Question: Can employers use electronic forms of distribution (e.g., via email or online payroll, benefits administration system, or website posting) to satisfy the ACA reporting requirement for ALEs to furnish Forms 1095-C to full-time employees?

Short Answer: ALEs must furnish the Forms 1095-C to employees no later than March 1 (March 2 in a non-leap year). To furnish the forms electronically, employers must obtain the employee’s affirmative consent specifically relating to receiving the Form 1095-C electronically. This approach, which is similar to the Form W-2 electronic distribution rules, is a more difficult standard to satisfy than the general ERISA electronic disclosure rules for plan materials.

ACA Reporting: Overview

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 of any size with self-insured plans also report months of coverage for all enrolled individuals. Regardless of funding arrangement, ACA reporting for ALEs is handled via IRS Forms 1094-C and 1095-C. The IRS receives both the Forms 1094-C and 1095-C, but employers furnish only the Forms 1095-C to employees.

For more details:

• ACA Reporting Deadlines and Compliance Requirements in 2024

• Newfront ACA Employer Mandate & ACA Reporting Guide

The Default Form 1095-C Furnishing Method: Standard Paper Mailing (or Hand Delivery)

The general rule is that ALEs must furnish the Form 1095-C to employees on paper by mail or hand delivery. If mailed, the form must be sent to the employee’s last known permanent address (or, if no permanent address is known, to the employee’s temporary address). The form is considered timely provided if properly addressed and mailed on or before the due date (March 1 in 2024 because it is a leap year, March 2 in other non-leap years).

Furnishing the Form 1095-C Electronically: Specific Affirmative Consent Required

ALEs must obtain the employee’s affirmative consent to furnish the Form 1095-C electronically. The consent must relate specifically to receiving the Form 1095-C electronically.

The Form 1095-C electronic furnishing standard provides that:

• A generalized electronic distribution authorization completed by the employee is not sufficient.

• The employee authorization must specifically identify electronic distribution of the Form 1095-C.

• Employees may consent on paper or electronically (e.g., by email).

• The electronic consent must be in a manner that reasonably demonstrates the employee can access the statement electronically in the manner in which it will be furnished.

• The IRS prescribes notice and content requirements associated with the employee’s consent.

• If the consent is on paper, the employee must also confirm the consent electronically.

• Employees can withdraw their consent to receive the Form 1095-C electronically at any point.

The IRS’s somewhat dated position is that this specific affirmative consent requirement “ensures that statements are furnished electronically only to individuals who are able to access them.” Its justification for this position is that the Forms 1095-C “contain individualized information” that “will be essential to the accurate preparation of their individual tax return with respect to a claim for the premium tax credit.”

Form 1095-C Electronic Disclosure: Content Requirements

Employers seeking employees’ authorization to furnish Forms 1095-C electronically must provide a clear and conspicuous disclosure statement to each employee that contains the following content:

1. Paper Statement: The ability to receive the Form 1095-C on paper if the employee does not consent to receive it electronically.

2. Scope and Duration of Consent: To which forms the consent will apply, and for how long (e.g., ongoing or just this reporting season).

3. Post-Consent Request for a Paper Statement: The procedure for obtaining a paper copy of the Form 1095-C (and whether that request for a paper copy will be treated as a withdrawal of consent for electronic delivery going forward).

4. Withdrawal of Consent: The ability to withdraw consent electronically or on paper, the contact information for making such withdrawal, and when such withdrawal will be effective.

5. Notice of Termination: The conditions under which the employer will cease furnishing statements electronically (e.g., termination of employment).

6. Updating Information: The procedures for updating the information needed to contact the employee.

7. Hardware and Software Requirements: A description of the hardware and software required to access, print, and retain the Form 1095-C, the date when it will no longer be available on the website, and a statement that the Form 1095-C may need to be printed in some situations.

Posting the Form 1095-C on a Website

Employers may post the Form 1095-C on a website as long as the employer notifies the employee where it is posted with instructions on how to access and print it. The notice may be by mail, email, or in person, and it must include the following statement in capital letters “IMPORTANT TAX RETURN DOCUMENT AVAILABLE.” If the notice is provided by email, that statement must be in the subject line.

If the email notice of the posting is returned as undeliverable, the employer should attempt to correct the email by confirming its own records and reaching out to the employee. If that process is unsuccessful, the employer must furnish the notice by mail or in person within 30 days after the email bounces.

The Forms 1095-C must remain posted on the website through the first business day on or after October 15 of the year following the calendar year to which Form 1095-C relates. For example, a 2023 Form 1095-C would have to remain available on the website until October 15, 2024.

Withdrawal of Electronic Consent

Employers must provide the Form 1095-C by paper if an employee withdraws their electronic consent. Paper Forms 1095-C provided after the due date (March 1 in 2024 because it is a leap year, March 2 in other non-leap years) are still considered timely if furnished within 30 days after the date the employer receives the withdrawal of consent.

