During the IRS group call on January 26, 2016 for developers of Affordable Care Act reporting software, a presenter for the IRS technical team brought clarity to Form 1095-C reporting for a Qualifying* Offer of coverage.
In short, we now have a Code 1A alert, because the new information is a significant departure from previous guidance for, and interpretations of, the code for a Qualifying Offer.
For Tax Year 2015, Code 1A is one of nine code options for Line 14 of Part II on a 1095-C, the form that employers who must comply with the Affordable Care Act should be producing for full-time employees (if the business is fully insured) and for all covered employees (if the business is self-insured).
Here is what – on January 26, 2016 – the IRS advised for Code 1A:
If Line 14 is a 1A for any month or all months, Lines 15 and 16 will be left blank for those months.
You do not put in 2C, if the employee was covered, or 2G (the Federal Poverty Line safe harbor) if the employee did not elect coverage.
Here are the exact questions that prompted this new information:
"If Code 1A is used on Line 14, will it be incorrect to enter 2C on Line 16 for employees who elected coverage?"
"If you're making a qualifying offer and you have the ability to enter 1A on Line 14, that has the effect of giving you a safe harbor. So you don't need to make an entry on Line 16."
"Should you enter 2G for employees who waive coverage?"
"If you're making a qualifying offer, Code 1A covers it and so you don't need to enter Code 2G for the employee who waived coverage."
"The purpose of Line 16 is for the employer to identify whether it needs a safe harbor of other relief, generally a limited non-assessment period. But you don't need that there when you're making a qualified offer because the 1A is already telling us that the employer gets that relief."
When asked if filling in those lines with either a 2C or 2G would error out, the IRS representative said she did not “believe” so, but was “not sure.”
What does this mean for Code 2G?
So, if you do not include anything on Line 16 if Line 14 is a 1A – a Qualifying Offer – then when is the Line 16’s Code 2G (the Federal Poverty Line safe harbor) used?
Code 2G would be used if Line 14 is a 1B, 1C, 1D or 1E and the Federal Poverty Line was the safe harbor used for affordability testing.
What is the definition of a Qualifying Offer?
As detailed by IRS instructions for Form 1095-C, a Qualifying Offer is:
minimum essential coverage ...
providing minimum value ...
offered to full-time employees ...
with the employee contribution for self-only coverage equal to or less than *9.56% of the mainland single Federal Poverty Line ...
and at least minimum essential coverage offered to the spouse and dependent(s).
Please note that the affordability percentage given here is not the 9.5% in the 1095-C form instructions but the adjustment of that percentage for Tax Year 2015 confirmed in IRS Notice 2015-87, which was released December 16, 2016. For details on that change in IRS guidance for ACA reporting, please see this SHRM (Society of Human Resources Management) article, IRS Pinpoints ACA Affordability Percentage for Safe Harbors, written by Integrity Data's ACA Education Director, Helen Karakoudas.
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