The IRS recently released final instructions for the 2016 Forms 1094 and 1095. Highlights of the changes and clarifications included in the final instructions are provided below. While a of the few items are “neutral” and merely reflect pre-programmed changes under the Affordable Care Act that were already known and set to occur, many of the changes and clarifications are welcome news.
Form 1094-B Highlights
There are no substantive changes for 2016.
Form 1095-B Highlights
- The statement, “Do not attach to your tax return. Keep for your records.” was inserted underneath the main heading, suggesting that the form will continue to not be required for direct substantiation purposes as part of a personal income tax filing in the future.
- Part I, Lines #2 and #3 and Part IV, columns (b) and (c) have been updated to reflect that TINs may be substituted for SSNs.
- Part I, Line #9 is now reserved and will not be used in 2016. Line #9 was previously used to enter the Small Business Health Options Program (SHOP) marketplace identifier, if applicable.
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Form 1094-C Highlights
- Part II, Line #22, Box B – Box B is now marked “Reserved” and will not be used in 2016. Box B previously represented the 2015 Qualifying Offer Transition Relief.
- Part II, Line #22, Box C and Part III, Column (e) – Box C and Column (e) continue to reflect two forms of transition relief. For 2016, this transition relief only applies to employers with non-calendar year health plans for the portion of the 2015 – 2016 plan year that falls during 2016.For example, an employer whose health plan operates on a July 1st – June 30th plan year can qualify for the transition relief for the months of January through June 2016. If an employer offers coverage under health plans with different plan years (e.g. January 1st and July 1st), the latest of the plan years is used to determine transition relief.
- 50 – 99 FTE Transition Relief – An employer that qualifies for this relief may still avoid assessable payments for the months of the 2015 – 2016 plan year that fall during 2016.
- Assessable Payment Transition Relief – An employer may continue to subtract 80 full-time employees (pro-rated across an Aggregated ALE Group) from a Section 4980H(a) assessable payment penalty for the months of the 2015 – 2016 plan year that fall during 2016. The number of full-time employees that may be subtracted from a 4980H(a) assessable payment penalty is 30 for the remaining months in 2016 that fall in the 2016-2017 plan year.
3. Part III, Column (a) – Marking “Yes” in Column (a) now means minimum essential coverage (MEC) was offered to at least 95% of an employer’s full-time employees and their dependents (up from 70% in 2015).
Note: The Section 4980H(a) penalty has risen to $2,160 per full-time employee for 2016. This penalty is triggered if an employer fails to offer MEC to at least 95% of full-time employees for any month and at least 1 full-time employee qualifies for subsidized coverage in the health insurance marketplace.
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Form 1095-C Highlights
- The statement, “Do not attach to your tax return. Keep for your records.” was inserted underneath the main heading suggesting that the form will continue to not be required for direct substantiation purposes as part of a personal income tax filing in the future.
- Part II, Plan Start Month – The use of the two digit number to indicate the beginning of a health plan’s plan year (e.g. 01 for January, 07 for July) remains optional for 2016.
- Part II, Line #14 – The instructions indicate Line #14 should never be left blank and there are also three code indicator changes for 2016:
- Code 1I – 1I is now marked “Reserved” and will not be used in 2016. 1I previously represented the 2015 Qualifying Offer Transition Relief.
- Codes 1J/1K – These are used to reflect whether an offer of MEC to a spouse is conditional such as whether a spouse’s eligibility for coverage is contingent on whether the spouse has access to coverage through his or her own employer or Medicare.
The instructions do not explicitly address whether the use of a spousal surcharge if other employer coverage is available is a conditional offer, but we believe they suggest that a spousal surcharge is not a conditional offer since the spouse will still be eligible for enrollment and only the cost of coverage may vary. Line #15 reflects the required contribution for employee-only coverage in the lowest cost plan option making a spousal surcharge irrelevant for reporting purposes, and affordability is still based on the cost of employee-only coverage for covered family members.Code 1J reflects the offer of MEC did not include dependent children (which is a penalty assessment issue), while Code 1K reflects the employee’s dependent children were also offered MEC.
Note: The 1J/1K Codes help address an unexpected 2015 issue:
(i). An individual had access to coverage through their own employer (Employer A) that was unaffordable or did not meet minimum value requirements, and
(ii). The individual’s spouse had access to other employer coverage (through Employer B) that was affordable to the employee, met the minimum value requirements, and permitted enrollment by employees’ spouses, but
(iii). Spouses were not eligible if coverage was available through a spouse’s own employer.
Employer A’s coverage opened a door to potential subsidy eligibility for the individual that Employer B’s coverage appeared to close (as access to affordable, minimum value MEC by that individual), except that the individual did not really have access to Employer B’s conditional coverage under these circumstances. The individual could resolve the issue through an appeal to the marketplace which is now better supported by the 1J/1K codes.
4. Part II, Line #15 – Line #15 has been renamed “Employee Required Contribution (see instructions)” from “Employee Share of Lowest Cost Monthly Premium, for Self-Only Minimum Value Coverage”.
5. Part II, Line #16 – There are minor changes for 2016:
- Code 2I – 2I is now marked “Reserved” and will not be used in 2016. 2I previously represented the non-calendar year transition relief for non-calendar year plans. Non-calendar year transition relief can still apply to employer reporting for penalty purposes on Form 1094-C (#2 under Form 1094-C highlights above), but it no longer applies to reporting offers of coverage made to employees.
- Codes 2F/2H – The instructions state that 9.66% may be used as the affordability safe harbor in 2016.
6. Part II, Retirees – The instructions confirm that retirees should be reported the same as COBRA participants who have separated from employment.
7. Part II, Multiemployer Interim Relief – The instructions indicate that the multiemployer interim relief from 2015 will continue to apply for 2016 and that Code 1H/2E reporting combination should be used to reflect it.
8. Part III, columns (b) and (c) have been updated to reflect that TINs may be substituted for SSNs (for covered individuals other than the employee).
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Filing Dates and Extensions
- To the IRS – The 2016 Form(s) 1094 and accompanying Forms 1095 must be filed electronically with the IRS by March 31, 2017 (February 28, 2017 if paper filing may be used). An automatic 30-day extension is available if filed by/before the due date. Another 30-day extension may be requested for cause.
- To Employees/Individuals – The 2016 Forms 1095 must be provided to employees by January 31, 2017. A 30-day extension may be requested for cause.
Substitute Reporting Formats
- Both sets of instructions indicate that substitute forms complying with the content requirements may be provided to recipients in portrait layout, but substitute paper forms filed with the IRS must be in landscape layout.
- Although not new information in the 2016 Form 1094-C/1095-C instructions, there have been a number of questions regarding how to file corrected Forms 1095-C. When one or more Forms 1095-C filed with the IRS were incorrect but the Form 1094-C was otherwise correct:
- Corrected Forms 1095-C with “corrected” marked at the top should be filed with the IRS and must be accompanied by a portion of the “original” Form 1094-C.
- The accompanying “original” Form 1094-C should not be marked as an authoritative transmittal. Instead, only Part I and the signature block of Form 1094-C should be completed. Line #18 should reflect the number of corrected Forms 1095-C attached and the answer to Line #19 is “no”. Parts II, III, and IV should be blank, and the “original” Form 1094-C should not be marked “corrected” at the top.
- The corrected Form 1095-C must be provided to the employee if they were earlier provided the incorrect form.
- The final instructions are available here.
- The 2016 Form 1094-B is available here.
- The 2016 Form 1095-B is available here.
- The final instructions are available here.
- The 2016 Form 1094-C is available here.
- The 2016 Form 1095-C is available here.