The new year is off to a good start for plan sponsors required to distribute Forms 1095-B and 1095-C under the Affordable Care Act (ACA). Congress passed two new laws – the Paperwork Burden Reduction Act and the Employer Reporting Improvement Act – which together ease compliance burdens for plan sponsors. These changes include:
- Alternative manner of furnishing Forms 1095-B and 1095-C to employees upon request: Entities required to furnish Forms 1095-B and 1095-C to employees may now provide these statements upon request only. These statements no longer have to be furnished to employees automatically.
- Statutory changes to electronic delivery of Forms 1095-B and 1095-C: The duration of consent to electronic delivery of statements lasts until the employee revokes consent in writing. Regulations require the consent to state the scope and duration of consent, but this statutory change allows the consent to be valid until withdrawn in writing.
- More time to respond to penalty assessment letters from the IRS: Certain large employers now have more time – 90 days rather than 30 days – to respond to letters from the IRS that propose to assess an employer shared responsibility payment (ESRP).
- Fixed statute of limitations for ESRP assessments under Code Section 4980H: Congress set a six-year statute of limitations for the IRS to assess the ESRP penalty.
- Codifies the birthdate substitution for TINs: Congress made the flexibility for using a full name and birthdate instead of the taxpayer identification number (TIN) on Forms 1095-B and 1095-C a statutory provision rather than just regulatory provision.
We focus on what these changes mean under the ACA for large employers, which typically file and furnish Forms 1095-C to report information on employer-provided health insurance offerings and coverage. However, these changes also apply to reporting entities for Forms 1095-B (e.g., insurers and employers sponsoring self-insured plans).
Current Law
Under the ACA, applicable large employers (ALEs) – or large employers who have employed an average of at least 50 full-time equivalent employees in the prior year – are required to provide Form 1095-C to all full-time employees. Employers of all sizes with self-insured plans must also provide the form to all employees enrolled in the employer’s health plan, regardless of full-time status. Although employers have the option to either mail these statements or furnish them electronically, employers must distribute them automatically. Electronic delivery requires employee consent, and one of the consent requirements is to define the scope and duration of the consent. This can result in the employee limiting the consent to, for example, only the upcoming Form 1095-C, or to a span of 12 months. The difficulty of managing the consent requirements (e.g., different durations for each employee) has resulted in many ALEs choosing to mail these forms to their employees. In either case, automatic distribution must be done by January 31 each year (or March 1, if using an extension).
ALEs also send these Forms 1095-C to the IRS, which in turn uses some of that information to determine whether to assess an ESRP penalty against the employer. If that happens, the IRS sends a letter to the ALE informing the employer of the potential penalty (these are called 226-J letters). These letters usually include a response form that must be returned to the IRS within 30 days, which can be a tight turnaround time if the letter takes a while to move through the employer’s organization and get into the hands of someone authorized to reply. Failure to respond by the deadline could result in the IRS assessing the penalties against the employer. Although the IRS grants extensions for these responses when the request is made within the 30-day period, employers are at risk of not getting an extension for requests made after the 30-day deadline.
ALEs also never know when they may receive a 226-J letter from the IRS for a given year proposing an ESRP assessment because, according to the IRS, there is no statute of limitations for assessing the ESRP. Not knowing when an assessment of ESRP may be proposed from a prior year can affect the employer’s standard record retention policies and procedures.
Changes in 2025
Under the newly enacted laws, ALEs have a substantially reduced burden for distributing Form 1095-C to employees and have much more breathing room to respond to 226-J letters from the IRS. Changes include:
- Alternative manner of furnishing statements. ALEs now have an alternative to automatically providing Form 1095-C to employees by January 31. Instead of automatically furnishing the statement, either by mail or electronic delivery (if consent has been obtained), ALEs can now provide the statement upon request. ALEs will be treated as providing the Form 1095-C timely so long as:
- The employer “provides clear, conspicuous, and accessible notice” to employees entitled to receive the Form 1095-C that they can request a copy of it.
- The employer satisfies the request for the statement no later than the later of:
- January 31 of the year following the calendar year for which the return was required to be made, or
- 30 days after the date of the request.
The ALEs would still have to mail the Form 1095-C to the employee requesting the statement unless the employee consented to electronic delivery.
Effective date: This alternative manner of furnishing statements is available for statements for returns for calendar years after 2023, which includes 2024 Forms 1095-C. Although Congress deferred the time and manner of the required notice to the Secretary of the Treasury, a good-faith compliance standard would likely apply until further guidance is provided.
Practice Pointer: Until the IRS provides further guidance on the time and manner of notice, ALEs wishing to use this alternative manner for distributing their 2024 Forms 1095-C may want to look at regulations for similar notice provisions for guidance. For ALEs with self-insured plans, the IRS already provides an alternative manner of furnishing Form 1095-C to covered nonemployees and covered employees who were not full-time employees at any time during the year. Under those regulations, the notice requirement is met if the reporting entity posts the notice prominently in a location on its website that is reasonably accessible to all individuals entitled to receive the form stating that they may receive a copy upon request. The notice must include an email address and a physical address to which a request may be sent, as well as a telephone number for questions. The regulations also require the notice to be retained in the same location on the ALE’s website through October 15 following the calendar year to which the statements related (or the first business day after October 15, if October 15 is not a business day).
- Proper electronic consent is valid until it is revoked. Under the current regulations, consent from employees for electronic distribution of the Form 1095-C must state the scope and duration of the consent. Under the new statutory provision, an individual is deemed to have consented to receive the Form 1095-C in electronic form if they have affirmatively consented “at any prior time” to the employer (or to the entity required to provide the Form 1095-C). The consent is valid until the individual revokes the consent in writing.
Effective date: This change applies to Forms 1095-C due after December 31, 2024.
- More time to respond to ESRP assessment letters. ALEs now have 90 days, instead of just 30 days, to respond to the “first letter” (i.e., the 226-J letter) from the IRS proposing an assessment of the ESRP against the employer. The new law does not indicate whether an ALE can still request an extension beyond 90 days.
Effective date: This change applies to assessments proposed in taxable years beginning after December 23, 2024.
- Six-year statute of limitations ESRP assessments under Code Section 4980H. Congress added a six-year statute of limitations on assessments of the ESRP under Code Section 4980H. The six-year period begins on the due date for filing the return or, if later, the date the return was filed for the calendar year for which the ESRP penalty is determined.
Effective date: This change applies for returns due after December 31, 2024. Note that this change does not necessarily affect the IRS’s position on the statute of limitations for prior years.
- Codifies the birthdate substitution for TINs. Congress made the flexibility for using a full name and birthdate instead of the TIN on Forms 1095-B and 1095-C a statutory provision rather than just a regulatory provision. Regulations already permitted the birthdate rather than the TIN to be used if “reasonable efforts” had been made to obtain the TIN. The statutory language states that if the person required to make a return “is unable to collect information on the TINs,” the Secretary of the Treasury “may allow” the individual’s full name and birthdate to be substituted for the TIN (note the discretionary wording of “may allow” rather than “shall allow”).
Effective date: This statutory change applies for returns with due dates after December 31, 2024, although technically it is already permitted under the regulations.
If you have any questions about these changes, contact your employee benefits counsel.
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