Question: What is changing with the IRS electronic filing requirements for ACA reporting in 2024?

Short Answer: In prior years, employers could file their ACA reporting forms by paper if they were filing fewer than 250 returns.  Starting in 2024, employers filing 10 or more returns in aggregate must file their Forms 1094-C and 1095-C electronically. This ends the option to file by paper for virtually all employers, and therefore employers will need to prepare to engage with an ACA reporting vendor to complete next year’s filing via the IRS AIR system.

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 (including level funded) 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, which are provided to employees and filed with the IRS.

In general, an employer is an ALE if it (along with all members in its controlled group) employed an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year.

Non-ALEs are responsible for ACA reporting if they sponsor a self-insured plan, which includes level funded plans.  ACA reporting for non-ALEs with a self-insured plan (including level funded) is handled via IRS Forms 1094-B and 1095-B.

For more details:

• Newfront ACA Employer Mandate & ACA Reporting Guide

• ACA Reporting Deadlines and Compliance Requirements in 2023

• Key Decision Points in ACA Reporting Vendor Setup Process (Four-Part Series)

The New Electronic Filing Threshold for ACA Reporting: 10 Aggregate Returns

In the recently completed 2023 ACA reporting season, ALEs had the option to file Forms 1094-C and 1095-C by paper or electronically if they were filing fewer than 250 returns.  ALEs filing by paper had to complete the filing by the end of February, and those filing electronically had to do so by the end of March.  Only ALEs with 250 or more returns were required to file electronically.

The IRS recently issued new final regulations outlining the electronic filing requirements that will apply for returns that are required to be filed in 2024.  These requirements include the 2023 Forms 1094-C and 1095-C that will be filed at the start of 2024.

Specifically, the final regulations change 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. This requires filers to consider in aggregate almost all information return types covered by the regulation to determine whether a filer meets the 10-return threshold and is required to e-file their information returns. The prior approach applied the 250-return threshold separately to each type of information return covered by the regulations.

The new “aggregation of returns” rule means that in calculating whether an employer has at least 10 returns and is required to file electronically, the employer’s Forms W-2, 1099, and multiple other returns (in addition to the Forms 1094-C and 1095-C) are all included together in the 10-return count. 

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 Plan Also Must File Electronically

Non-ALEs with a self-insured health plan (including level funded plans) must complete ACA reporting via Forms 1094-B and 1095-B.  In the past, it was fairly common for such employers to complete the reporting themselves because a) these -B forms are less demanding to complete than the -C forms for ALEs, and b) they were filing fewer than 250 returns and therefore could do so by paper.

That self-service option will no longer be viable for the 2024 ACA reporting season because the Forms 1094-B and 1095-B are also subject to the reduced 10-aggregate return filing threshold. Even non-ALEs will in almost all cases be filing at least 10 total Forms W-2, 1099, and 1094-B/1095-B. Accordingly, even employers filing as a non-ALE sponsoring a self-insured (including level funded) plan will need to engage with an ACA reporting vendor to file the 2023 Forms 1094-B and 1095-B electronically in 2024.

Employers Need to Engage with an ACA Reporting Vendor to File Electronically

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. 

In prior ACA reporting seasons, some ALEs filing under 250 Forms 1094-C and 1095-C have opted to file the returns by paper to avoid the complex AIR system filing.  However, that will no longer be an option in 2024 and beyond.  ALEs will need to prepare for the 2024 filing season (filing the 2023 Forms 1094-C and 1095-C) by ensuring they have engaged with an ACA reporting vendor that can complete the electronic filing on their behalf.  Similarly, non-ALEs sponsoring a self-insured plan (including level funded) need to engage with a vendor to file the 2023 Forms 1094-B and 1095-B electronically in 2024.

Electronic Filing Hardship Waivers

The new regulations continue to permit the IRS to grant exceptions to the electronic filing requirements in cases of undue hardship.  One principal factor in determining hardship will be the amount by which the cost of filing the return electronically exceeds the cost of filing by paper.

To apply for an electronic filing hardship waiver, employers must submit IRS Form 8508. The Forms 1094-C and 1095-C Instructions provide that employers are encouraged to file the Form 8508 at least 45 days before the due date of the returns, but no later than the due date of the return. If granted, the waiver is valid only for that year.

The Form 8508 requires that employers arguing undue financial hardship must include current year cost estimates from third-parties such as service bureaus (e.g., ACA reporting vendors in this case) that reflect the total amount that each service bureau will charge for software or to provide assistance to meet and comply with the electronic filing requirements. The IRS will automatically deny applications that fail to include two written cost estimates if the request is based on undue financial hardship.

