Question: What is the process for correcting errors on the Forms 1094-C and 1095-C?

Short Answer: The ACA reporting instructions provide guidance on how to address various corrections depending on the form and filing status.  Timely correction of errors discovered by the employer can significantly reduce the potential ACA reporting penalty liability..

ACA Reporting: General Rule

The ACA requires Applicable Large Employers (ALEs) to report whether they offered minimum essential coverage (MEC) that was affordable and provided minimum value to full-time employees.  Employers with self-insured plans also report months of coverage for all enrolled individuals. ACA reporting for employers is generally handled via IRS Forms 1094-C and 1095-C.

For more details:

• 2022 Newfront ACA Employer Mandate & ACA Reporting Guide

• Key Decision Points in ACA Reporting Vendor Setup Questionnaires

• ACA Reporting for Employers with a Self-Insured Plan

• ACA Reporting for Controlled Groups

• Becoming an ALE Subject to the ACA Employer Mandate and ACA Reporting

ACA Reporting: Deadlines

The IRS recently proposed new ACA reporting regulations that make permanent the 30-day automatic extension from January 31 that was offered in prior years for employers to furnish the Form 1095-C to individuals.  The rules applied to the 2022 season of ACA reporting, thereby extending the deadline to provide the 2021 Forms 1095-C to March 2, 2022 (confirmed in the Form 1095-C instructions).

It appears very likely that the proposed rules will be finalized to continue this 30-day extension into perpetuity.  Assuming this is the case, the ACA reporting deadlines will be as follows:

• Form 1095-C: Deadline to Furnish to Individuals

Standard Due Date: January 31

Automatically Extended Due Date: March 2

(Leap Year Automatically Extended Due Date: March 1)

• Form 1094-C (+Copies of Form 1095-C):

Deadline to File with IRS_ by Paper_

Standard Due Date: February 28

• Form 1094-C (+Copies of Form 1095-C):

Deadline to File with IRS Electronically (Required for 250 or More Returns)

Standard Due Date: March 31

If the due date falls on a weekend or a legal holiday, the deadline is extended to the next business day.  These deadlines apply to all ALEs regardless of their plan year.

The IRS has also proposed regulations that would reduce the required electronic filing threshold to employers filing just 10 or more returns.  That reduced 10-return electronic filing threshold, if finalized, would apply for returns required to be filed after calendar year 2022.

ACA Reporting Failures: Standard Penalties

The general 2022 potential late/incorrect ACA reporting penalties are $280 for the late/incorrect Forms 1095-C furnished to employees, and $280 for the late/incorrect Forms 1094-C and copies of the Forms 1095-C filed with the IRS.  The amounts increase to $290 for forms required to be furnished/filed in 2023.

That comes to a total potential general ACA reporting penalty of $560 per employee ($580 in 2023) when factoring in both the late/incorrect Form 1095-C furnished to the employee and the late/incorrect copy of that Form 1095-C filed with the IRS.

The 2022 maximum penalty for a calendar year will not exceed $3,426,000 for late/incorrect furnishing or filing ($3,532,500 in 2023).  Note that the employer is subject to a penalty of at least $570 per form—with no maximum penalty—if the IRS finds that it intentionally disregarded the filing or furnishing of the correct Forms 1094-C and 1095-C in 2022 (increasing to $580 in 2023).

• For more details: ACA Reporting Penalties.

ACA Reporting Failures: Reduced Penalties

The IRS reduces that general penalty if the late/corrected forms are furnished/filed in certain time periods:

• 30-Day Correction: If corrected within 30 days of the due date, the per-return penalty is $50 (capped at $571,000 in 2022, $588,500 in 2023).

• August 1 Correction: If corrected by August 1, the per-return penalty is $110 (capped at $1,713,000 in 2022, $1,766,000 in 2023).

There is also “reasonable cause” relief available that could potentially reduce or eliminate these ACA reporting penalties if the employer can show no willful neglect, that it acted in a responsible manner both before and after the failure occurred, and there were significant mitigating factors or events beyond its control.  Those requirements are set forth in Treas. Reg. §301.6724-1.  IRS Publication 1586 includes a useful summary of the conditions to qualify for reasonable cause relief.

• For more details: ACA Reporting Penalties.

Note that the same proposed regulations that would make permanent the 30-day extension to furnish the Form 1095-C to employees also confirm the end of the IRS good faith enforcement safe harbor, which was previously available as transitional relief to avoid penalties for incorrect or incomplete information on the ACA reporting forms.

ACA Reporting Failures: Potential Cause for IRS Letter 226J (Employer Mandate Penalty)

Failure to include correct information on the Forms 1094-C and 1095-C can also cause employers to inadvertently self-report §4980H penalty liability to the IRS.  If the IRS determines that the employer is subject to an ACA employer mandate penalty based on information filed on the ACA reporting forms, the employer will receive an IRS Letter 226J describing the proposed penalty assessment.

