Common Mistakes in Completing Forms 1094-C and 1095-C

If you’re an applicable large employer (ALE) and offer health insurance coverage, you’re probably very familiar with the reporting requirements under the Affordable Care Act (ACA). Yet we often see the same mistakes when these employers complete IRS Form 1094-C and IRS Form 1095-C.

The confusion is understandable, given the back-and-forth with ACA implementation. But ambiguity won’t exonerate you from fines and other measures if you don’t have complete and accurate paperwork.

What is the Affordable Care Act?

Before we go into the mistakes we typically see, let’s review the basics of the ACA. Enacted in 2010, this landmark legislation mandates that applicable large employers meet specific health coverage requirements to ensure affordable and adequate health insurance for employees. Key provisions of the ACA include:

Employer Mandate

Applicable large employers (those with 50 or more full-time employees or part-time equivalents on average during the preceding calendar year) must provide health insurance to at least 95% of their full-time employees and their dependents up to age 26. This coverage must meet the minimum essential health coverage criteria and be affordable, defined as costing the employee no more than 9.5% of their household income.

Reporting Requirements

Employers are required to report the health insurance coverage they offer to the IRS and employees. IRS Form 1094-C and IRS Form 1095-C must be completed to demonstrate compliance with the employer mandate. We’ll discuss these forms and their requirements in more detail below.

Health Insurance Marketplaces

The ACA established online marketplaces where businesses with fewer than 50 employees can compare and purchase insurance plans. These marketplaces aim to provide competitive pricing and comprehensive coverage options.

Small Business Health Care Tax Credit

Businesses with fewer than 25 full-time equivalent employees, paying average annual wages below a specified threshold, may qualify for a tax credit of up to 50% of the premiums paid for employee health insurance.

Essential Health Benefits

All health plans must cover ten essential health benefits. Among these benefits are emergency services, hospitalization, prescription drugs, maternity and newborn care, mental health services, and preventive and wellness services.

Preventive Services

Insurers must cover preventive services, such as vaccinations and screenings, without charging a copayment or coinsurance. This is regardless of whether the deductible has been met.

Reporting Requirements Recap

As we mentioned above, the ACA includes specific reporting requirements for coverage offered.

• Applicable large employers must show proof of compliance with the ACA’s employer shared responsibility mandate by completing Form 1095-C. This form is provided to the employee and the IRS; it reports whether the employer offered eligible employees affordable healthcare coverage that provides minimum essential coverage and meets the minimum value threshold.
• Along with Form 1095-C, Form 1094-C (authoritative transmittal form) is completed to report to the IRS summary information for each ALE member and to transmit Form 1095-C to the IRS.
• Together, Forms 1094-C and 1095-C are used in determining whether an ALE member owes a payment under the employer shared responsibility provisions under section 4980H.
• Small employers with fewer than 50 full-time employees are exempt from most ACA reporting requirements, but not all. For example, self-insured small employers must complete and file Forms 1095-B and 1094-B (the transmittal form) with the IRS, as well as provide full-time employees with a copy of Form 1095-B.
• Small employers also are required to file Forms 1095-C and 1094-C if they are members of a controlled or affiliated service group that collectively has at least 50 full-time employees.

The Latest Requirement: Electronic Filing

Starting in 2024, any organization filing at least 10 or more ACA health coverage information returns in a calendar year must e-file them. (Previously, employers were not required to file these forms electronically unless they were submitting at least 250 forms to the IRS.) This requirement to file electronically also applies to other IRS forms like the W-2 and 1099; these forms count toward the 10-form threshold.

You can obtain a waiver from the IRS if you can prove this requirement creates an undue hardship for your organization. And in rare cases, religious exemptions might also be available. But these circumstances can be difficult to demonstrate. Besides, not only does filing electronically keep you in compliance, it also saves time in your ACA form procedures.

Common Mistakes in Completing Form 1094-C and 1095-C

To prevent a penalty letter due to reporting errors (more on that later), let’s look at some of the more common mistakes being made on Forms 1094-C and 1095-C.

Missing deadlines

Watch your due dates! At times the IRS will provide extensions to the normal due dates, but don’t assume they will. The regular deadlines for these forms are:

• February 28, 2025: Deadline to file Forms 1094-C/1095-C to the IRS if filing by paper (only for employers filing less than 10 forms)
• March 3, 2025: Deadline to furnish Form 1095-C to employees
• March 31, 2025: Deadline for electronic filing to the IRS

Not counting your employees properly

Penalties are based on the stated full-time employee counts for each month of the tax year as provided on Form 1094-C. Make sure you are following the IRS measurement method and definitions. Common errors include counting an employee during months they did not work for you (if they were hired or terminated during the year) and counting employees in your full-time headcount who were not eligible for coverage.

Miscounting employees (or employee misclassification) can result in hundreds of thousands of dollars in penalties.

Code errors

The codes you use on Form 1095-C will ultimately determine if (and for what months) your company may be subject to penalties. And there are several of them, along with caveats. For example:

• Line 14 identifies the kind of offer that was made (if any)
• Line 15 identifies the lowest cost contribution for self-only coverage
• Line 16 indicates why a penalty should not be assessed for that particular month
• Depending on the code used in Line 14, you might not complete Line 15

The list goes on. So read the IRS instructions thoroughly! And seek additional help from a trusted advisor. Getting it right the first time will save you a lot of time, trouble and expense.

Forgetting to check all the boxes

A client of ours received a significant penalty letter for one reason—they neglected to check one box on Form 1094-C which indicated that yes, they did have minimum essential coverage offered for all 12 months of the tax year.

That’s all it takes to trigger a letter. (And in that client’s case, it could have cost them $200,000 if it didn’t get resolved!) So whether you are completing the forms in house or using a payroll company or other service, review the Form 1094-C and 1095-C thoroughly.

Not keeping a copy of your forms

You never know if a penalty letter will be mailed to your company, even if you think you’ve done everything correctly. Keep a copy of what you send to the IRS so that you can make corrections if needed or respond promptly to a penalty notice.

What Triggers an Employer Shared Responsibility Payment (ESRP) Letter?

The employer shared responsibility rules require applicable large employers to offer health coverage for minimum essential health benefits to full-time employees and their dependents. Any applicable large employer that doesn’t offer such coverage—or offers health coverage that’s not affordable to full-time employees and dependents—could be subject to the ESRP if just one full-time employee is allowed a premium tax credit for purchasing health insurance coverage from the ACA Marketplace.

Even if you follow Affordable Care Act rules, Form 1094-C and Form 1095-C errors can trigger an ESRP letter and a hefty penalty. Mistakes can and will happen, so do the best you can to get these forms right the first time.

If you are not confident in your knowledge of the process or are confused by 1094-c and 1095-c instructions, reach out to a trusted ACA expert like James Moore’s HR Solutions team. And if you have received an ESRP notice, find out more about how we can help.