FAQ: What are the penalties if an employer failed to timely file or distribute Forms 1094/95 B&C? Is there an obligation to self-report the violation or is there an IRS-approved self-correction process?
March 30, 2021
If an employer missed the deadline by which they should’ve reported under Sections 6055 or 6056, they should follow the normal procedures for filing forms as outlined in the IRS Instructions for Forms 1094-B, 1095-B, 1094-C and 1095-C. Those instructions require employers to file Forms 1094/95-B&C with the IRS electronically via the IRS’s AIR filing system (if filing 250 or more forms) or by paper/mail to the IRS address in the Instructions (if filing fewer than 250 forms). In addition, employers must distribute a copy of Forms 1095-B or -C to their employees (as applicable) (See our reminder regarding IRC 6055 and 6056 Reporting Deadlines in this edition of Compliance Corner for more information on reporting requirements.) The employer would then just have to wait and see if the IRS will assess penalties for the late filings, as there is no requirement to self-report the violation.
As an example: employers should have already filed their 2020 forms with the IRS (by March 1, 2021, if filing by paper, and by March 31, 2021, if filing electronically), and should have distributed a copy of 1095-C to FT employees by March 2, 2021. Note that while there was relief that allowed an employer not to distribute Forms 1095-B to employees if they placed a notice on their website, there’s an argument that employers would not be able to avail themselves of that relief if they actually failed to file or even draft Forms 1095-B on a timely basis. If an employer missed those deadlines, the employer may be at risk for a penalty up to $280 per form for failure to distribute to FT employees, and an additional $280 per form for failure to timely file with the IRS (capped at $3,392,000 for 2021 filings). That said, since there is no obligation to self-report the untimely filing, the employer should not submit payment with filing. Rather, the employer would just file the forms (and distribute a copy of Forms 1095-B&C to employees, if applicable), and then the IRS has discretion in assessing penalties and will notify the employer if they are going to do so. The result would be the same for any missed filings from prior years.
Penalties may be waived if the failure was due to reasonable cause and not willful neglect. Note that special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to file the returns and furnish the required statements. Thus, if the employer has knowledge of their responsibility and delinquency, the employer should correct as soon as possible.
Although there is not an official self-correction program (like the Delinquent Filer Voluntary Correction Program for Forms 5500), there are two potential ways that a penalty could be reduced if the error is corrected within a certain period following the due dates. The first way is the “thirty-day rule:” if a failure is corrected within 30 days after the required filing date (or the deadline for furnishing individual statements), the penalty is reduced to $50 per return or statement, and the calendar-year cap is reduced to $565,000 ($197,500 for smaller entities) for filings made in 2021. The second way is the “August 1st rule:” if a failure is corrected after the 30-day rule described above but on or before August 1, the penalty is reduced to $110 per return or statement, and the calendar-year cap is reduced to $1,696,000 ($565,000 for smaller entities) for filings made in 2021. These rules may help for this year's filings (due in 2021) but would not apply to last year’s or any previous years’ filings, since they would be too late to take advantage of those exceptions.
Ultimately, employers who have failed to timely file and distribute these forms should likely consult with legal counsel. Counsel will be best suited to assist with filing delinquent forms and, potentially, negotiating with the IRS on any assessed penalties. The IRS Instructions are helpful in outlining the process and penalty information.