Employers in this situation will have the opportunity to disagree with the assessment and respond to the IRS requesting reduction or removal of the penalty based on the correct information that should have been reported.  Needless to say, employers would far prefer not to reach the point of having to contest a penalty assessment by simply reporting the correct information—either originally or, if needed, in corrected returns.

• For more details: Responding to IRS Letter 226J.

In many cases, IRS Letters 226J are triggered by simple ACA reporting errors.  The most common “A Penalty” reporting error is failing to check “Yes” in column (a) of Part III of the Form 1094-C to confirm that the employer offered coverage to at least 95% of full-time employees and their dependents.

The most common “B Penalty” reporting errors are failing to enter the appropriate code on Line 16 of the Form 1095-C to indicate why the employee was not offered or not enrolled in coverage.  For example, the period prior to an employee’s hire date or after the employee terminated (“2A”), months of part-time status without eligibility (“2B”), the waiting period or initial measurement period for new hires (“2D”), or that the employee declined an offer of coverage that met an affordability safe harbor (“2F”, “2G”, or “2H”).

In those situations, the employer will want to complete the Forms 14764 and 14765 disagreeing with the penalty assessment.  However, employers can generally avoid even reaching that point of a penalty assessment by preventing or timely correcting these errors discovered on Forms 1094-C and 1095-C.

ACA Reporting Corrections: Correcting the Form 1094-C

The ACA reporting rules permit employers with multiple operating divisions within the same ALE Member to file separate Forms 1094-C.  An ALE Member, or “ALEM,” is generally each EIN within the employer’s controlled group.  In this case, the reference is to divisions within each ALEM (i.e., not to each EIN within the controlled group).

• For more details: ACA Reporting for Controlled Groups.

One (and only one) of such divisions within the ALEM must file an “Authoritative Transmittal” Form 1094-C aggregating the data for all the divisions of the ALEM.  The other divisions of the ALEM can report only on their division’s employees on a non-Authoritative Transmittal Form 1094-C.  Whether a Form 1094-C is an Authoritative Transmittal is marked on Part I, Line 19.

Authoritative Transmittal: Correction Process

For corrections of Authoritative Transmittals, the IRS directs employers to:

• File a standalone, fully completed Form 1094-C with the corrected information included;

• Enter an “X” in the “CORRECTED” checkbox at the very top of the Form 1094-C; and

• Submit the standalone corrected Form 1094-C Authoritative Transmittal with the correct information included.

Employers do not file Forms 1095-C or any other documents with the corrected Authoritative Transmittal Form 1094-C.

 Non-Authoritative Transmittal: Do Not File Correction

The IRS directs employers not to file a corrected Form 1094-C for a non-Authoritative Transmittal.

Note that it’s uncommon for employers to file non-Authoritative Transmittal Forms 1094-C because few employers prefer to file more than one Form 1094-C for the same ALEM.  In other words, virtually all employers file a single Authoritative Transmittal Form 1094-C for the entire ALEM.

Examples of Form 1094-C Information that Requires Correction if Initially Reported Incorrectly

Part I:

• ALE Member or Designated Government Entity (Name and/or EIN)

Part II:

• Total number of Forms 1095-C filed by and/or on behalf of ALEM

• Aggregated ALE Group Membership (Controlled Group Status)

• Certifications of Eligibility (Streamlined ACA Reporting)

Part III:

• Minimum Essential Coverage Offer Indicator (Potential A Penalty Liability)

• Section 4980H Full-Time Employee Count for ALEM

• Aggregated Group Indicator (Controlled Group Status)

Part IV:

• Other ALEMs of Aggregated ALE Group (Name and/or EIN)

 ACA Reporting Corrections: Correcting the Form 1095-C

The Form 1095-C is both furnished to the employee and filed with the IRS.  The correction process for Forms 1095-C depends on whether the forms have only been only furnished to the employee, or if the forms have been furnished to the employee and also filed with the IRS.

Forms 1095-C Not Filed with the IRS

Correcting Forms 1095-C that were not filed with the IRS requires only re-furnishing the corrected Form 1095-C to the employee.  In this case, employers do not enter an “X” in the “CORRECTED” checkbox.

Employers will instead write, type, or print “CORRECTED” on the new Form 1095-C furnished to the employee.

 Forms 1095-C Filed with the IRS

In this situation, the employer will need to re-furnish the corrected Form 1095-C to the employee and re-file it with the IRS.

The correction process is as follows:

• Fully complete a corrected Form 1095-C with the error(s) fixed;

• Enter an “X” in the “CORRECTED” checkbox on the Form 1095-C;

• Submit to the IRS the corrected Forms 1095-C with a nonauthoritative Form 1094-C transmittal;

• Do not mark the “CORRECTED” checkbox on the Form 1094-C filed with the corrected Forms 1095-C; and

• Furnish a copy of the corrected Form 1095-C to the employee.

Note that employer’s using the Alternative Furnishing Method (very uncommon) must follow slightly different correction procedures outlined in the Form 1095-C Instructions.

