1095 form filing threshold change surprises many employers

The implementation of the Affordable Care Act’s (ACA’s) reporting requirements almost ten years ago took an already hectic employee benefits yearend and prolonged it.  A change to the ACA’s paper 1095 electronic form filing threshold that went into effect this year took many of these same employers by surprise. In doing so, it made (and is still making) the 2023 tax year reporting cycle even more prolonged and hectic for smaller, “large” employers.

To recap, the ACA requires Applicable Large Employers (ALEs) – generally employers of 50 or more full-time employees -- to offer health insurance to full-time employees or pay an Employer Shared Responsibility payment. ALEs must demonstrate these offers of health insurance by way of Form 1095, which must be issued to individuals and filed with the Internal Revenue Service (IRS). These issuance and filing requirements play out during the first quarter of each new year for the most recent tax year. It is worth noting that sponsors of self-funded health plans also face a 1095 reporting and filing obligation even if they are not considered an ALE.

Prior to the 2024 reporting period, the IRS set the threshold for paper filing the 1095s at a maximum of 250 forms. Starting in 2024, this threshold was reduced to a maximum of ten forms. By going into effect at the beginning of 2024, the implication was that it applied to the 2023 tax year ACA filings.

Insurance companies and broker agents have been communicating with employers on this subject.  However, in most cases the messages being delivered were serving more as a general reminder and either not making reference to the threshold change or not serving as a direct indicator of the applicability of the requirement to the employer who received it. As a result, employers were sent scurrying to determine if they had a reporting obligation and if so, how to solve for it.

Perhaps the most significant challenge associated with this change is the electronic filing requirement itself.  At inception, the IRS launched the Affordable Care Act Information Returns (AIR) system, a complex portal that requires a transfer of XML-coded files built to IRS specifications. Many payroll or HRIS systems are not capable of generating these files. When these systems can generate these files, no connected mechanism exists to transmit them. Gaining access to this system is complicated and time intensive. These realities often leave well-intended employees falling just shy of satisfying the requirement on time. When it comes to being “on time,” this year it meant completing the electronic filing process by April 1.

Employers unable to complete the electronic filing requirement by April 1 should not abandon efforts to do so. The general potential ACA reporting penalties for forms required to be furnished and filed in 2024 are $310 for the Forms 1095-C furnished to employees and $310 for the Forms 1094-C and copies of the Forms 1095-C filed with the IRS (for a total of $620 per employee). The employer is subject to a penalty of at least $630 per form—with no maximum—if the IRS finds that it intentionally disregarded these requirements. However, if the forms are filed within 30 days of the due date, the per-return penalty is $60.  When filed by August 1, the penalty is $120 per return.