The IRS recently released its draft 1094-C and 1095-C instructions for the 2021 tax year. We’ve identified the changes below.
It appears that Form 1094-C will remain the same, but the instructions do include two new codes for use on Line 14 of the Form 1095-C: 1T and 1U.
According to the draft instructions, the 1T code is for use when the applicable individual and their spouse receive a Health Reimbursement Arrangement (HRA) offer of coverage from the employer, where the affordability was determined using the employee’s primary residence zip code. It should be noted that this code excludes dependents as recipients of the HRA coverage extended.
The 1U code is similar to the 1T code but uses different criteria for determining affordability. Specifically, the instructions state that the 1U code should be used when an applicable individual and their spouse receive an HRA offer of coverage from the employer where the affordability was determined using the employee’s primary employment site zip code affordability safe harbor. Again, this code excludes the individual’s dependents as recipients of HRA coverage.
Also included in the Form 1095-C instructions are new Line 14 codes 1V, 1W, 1X, 1Y, and 1Z, all of which are reserved for future use. Between now and when the final instructions are released it is possible that one or more of these codes be put to use for particular offers of coverage situations.
Employers should also note that the codes first introduced during the 2020 tax year are present in the draft instructions for the 2021 tax year. For a refresher on the 2020 1095-C codes, head to our post, The New 1095-C Codes for 2020 Explained. If your organization needs a thorough explanation of the original 1095-C codes, head to our post, The Codes on Form 1095-C Explained.
Both the 1T code and the 1U code refer to HRA coverage. HRAs are specific account-based health plans that employers can offer to their workforce for more control over health-related costs and medical expenses. These non-taxed reimbursements are offered to employees to help pay for monthly health insurance premiums and other health insurance-related costs.
Organizations were first allowed to extend HRAs as qualifying offers of coverage as required by the ACA’s Employer Mandate as part of Executive Order No.13813. The executive order was introduced in 2019 under the Trump administration and applied to plans beginning January 2020.
Employers are required to populate Form 1094-C and Forms 1095-C and submit their ACA reporting information to the IRS annually, as required by the Employer Mandate.
Under the ACA’s Employer Mandate, Applicable Large Employers (ALEs), or employers with 50 or more full-time employees and full-time equivalent employees are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.
Organizations that do not comply with the ACA’s Employer Mandate may be subject to IRS penalty Letter 226J, which the IRS will start issuing for the 2019 tax year any day now. The agency is already issuing Letter 5669, the precursor penalty notice, for the 2019 tax year.
Even if your organization is in compliance with the healthcare law’s employer responsibilities, you need to be sure your populating Form 1094-C and Forms 1095-C correctly, as a recent Treasury Inspector General for Tax Administration (TIGTA) report recommended that the agency issue penalty assessments to organizations that complied with the Employer Mandate but failed to correctly report their ACA information.
If you need assistance meeting the requirement of the ACA’s Employer Mandate, download The 2021 ACA Essential Guide for Employers to learn what your organization must do to minimize risk and maximize compliance.
For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.