 Examples of Form 1095-C Information that Requires Correction if Initially Reported Incorrectly

Part I:

• Name, SSN, ALE Member EIN

Part II:

• Offer of Coverage (Line 14)

• Employer Required Contribution (Line 15)

• Section 4980H Safe Harbor and Other Relief Codes (Line 16)

Part III:

• Covered Individuals Information (Self-Insured Plans)

Note that in general, employers are not required to correct the Form 1095-C for errors in Part II, Line 15 (addressing the monthly employee-share of the premium for the lowest-cost medical plan offered to the full-time employee) if no single amount in error differs from the correct amount by more than $100.

 ACA Reporting Corrections: Electronic or Paper

Electronic filing for both original and corrected returns is required for employers submitting 250 or more returns.  However, employers that are correcting fewer than 250 returns are not required to submit the correction electronically—even if the original filing was over 250 returns and required electronic filing.

Example 1:

• Employer filed 500 Forms 1095-C.

• As required, employer filed the original forms electronically.

• Employer discovers the need to correct 150 of the original 500 Forms 1095-C.

Result 1:

• Employer may file the 150 corrected Forms 1095-C electronically or by paper because they fall under the 250 threshold.

• Even though the original filing was electronic, the corrected filing can be by paper.

Example 2:

• Same as Example 1, but this time the employer discovers the need to correct 300 of the original Forms 1095-C.

Result 2:

• Employer must file the 300 corrected returns electronically because they exceed the 250 threshold.

The IRS has also proposed regulations that would reduce the required electronic filing threshold to employers filing just 10 or more returns.  That reduced 10-return electronic filing threshold, if finalized, would apply for returns required to be filed after calendar year 2022.

Section 7.1 of IRS Publication 5165 includes details on the process for filing corrections electronically through the ACA Information Returns (“AIR”) filing system.  However, employers that work with an ACA reporting vendor to prepare and file their returns should continue to work with the vendor to complete the complex electronic submission procedures for filing corrected returns on their behalf.

 Additional Notes re Electronic Filing of Corrections:

• Where correcting information on the Form 1094-C Authoritative Transmittal that also appears on the Forms 1095-C for employees (e.g., company name and EIN), employers do not need to submit changes to every associated Form 1095-C to correct that information on the Forms 1095-C. The IRS internal systems will associate appropriate entity information to existing Form 1095-C records.

• Where employers are correcting both the Forms 1094-C and 1095-C, there will be two separate transmissions with the first transmission will be to correct the Form 1094-C Authoritative Transmittal only. The second transmission will be to correct the Forms 1095-C.

• Employers may request a hardship waiver from the 250-or-more requirement to file corrections electronically via Form 8508.

Relevant Cites

IRS Forms 1094-C and 1095-C Instructions:

https://www.irs.gov/instructions/i109495c

Corrected Returns

A corrected return should be filed as soon as possible after an error is discovered. File the corrected returns as follows.

Form 1094-C.

If correcting information on the Authoritative Transmittal (identified on Part I, line 19, as the Authoritative Transmittal, one (and only one) of which must be filed for each ALE Member reporting aggregate employer-level data for all full-time employees and employees of the ALE Member), file a standalone, fully completed Form 1094-C, including the correct information, and enter an “X” in the “CORRECTED” checkbox. Do not file a return correcting information on a Form 1094-C that is not the Authoritative Transmittal.

Do not file any other documents (for example, Form 1095-C) with the corrected Authoritative Transmittal.

Form 1095-C.

If correcting information on a Form 1095-C that was previously filed with the IRS, file a fully completed Form 1095-C, including the correct information and enter an “X” in the “CORRECTED” checkbox. File a Form 1094-C (do not mark the “CORRECTED” checkbox on Form 1094-C) with corrected Form(s) 1095-C. Furnish the employee a copy of the corrected Form 1095-C, unless the ALE Member was, and continues to be, eligible for and used the alternative method of furnishing under the Qualifying Offer Method for that employee for that year’s furnishing. For more information, see Alternative method of furnishing Form 1095-C to employees under the Qualifying Offer Method.

Forms 1095-C filed with incorrect dollar amounts on line 15, Employee Required Contribution, may fall under a safe harbor for certain de minimis errors. The safe harbor generally applies if no single amount in error differs from the correct amount by more than $100. If the safe harbor applies, you will not have to correct Form 1095-C to avoid penalties. However, if the recipient elects for the safe harbor not to apply, you may have to issue a corrected Form 1095-C to avoid penalties. For more information, see Notice 2017-9, 2017-4 I.R.B. 542, at www.irs.gov/irb/2017-04 IRB/ar11.html.

Note.  Enter an “X” in the “CORRECTED” checkbox only when correcting a Form 1095-C previously filed with the IRS. If you are correcting a Form 1095-C that was previously furnished to a recipient, but not filed with the IRS, write, type, or print “CORRECTED” on the new Form 1095-C furnished to the recipient.