Potential Penalties for Failure to File Electronically

The general ACA reporting is $290 per return for the failure to timely and properly file the ACA reporting forms with the IRS. These penalties include an employer’s failure to file electronically where required. 

The IRS reduces that general penalty for corrections made in certain time periods:

• 30-Day Correction: If corrected within 30 days of the due date, the per-return penalty is $50.

• August 1 Correction: If corrected by August 1, the per-return penalty is $110.

For more details:

• Newfront ACA Employer Mandate & ACA Reporting Guide

• ACA Reporting Penalties

Reminder: Employer ACA Reporting Requirements

The following overview addresses ACA reporting obligations by employer size and funding arrangement: 

ALE Sponsoring a Self-Insured Medical Plan (Including Level Funded)

IRC §6055 and §6056 Reporting

• Completed via Forms 1094-C and 1095-C.

• Employer must complete Part III of the Form 1095-C (“Covered Individuals”) for enrolled individuals (including COBRA participants).

• If the employer sponsors both self-insured and fully insured medical plan options, the employer completes Part III only for individuals enrolled in the self-insured medical plan.

• Important Note: “Level funded” plans are considered self-insured for these purposes.

ALE Sponsoring a Fully Inured Medical Plan

IRC §6056 Reporting Only

• Completed via Forms 1094-C and 1095-C.

• Employer does not complete Part III of the Form 1095-C (“Covered Individuals”).

• Insurance carrier completes coverage information on separate Form 1095-B.

Non-ALE Sponsoring a Self-Insured Medical Plan (Including Level Funded)

IRC §6055 Reporting Only

• Completed via Forms 1094-B and 1095-B.

• Employer does not complete Forms 1094-C and 1095-C (because not subject to the employer mandate).

• Employer information listed in Part III (“Issuer or Other Coverage Provider”) of the 1095-B.

• Employer does not complete Part II (“Information About Certain Employer-Sponsored Coverage”) of the Form 1095-B.

• Important Note: “Level funded” plans are considered self-insured for these purposes. 

Non-ALE Sponsoring a Fully Insured Medical Plan

• No ACA Reporting 

Summary

Employers that have been relying on paper filing with the IRS as a cost-saving measure will need to change course for the next ACA reporting season.  All ALEs will need to file their 2023 Forms 1094-C and 1095-C electronically in the first quarter of 2024.  Virtually all non-ALEs sponsoring a self-insured health plan will also need to file their 2023 Forms 1094-B and 1095-B electronically in the first quarter of 2024.

The technical expertise required to complete electronic ACA filing via the IRS AIR system makes the task impractical for nearly all employers.  Accordingly, all employers subject to ACA reporting should ensure that they engage with a third-party vendor (e.g., ACA reporting specialty vendor, benefits administration system, payroll system) that can complete the electronic filing on their behalf at the start of 2024.

Relevant Cites:

26 CFR §6011.2:

(b) Returns required electronically. (1) If the use of Form 1042-S, Form 1094 series, Form 1095-B, Form 1095-C, Form 1097-BTC, Form 1098, Form 1098-C, Form 1098-E, Form 1098-Q, Form 1098-T, Form 1099 series, Form 3921, Form 3922, Form 5498 series, Form 8027, or Form W-2G is required by the applicable regulations or revenue procedures for the purpose of making an information return, the information required by the form must be submitted electronically, except as otherwise provided in paragraph (c) of this section. Returns filed electronically must be made in accordance with applicable revenue procedures, publications, forms, or instructions.

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(c) Electronic-filing threshold —(1) In general. No person is required to file information returns electronically in a calendar year unless the person is required to file at least 10 returns during that calendar year. Persons required to file fewer than 10 returns during the calendar year may make the returns on the prescribed paper form or, alternatively, electronically in accordance with paragraph (b) of this section.

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(4) Calculating the number of returns —(i) Aggregation of returns. In calculating whether a person is required to file at least 10 returns under paragraph (c)(1) of this section, all the information returns described in paragraphs (b)(1) and (2) of this section required to be filed during the calendar year are counted in the aggregate. Neither corrected information returns, information returns described in paragraph (b)(3) of this section, nor returns other than those described in paragraphs (b)(1) and (2) of this section are taken into account in calculating whether a person is required to file at least 10 returns.

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(6) Exclusions from electronic-filing requirements —(i) _Waivers. _The Commissioner may grant waivers of the requirements of this section in cases of undue hardship. One principal factor in determining hardship will be the amount, if any, by which the cost of filing the return electronically in accordance with this section exceeds the cost of filing the return on paper. A request for a waiver must be made in accordance with applicable IRS revenue procedures, publications, forms, instructions, or other guidance, including postings to the IRS.gov website.

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(g) Applicability date. The rules of this section apply to information returns required to be filed during calendar years beginning after December 31, 2023.

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).