note which months of the year you offered them coverage, details about employee-required contributions, and information on Section 4980H Safe Harbor and other relief.
To complete Form 1094-C, you simply need to consolidate all of the information reports on your 1095-C forms. If you’re part of an aggregated ALE, you must list the business names and EINs of all members of your group.
You can submit these forms either on paper or electronically. If a business has fewer than 250 full-time employees, forms can be submitted on paper, but they must be sent by the end of February. If a business is submitting them electronically, they have until the first of April to do so.
Why Do Employers Need to Fill Out These Forms?
Employers need to fill out these forms to prove to the IRS that they are in compliance with the Affordable Care Act. The goal of the Affordable Care Act was to increase healthcare coverage for all U.S. citizens, and to reach that goal, the act mandated that large employers provide reliable healthcare to their full-time employees and dependants.
The IRS uses these returns to assess compliance and to determine which businesses must pay an employer-shared responsibility payment. ALEs that don’t offer the required insurance to their employees must make this payment. The agency also uses information from these forms to calculate Premium Tax Credits, which are income-based credits to help offset the cost of healthcare premiums.
Penalties For Not Filing Required Forms
The penalty for not filing Form 1095-C or any other informational return due after Dec 15, 2015, is $270 per return, up to a maximum of $3,275,500 per year. Note that this penalty applies for both furnishing and filing. If you don’t furnish the form to your employee, you will incur the penalty, and then you will incur another penalty for not filing the form with the IRS. In other words, you can incur $540 in penalties ($270 times two) for every form that you don’t furnish or file.
Additionally, businesses may incur the shared responsibility payment in two situations, and the penalty is calculated differently in each situation.
- If an ALE doesn’t offer coverage to at least 95% of its employees and at least one FTE employee claims the Premium Tax Credit. Then, as of 2024, the penalty is $2,970 per employee, with the first 30 FTE employees exempt. For instance, an ALE with 100 employees that incurs this penalty will owe $140,000. That’s (100-30)*$2,000
- If an ALE offers coverage to at least 95% of its FTEs and at least one FTE claims the Premium Tax Credit. Then, the penalty is $4,460 per employee who receives the Premium Tax Credit.
Note that these penalties are indexed for inflation. They were originally $2,000 and $3,000, respectively, and they increase every year. Additionally, the IRS calculates these penalties monthly. The above examples were shown on an annual basis for simplification.
Letter 226-J ACA Compliance Penalties
Generally, if the IRS assesses a shared responsibility payment against you, you will receive Letter 226-J. This letter comes with Form 14764, which is due in 30 days, and it lets you respond to the IRS’s proposed penalty. For example, if you think the calculation is incorrect, you should fill out the form with the correct calculation.
What About Forms 1094-B and 1095-B?
The B-series 1094 and 1095 forms are similar in content to the C-series forms. However, these are for self-insured small employers. If you have fewer than 50 FTEs and you provide health insurance to your employees, you may need to provide your employees with Form 1095-B and then file a Form 1094-B summary with the IRS as well.
Get Help Now
If you are having trouble understanding whether or not your business qualifies as an ALE or having any issues understanding the required forms for your company, call the experienced tax attorneys at Wiggam Law. Our team is committed to providing our clients with the best possible guidance and advice for their businesses, and we can help your business back on track with the IRS.
Whether you need help catching up on filing business tax returns, dealing with trust fund recovery penalties, or facing any other business and personal tax problems, we can analyze your unique situation and guide you through the best path forward. To learn more about how Wiggam Law can help you, contact us today to schedule a consultation.