Why It Matters: ACA Reporting Penalties

The general potential ACA reporting penalties for late/incorrect Forms 1095-C required to be furnished in 2024 is $310 per form. The 2024 maximum penalty for a calendar year will not exceed $3,783,000 for late/incorrect furnishing. The employer is subject to a penalty of at least $630 per form—with no maximum penalty—if the IRS finds that it intentionally disregarded furnishing Forms 1095-C in 2024.

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

• 30-Day Correction:

   If corrected within 30 days of the due date, the per-return penalty is $60 (capped at $630,500 in 2024).

• August 1 Correction:

   If corrected by August 1, the per-return penalty is $120 (capped at $1,891,500 in 2024).

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

ERISA Electronic Disclosure Safe Harbor: Not Applicable for ACA Reporting

Employers are often more familiar with the general—and significantly more lenient—DOL safe for electronic disclosure of ERISA-related materials such as SPDs, SMMs, SARs, and multiple other notices. Unlike the IRS standard for Forms 1095-C, the DOL safe harbor provisions both allow an opt-out electronic disclosure approach for certain employees, and a generalized consent structure for those who have to opt-in to meet the safe harbor.

The DOL provides an electronic delivery safe harbor with two basic standards:

1. Safe Harbor: Employees with Work-Related Computer Access Integral to Their Job Duties - These employees can receive electronic distribution of ERISA materials by default. In other words, there is no employee consent required to satisfy the safe harbor. Employers must include a notice of the significance of the document in the disclosure, as well as the right to request and obtain a paper version of the documents.

2. Safe Harbor: Employees without Work-Related Computer Access Integral to Their Job Duties - These employees must electronically affirmatively consent to electronic distribution of ERISA materials to satisfy the safe harbor. In other words, they must affirmatively consent to electronic disclosure (i.e., opt-in). The form of the affirmative consent must reasonably demonstrate the individual’s ability to access information in the electronic form that will be used (e.g., the internet or email). The “opt-in” electronic consent has set content requirements, including the right to request a paper copy.

For more details:

• Newfront ERISA for Employers Guide

• The ERISA Electronic Disclosure Rules

This DOL safe harbor for electronic disclosure of ERISA-related materials does not apply to furnishing the Form 1095-C electronically. As described above, all employees must affirmatively and specifically consent to receipt of the Form 1095-C electronically.

Reminder: Electronic Filing Required for ACA Reporting Starting in 2024

There are two basic components of ACA reporting for ALEs:

1. Furnishing the Forms 1095-C to employees; and

2. Filing the Forms 1094-C and 1095-C with the IRS.

While this post addresses the former, employers should keep in mind that the electronic filing rules have changed for the 2023 Forms 1094-C and 1095-C filed at the start of 2024. New final regulationsreduce the 250-return threshold that applied previously to generally require electronic filing by filers of 10 or more returns in aggregate in a calendar year (including the employer’s Forms W-2, 1099, and multiple other returns in addition to the Forms 1094-C and 1095-C).

Given that ALEs are entities with 50+ full-time employees, all ALEs (absent very unusual circumstances) will need to file the 2023 Forms 1094-C and 1095-C electronically in 2024. Non-ALEs sponsoring a self-insured health plan (including level funded plans) will also in nearly all cases need to file the Forms 1094-B and 1095-B electronically in 2024.

ACA reporting forms are filed electronically through the IRS Affordable Care Act Information Returns (AIR) system. The AIR system requires an XML schema coding format for transmission. This process is generally not something that a typical employer could navigate and utilize on their own without the support of an ACA reporting vendor. Such vendors might include third parties that specialize in ACA reporting, or a payroll provider or benefits administration platform that includes ACA reporting services as a component of its offering.

• For more details: IRS to Require Electronic Filing for ACA Reporting in 2024

Summary

Employers are often caught by surprise that they cannot follow the same electronic disclosure approach with ACA reporting as applies to ERISA disclosures. This can cause last-minute administrative headaches ensuring procedures are in place to mail (or hand deliver) paper copies of the Forms 1095-C to employees, or to establish an electronic consent process that meets the more rigorous IRS standards described above.

Employers wishing to furnish ACA reporting forms electronically will need to obtain an affirmative consent from each employee that specifically addresses the Form 1095-C and meets all the notice and content requirements specified by the IRS. ACA reporting vendors may be able to assist in this process, so employers should reach out to their vendors to determine the best strategies for meeting those requirements.

Relevant Cites:

IRS Form 1094-C and 1095-C Instructions:

Consent to furnish statement electronically.

An ALE Member is required to obtain affirmative consent to furnish a statement electronically. This requirement ensures that statements are furnished electronically only to individuals who are able to access them. The consent must relate specifically to receiving the Form 1095-C electronically. An individual may consent on paper or electronically, such as by email. If consent is on paper, the individual must confirm the consent electronically. A statement may be furnished electronically by email or by informing the individual how to access the statement on the ALE Member’s website. Statements reporting coverage and offers of coverage under an expatriate health plan, however, may be furnished electronically unless the recipient explicitly refuses to consent to receive the statement in an electronic format. Specific information on consents to furnish statements electronically can be found in Regulations section 301.6056-2.

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).