1095/1094 Tips, Tricks, and General Information

August 02, 2023 16:01

Determining Which Form Type to Use

The type of 1095 form that is filed by an employer is determined by the total number of full time employees and full time equivalents the employer had for the previous tax year.

A full time employee (as defined by the IRS) is an employee who, for a calendar month, is employed an average of at least 30 hours of service per week with the employer. For this purpose, 130 service hours in a calendar month is treated as the monthly equivalent of at least 30 hours per week.
A full time equivalent is a combination of employees, each of whom individually is not treated as a full-time employee because he or she is not employed on average at least 30 hours of service per week with an employer, but who, in combination, are counted as the equivalent of a full-time employee solely for purposes of determining whether the employer is an ALE.
Any employer who had 50 or more full time employees and/or full time equivalents in the previous tax year is considered an Applicable Large Employer, or an ALE. An ALE will file 1095-C forms for the current tax year.
If an employer had less than 50 full time employees and/or full time equivalents in the previous tax year, the employer will only need to file a 1095 form if the employer was self-insured.

Group health plans may be self-insured or fully insured. A plan is fully insured when all benefits are guaranteed under a contract of insurance that transfers risk to an insurer. A plan is self-insured (or self-funded) when the employer assumes the financial risk of providing health care benefits to its employees.

If an employer had less than 50 full time employees and/or full time equivalents in the previous tax year, and the employer was self-insured, the employer will file a 1095-B form to all employees who enrolled in the plan.

If you are an insurance provider, you will file 1095-B forms.

Insurance Type	ALE Status	Form Type
Self-insured	More than 50 full time employees/equivalents	1095-C
Fully insured	More than 50 full time employees/equivalents	1095-C
Self-insured	Less than 50 full time employees/equivalents	1095-B
Fully insured	Less than 50 full time employees/equivalents	No filing requirement

Determining Whether an Employer Is Self-Insured or Fully-Insured

Self-Insured Employers, Also Known as "Self-Funded" Employers

Have liability for all claims made by the employee and pay for each claim.
Control what is covered and what is not.
May transfer some liability through the purchase of stop-loss insurance.
Claims are processed and paid by the employer, or a third party administrator (TPA) on behalf of the employer.

Fully-Insured Employers

Claims are processed and paid by an insurance company.
Employer pays a fixed premium to transfer liability for all claims to an insurance company who then pays the claims.
Insurance company must cover State-mandated benefits and offers "One-size-fits-all" plan or "Off the shelf" insurance policy.
Stop-loss insurance is not necessary as all risk is already transferred to the insurance company to cover claims.

Determining Who Is Issued a 1095

If you are filing 1095-C forms, you will need to issue a 1095-C to:

All full time employees (who were employed outside of a waiting period).
- You will not need to file a 1095-C form to any employee who was a full time employee, but whose employment was terminated during the waiting period.
Any part-time employees that enrolled in coverage, provided you are self-insured.

If you are filing 1095-B forms, you will need to issue a 1095-B form to any employee who enrolled in self-insured coverage, or if you are an insurance provider, to any employee who enrolled in coverage you provided.

How to Report a Non-Employee Enrolled in COBRA

A non-employee who is offered COBRA coverage will only receive a 1095 form from an ALE (employer) if the ALE is self-insured and the non-employee enrolled in the COBRA coverage. If the employer is fully-insured, or the non-employee waived the COBRA coverage, the employer is not required to file a 1095 form for the individual.

If the COBRA recipient was not employed by the ALE for any month of the calendar year, code 1G on the 1095-C will be used in the “All 12 Months” or in each individual month box of line 14. Lines 15 and 16 will be left blank.

The ALE may file a 1095-B form for a non-employee who is enrolled in COBRA in place of a 1095-C if preferred.

If a non-employee individual enrolls in the coverage under a self-insured health plan, all family members that are covered individuals due to the non-employee’s enrollment must be included on the same 1095 form who is enrolled in the COBRA coverage.

What Codes Do I Enter in Lines 14 & 16 for an Employee Who Was Not Employed by Us for Part of the Year?

For an employee who was hired mid-year or terminated mid-year, code 1H will be used in line 14 for months in which the employee was not employed or for months that coverage was not offered every day of the month. An offer of coverage needs to be made every day of the month to be considered an offer for that month.

Line 16 codes will differ depending on the employee’s status for the month. If the employee was not employed at all for the month, code 2A can be used in line 16 for that month. If the employee was part-time, or the employee was full-time and his/her offer of coverage ended before the end of the month due to termination, code 2B would be used. 2D will be used if the employee was hired mid-year, but was not offered coverage for the month due to a waiting period.

Hired Mid-Year Example

John Doe was hired on April 8th and was offered coverage immediately. Since the coverage was not offered every day of April, code 1H will be used in line 14 for that month. Likewise, since John was not employed by the company until April, 1H would also be used for January, February, and March.

