On November 22, 2021, the Internal Revenue Service (IRS) published proposed regulations that introduce significant changes to the Affordable Care Act (ACA) reporting process for both large and small employers. These changes specifically impact the Form 1095-B and Form 1095-C distribution deadline and good faith transition relief.
Automatic Extension to the Distribution Deadline
Section 6055 and 6056 of the ACA reporting regulations require that employers furnish Forms 1095-B and/or Forms 1095-C to employees no later than January 31st of the year following the applicable calendar year. In other words, under the formal rules, forms for the 2021 calendar year need to be distributed by January 31, 2022. However, since 2015, the IRS has consistently extended this deadline, typically by 30 days. In 2020, the IRS requested comments about this extension while also indicating that they would not continue to offer such relief for future filings.
In response to various concerns commenters submitted about the reporting requirements, and contrary to the warning they issued in 2020, the IRS issued an automatic 30-day extension to the January 31 filing deadline in the proposed regulations. This rule will apply to reporting for the 2021 calendar year and is likely to be made permanent thereafter when the regulations are finalized.
Under these rules, forms will be considered timely as long as employers furnish them to employees no later than 30 days after January 31st. In cases where the 30th day following the standard deadline falls on a weekend or legal holiday, employers must distribute forms to employees no later than the next business day. This automatic extension indicates that forms furnished after the 30-day grace period will be considered late (and subject to corresponding penalties), and that employers will not be able to request additional time past the 30 days to furnish forms to employees.
While this automatic extension offers considerable relief to employers, groups must keep in mind that individual state reporting requirements may conflict with this change. Specifically, the State of California currently requires employers to distribute forms to California residents no later than January 31st, regardless of any Federal extension. Thus, despite the proposed extension, pending any changes to California rules, employers that have applicable employees who reside in California should strive to furnish these forms by the original deadline. It is also notable that the proposed regulations do not extend the March 31st deadline for e-Filing forms with the IRS.
Good Faith Transition Relief Eliminated
Since 2015, the IRS has also provided good faith transition relief to ACA reporting. This relief has shielded employers from penalties for incorrect and/or incomplete ACA filings, provided that the employers have made a “good faith effort” (tried their best) to comply with the requirements.
The proposed regulations confirm the IRS’s indication that they would not extend this transition relief past 2020: good faith transition relief will not be available for the 2021 ACA filing, nor for any subsequent filing year. This change will make it much harder in the future for employers to avoid ACA penalties based on incorrect filings.
How Do these Regulations Impact Employers?
It is more important now than ever that employers strive to ensure their initial submissions to the IRS are accurate and complete. This means employers not only need to file, they also need to “get it right”—from minute details such as employee name and SSN to critical information about employee eligibility and lowest-cost contributions.
Employers who submit erroneous filings now face a much higher risk related to inaccurate/incomplete information return penalties, up to $280 per form for 2021, which is typically doubled to account for the error that was both furnished to the employee and e-Filed with the IRS. These penalties are in addition to, not in lieu of, the ACA’s employer mandate penalties that are often triggered by erroneous filings. The IRS does accept corrections filings that rectify ACA submissions; however, for any such filing submitted for 2021 or beyond, this could lead to an automatic information return penalty.