IRS Releases Draft of Forms 1094-C and 1095-C for ACA Reporting

On July 13, 2020, the IRS released Drafts of the Forms 1094-C and 1095-C for tax year 2020 Affordable Car Act (“ACA”) reporting. The Form 1094-C has remained the same as previous years, but there have been some significant changes to the Form 1095-C. In Part II of the Form 1095-C, the IRS has added two new fields: “Employee’s Age on January 1” in the top portion of Part II, as well as Line 17, “Zip Code”.  Additionally, there were new codes added to Line 14, “Offer of Coverage,” labeled 1K through 1S.  These changes were made in response to the Departments of Health and Human Services, Labor, and Treasury’s final ruling, “Promoting Healthcare Choice and Competition Across the United States”, which now allows companies to offer Individual Coverage Health Reimbursement Arrangement (“ICHRAs”) to their employees, to be used in combination with nongroup coverage.   ICHRAs are a type of Health Reimbursement Accounts (“HRAs”).  The coding on Form 1095-C for companies using ICHRAs (a type of HRAs) is complex and requires significant modification to the existing software platforms and service offerings for ACA. 

An HRA is an account-based health plan that allows employers to offer a monthly allowance, tax-free, to employees, which can be used to reimburse qualified out-of-pocket medical expenses including reimbursement for the monthly cost of individual plans through the Marketplace or private insurance companies. Currently, there are four types of HRAs:

HRA Integrated with Employer-Sponsored Health Coverage – An integrated HRA, is an HRA that is offered with another group health plan, that on its own meets the ACA requirements. 

This type of HRA is typically linked with a high deductible health plan.

Individual Coverage HRA (ICHRAs) – If an employer offers employees an individual coverage HRA, Employees and their dependents must be enrolled in individual health insurance coverage before being eligible for any reimbursements under the Individual Coverage HRA.  

Qualified Small Employer HRAs (QSEHRA)– Small Employers, non-applicable large employers, who don’t offer group health plans to their employees can help employees pay for medical expenses through a QSEHRA.

Excepted Benefit HRA (EBHRAs) – The Excepted Benefit HRA offers employers of any size an opportunity to use pretax money to reimburse certain limited expenses such as, vision, dental or other benefits that would not fall under the ACA required covered health benefits. Companies offering EBHRAs must also offer group health coverage. Employees do not need to enroll in the group health plan to participate in the excepted benefit HRAs.  An employer cannot offer both an excepted benefit HRA and an ICHRA to the same employee.

As of January 1st, 2020, Individual Coverage HSAs (ICHRAs) is an option for companies to meet the ACA regulation of Minimum Essential Coverage (“MEC”) for Applicable Large Employers (“ALEs”), which are companies with 50 or more full-time or full-time equivalent employees, as long as the ICHRA is affordable. Line 17 was added to the Form 1095-C, which is populated monthly, with the zip code the employer used to determine affordability. Affordability can be based on either the employee’s primary residence or the employee’s primary employment site zip code. As discussed above, there also has been an addition of eight Series 1 codes (1L, 1M, 1N, 1O, 1P, 1Q, 1R & 1S) for Line 14, to report the employer’s offer of an Individual Coverage HRAs (ICHRAs) and seven Series 1 codes that are identified as “reserved for future use.”

The variety of HRAs and their requirements can be very complicated.  Therefore, if your company is considering incorporating an HRA plan as part of your healthcare strategy, it is advisable to discuss your options with your company’s insurance broker.  Also, if your company is an ALE, it is important to ensure that the plans are compliant and that the ALE is meeting all obligations under the Affordable Care Act, including the reporting requirements, to avoid exposure to possible penalties.

Now more than ever, it is prudent for ALEs to utilize certified professionals and robust solutions for their ACA reporting needs.

To learn more about ACA compliance, click here.

We are here to help!  Please contact SPS/GZ  with any questions you may have about ACA reporting.

Contact us to learn how SPS/GZ can be your company’s trusted partner for stock plan administration and tax form reporting services.