Code 2A would be used for line 16 in months January, February, and March, as John was not employed at all for those months. Code 2B would be used for April, as the employee was not considered a full-time employee for that month.

Hired Mid-Year with Waiting Period Example

John Doe was hired on April 8th but was not offered coverage until June 1st due to a waiting period. Since the coverage was not offered until June, code 1H will be used in line 14 for April and May. Likewise, since John was not employed by the company until April, 1H would be used for January, February, and March.

Code 2A would be used for line 16 in months January, February, and March, as John was not employed at all for those months. Code 2D would be used for both April and May, as the employee was in a waiting period for these months.

Terminated Mid-Year Example

John Doe was terminated on September 29th and was offered coverage until that point. Since the coverage was not offered every day of September, code 1H will be used in line 14 for that month. Likewise, since John was not employed by the company after September, 1H would be used for months October, November, and December.

Code 2A would be used for line 16 in months October, November, and December, as John was not employed at all for those months. Code 2B would be used for September, as the employee’s offer of coverage ended before the end of the month due to termination.

What Codes to Use for an Employee Who Waived Coverage

When completing a 1095-C form, line 14 (Offer of Coverage) will indicate what type of coverage was offered to the employee, regardless of whether or not the employee enrolled. If an employee waives coverage that was offered to him/her, line 14 will indicate what coverage was offered to the employee.

If an employee waives coverage, and the code in line 14 is 1B, 1C, 1D, 1E, 1J, 1K, 1L, 1M, 1N, 1O, 1P, 1Q, 1T, or 1U line 15 will require a dollar amount. The amount entered in line 15 will be the employee share of the monthly cost for the lowest-cost self-only MEC providing MV that is offered to the employee. For more information, please visit the 1095-C instructions, page 15 Employee Required Contribution.

Line 16 can be left blank since there is no specific code to indicate that an employee waived coverage, or code 2F, 2G, or 2H can be used if applicable.

Use code 2F if the employee waived coverage, but the offer that was made was considered affordable based on the employee’s W-2 wages for the year.
Use code 2G if the employee waived coverage, but the offer that was made was considered affordable according to the federal poverty line.
Use code 2H if the employee waived coverage, but the offer that was made was considered affordable according to the employee’s rate of pay.

For more information on determining affordability based on W-2 wages, the federal poverty line, or the employee’s rate of pay, please see the IRS form instructions.

Determining ALE Status

If the average number of full-time employees and average number of full-time equivalents add up to 50 or more, the employer is considered an Applicable Large Employer, or an ALE. An ALE will need to file 1095-C forms for each of their full-time employees, and any part-time employees who enrolled in coverage.

If the average number of full-time employees and average number of full-time equivalents add up to less than 50, the employer is not considered an ALE, and may need to file a 1095-B form. A non-ALE will need to file a 1095-B form if the employer is self-insured, or offers an HRA plan to employees.

For more information about determining ALE status, please go to the IRS website.

What Is an Aggregated ALE?

An Aggregated ALE Group is a group of ALE Members (employers) treated as a single employer for the purposes of 1095 filing. Companies with a common owner or are otherwise related are considered part of an Aggregated ALE Group.

When determining ALE status, full time employees and full time equivalents for each of the members of the Aggregated ALE Group are combined.

Example:

Corporation X owns 100 percent of all classes of stock of Corporation Y and Corporation Z.
Corporation X has no employees at any time in 2023.
For every calendar month in 2023, Corporation Y has 40 full-time employees and Corporation Z has 60 full-time employees. Neither Corporation Y nor Corporation Z has any full-time equivalent employees.
Corporations X, Y, and Z are considered a controlled group of corporations.
Because Corporations X, Y and Z have a combined total of 100 full-time employees for each month during 2023, Corporations X, Y, and Z together are an ALE for 2024.
Corporation Y and Z are each an ALE member for 2024.
Corporation X is not an ALE member for 2024 because it does not have any employees during 2023.

Each member of an Aggregated ALE group is liable for filing 1095 forms for their employees. In the above example, 1095-C forms will be filed for the employees who worked for Corporations Y and Z. In addition, separate authoritative 1094-C forms will need to be filed for both Corporation Y and Corporation Z. Each member of an Aggregated ALE Group will need to file one authoritative 1094-C form per tax year.

Certifications of Eligibility

Certifications of Eligibility offer employers the opportunity to indicate that they are eligible for up to three different kinds of relief. The Certifications of Eligibility are as follows:

Box A, Qualifying Offer Method

Check this box if code 1A was entered on line 14 for any of the employer’s 1095-C forms. Checking this box indicates that there was a Qualifying Offer (1A) made to at least one full-time employee.

