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Every year Applicable Large Employers (“ALEs”) must file Forms 1094-C and 1095-C with the IRS and furnish Forms 1095-C to employees considered full-time under the Affordable Care Act (“ACA”).
Forms 1094-C and 1095-C are used in combination with the IRS automated Affordable Care Act Compliance Validation (ACV) System to determine whether an ALE owes a payment under the Employer Shared Responsibility Provisions under IRC Section 4980H. The IRS can also identify which ALEs have not filed or furnished their information returns, resulting in penalties under IRC Sections 6721/6722.
When populating Form 1095-C, employers are communicating a lot of information through a series of codes on Lines 14 and 16. It is incredibly important for an employer to have documentation supporting the codes they are using when populating the Forms 1095-C. Below is a general breakdown of the different codes that could be entered on Lines 14 and 16 of Form 1095-C for tax years after 2015.
On Line 14, employers must indicate the type of coverage offered to an employee for a specific tax year.
1A: This code indicates that a Qualifying Offer was made and it complied with the responsibilities of the ACA’s Employer Mandate regarding Minimum Essential Coverage, Minimum Value, and affordability for a dependent to enroll. This code indicates a positive message to the IRS.
1B: A 1B code communicates to the IRS that the type of coverage offered met both Minimum Essential Coverage and Minimum Value, but was only offered to the employee and not their dependents. This code could expose employers to IRS penalties.
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1C: The 1C code communicates that Minimum Essential Coverage and Minimum Value health coverage was offered to the employee and their children, but not the spouse.
1D: This code indicates that Minimum Essential Coverage and Minimum Value health coverage was offered to the employee and the spouse, but not to their children.
1E: A 1E code communicates that Minimum Essential Coverage and Minimum Value health coverage was offered to the employee, their dependents, and their spouse. It is important to note the difference between codes 1A and 1E, which is that code 1E may indicate an offer of coverage was not considered affordable, or was affordable under an applicable IRS safe harbor—excluding the federal poverty line safe harbor.
1F: This type of code indicates to the IRS that the coverage offered only met Minimum Essential Coverage and not Minimum Value.
1G: The 1G code indicates that coverage was extended to an employee when they were not full-time under the ACA. That means under no circumstances should an individual have a 1G code on line 14 of the 1094-C for 12 months as only full-time employees are required to be reported on.
1H: This code could potentially be the most damaging for an employer as it communicates to the IRS that an offer of coverage was not made or that it an offer of coverage was made but did not provide Minimum Essential Coverage.
In addition to Line 14, employers must enter codes on line 16 which provide additional context around the type of coverage offered or why an offer was not made. Below are the different codes that can be entered on line of the 1095-C:
2A: This code is simple; it means that the employee was not employed. It typically is seen with an accompanying 1H on line 14.
2B: The 2B code means that the employee was not full-time.
2F: The 2F code indicates the W-2 safe harbor was used for determining affordability for the employee. Employers should note that if this safe harbor was used, it is the only safe harbor code used for this particular employee for this specific reporting year.
2G: The 2G code indicates that the Federal Poverty Line safe harbor was used for proving that the coverage offered was affordable.
2H: The 2H code indicates that the Rate of Pay safe harbor was used for proving that the coverage offered was affordable.
2C: This code means the employee enrolled in the coverage offered and regardless of whether or not the coverage offered complied with the ACA. An employer should use this code if there is a choice between 2C and another code and either could be used in good faith.
2E: The 2E code indicates multi-employer relief. This code is typically used if some portion of the workforce is unionized and has an established multi-employer plan.
Employers unsure of the coding in their ACA information returns should undergo an ACA Penalty Risk Assessment to learn of their potential IRS penalty exposure.
To gain invaluable insights on penalty amounts, affordability percentages, filing deadlines, expert tips for responding to penalty notices, and proven strategies for minimizing IRS penalty risk, download the ACA 101 Toolkit.