Insights

FAQ: If the individual mandate penalty is zero, do I still need to provide the Form 1095-C to employees? If so, can these forms be provided electronically?


Yes; the Form 1095-C must still be distributed to employees.

ALEs with an average of 50 or more full-time employees (including full-time equivalent employees) during the preceding calendar year must report to the IRS how they complied with the employer mandate. Specifically, under Code Section 6056, ALEs must complete a Form 1095-C for each full-time employee and report whether that full-time employee was offered coverage meeting the minimum value and affordability requirements. This reporting obligation applies regardless of whether the plan is insured or self-funded.

Additionally, as required by Code Section 6055, an ALE must report to the IRS those who were covered by the plan and for which months. A self-insured ALE would include this information in Part III of the Form 1095-C. The carrier would report this information for an insured plan.

The 2020 1095-C forms must be filed with the IRS by March 1 (if filing by paper) or March 31 (if filing electronically). These fillings should be submitted to the IRS with the transmittal Form 1094-C. As in past years, the deadline for distributing the forms to individuals is extended from January 31 to March 2, 2021.

Congress reduced the federal mandate penalty to zero, so individuals will not pay a federal tax penalty for failing to have coverage. However, the Form 1095-C is used to determine if an ALE is complying with the employer mandate and to determine if an individual is eligible for a premium tax credit for coverage purchased on the exchange. So the form still needs to be filed AND distributed to employees.

Furthermore, if the employer has employees residing in DC, CA, NJ, RI or MA, these regions have individual mandates that would rely upon the information reported in the Form 1095-C. Although the federal individual mandate penalty was reduced to zero, employees residing in these states could face state penalties for failing to maintain coverage. An employer with employees residing in these states may also be subject to additional state filing requirements.

The Form 1095-Cs must be mailed or hand-delivered, unless the recipient affirmatively consents to receive the statement in an electronic format. If mailed, the statement must be sent to the employee’s last known permanent address, or if no permanent address is known, to the employee’s temporary address.

For electronic delivery, the recipient’s affirmative consent must relate specifically to receiving the Form 1095-C electronically. An individual may consent on paper or electronically, such as by email. If consent is on paper, the individual must confirm the consent electronically. This affirmative consent requirement is designed to ensure that statements are furnished electronically only to individuals who can access them. Once an individual provides such affirmative consent to receive the Form 1095-C electronically, the form may be furnished either by email or by informing the individual how to access the statement on the employer’s website.

An ALE’s failure to file the Form 1095-C with the IRS, or to distribute it to employees, could result in significant penalties. The penalty is $280 per failure. For example, if an employer failed to file the form with the IRS and to distribute it to one employee, the penalty could be $560. Accordingly, if the employer fails to file or distribute the Form 1095-C for numerous employees, the potential liability could be substantial.