Box C, Section 4980H Transition Relief

Check this box if the employer has a non-calendar year health plan, and the employer met one of the following conditions:

The employer had 50-99 full-time equivalent employees in the 2021 tax year, did not reduce the size of its workforce or overall hours of service of its employees, and did not eliminate or materially reduce health coverage in that year. Employers that meet these criteria will use Code A in the column title titled “Section 4980H Transition Relief Indicator” in Part III of the 1094-C form. This code will only be used for months in which the ALE was reporting 2023 tax year information during their 2022 health plan.
The employer had 100 or more full-time equivalent employees in 2021. Employers that meet this criteria will use Code B in the column titled “Section 4980H Transition Relief Indicator” in Part III of the 1094-C form. This code will only be used for months in which the ALE was reporting 2022 tax year information during their 2023 health plan.

Example:
ABC Company has a non-calendar year health plan that renews each year on July 1st. In 2021, ABC Company had 150 employees. For the months in 2023 where ABC Company’s health plan was still considered 2022 (until July; January through June), code B could be used in the column titled “Section 4980H Transition Relief Indicator” in Part III of the 1094-C form. The months in which the company’s health plan matched the tax year (July through December) would be left blank.

Checking box C will reduce or eliminate any Section 4980H penalty.

Box D, 98% Offer Method

Check this box if the employer offered at least 98% of its full-time employees and their dependents coverage that provided minimum value and minimum essential coverage. If this box is checked, the “Full Time Employee Count for ALE Member” column in Part III of the 1094-C is not required.
If one or more Certification of Eligibility applies, check all that are applicable. If no Certification of Eligibility applies, leave line 22 of the 1094-C blank.

When to Use Line 23 Instead of Lines 24-35 on the 1094-C

Using lines 24 through 35 for one column does not require other columns in Part III of the 1094-C to use lines 24 through 35.

Example: Line 23 can be used for column a (“Minimum Essential Coverage Offer Indicator”) while column b (“Section 4980H Full-Time Employee Count for ALE Member”) uses lines 24 through 35.

Line 23 of the 1094-C can only be used if the number/entry did not fluctuate throughout the year. If the minimum essential coverage percentage, full-time employee count, total employee count, ALE status or 4980H Transition Relief indicator changed during the year, lines 24 through 35 will be used instead of line 23.

Example:
ABC Company had 75 employees in January through May, but due to terminations had 70 employees in June through the end of the year. Since the number of total employees changed throughout the year, lines 24 through 35 will be used for column c, “Total Employee Count”.

Example:
XYZ Company had 60 employees every month of the calendar year. Since the employee count is the same for each month, line 23 can be used instead of lines 24 through 35.

Determining Full-Time Employee Count

Any employer that has 50 or more full-time employees or full-time equivalents is considered an Applicable Large Employer (ALE). ALE status is based on the average number of full-time employees employed for the previous tax year.

Two Methods of Determining Full-Time Employee Status

Monthly measurement method: The employer determines if an employee is a full-time employee on a month-by-month basis by looking at whether the employee has at least 130 hours of service for each month.
Look-back measurement method: An employer may determine the status of an employee as a full-time employee during what is referred to as the stability period, based upon the hours of service of the employee in the preceding period, which is referred to as the measurement period. The look-back measurement method may not be used to determine full-time employee status for purposes of ALE status determination.

An Hour of Service

Each hour for which an employee is paid, or entitled payment, for the performance of duties for the employer.
Each hour for which an employee is paid, or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence.
Services performed in the following capacities are not counted as hours of service:

Volunteer employees.
Students performing work-study.
Members of religious order subject to a vow of poverty.
Employees that receive compensation that is not U.S. source income.

For employees that have hours of service that are challenging to identify or track, employers are required to use a reasonable method of crediting hours of service that is consistent with the employer shared responsibility provisions.

Column B - “Section 4980H Full-Time Employee Count for ALE Member” in Part III of the 1094-C form will be used to report the number of full-time employees for each month. This count will not include any employee in a waiting period. If the number of full-time employees for the month is zero, enter “0”. An employee should be counted as a full-time employee for a month if the employee satisfied the definition of full-time employee for the month.

Column C - “Total Employee Count for ALE Member” in Part III of the 1094-C form will be used to report the total number of employees, including full-time employees and employees in a waiting period, for each calendar month. The employer must choose one of the following days of the month to determine the number of employees:

First day of the month.
Last day of the month.
The 12th day of the month.
The first day of the first payroll period that starts during the month.
The last day of the first payroll period that starts during the month.

Once a day of the month is chosen to determine the total number of employees, that same day must be used for each month when determining total employee count.

Yearli does not auto-fill the full-time employee or total employee counts in Part III of the 1094-C form; these fields will need to be completed manually. We recommend contacting your payroll provider for a total number of employees per month.