IRS Proposes Regulations on ACA Reporting: Good News and Bad News for Employers

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Bradley Arant Boult Cummings LLP

The Internal Revenue Service (IRS) has published proposed regulations that, if finalized, will ease some of the requirements imposed on employers reporting offers of minimum essential health coverage, including a permanent extension of the deadline to furnish forms to employees. At the same time, the IRS has used the publication as another opportunity to announce that the era of leniency for inaccurate or incomplete reporting has ended.

The proposed regulations would modify the requirements for reporting minimum essential coverage under the Patient Protection and Affordable Care Act (ACA) as follows:  

  • Extension of Deadline for Furnishing Statements to Individuals – The proposed regulations would permanently extend the deadline for furnishing statements (Forms 1095) to individuals regarding minimum essential coverage provided or offered from January 31 to 30 days after January 31. Previously, the IRS had announced such an extension through notices published prior to the end of each reporting year.
  • Alternative Manner of Furnishing Statements – The proposed regulations include an alternative means for insurers to provide Forms 1095-B to individuals, which report fully-insured minimum essential coverage provided. Instead of delivering the Form 1095-B to the individual, the insurer would be able to post a notice on its website and provide the form upon request. The IRS is easing this reporting requirement primarily due to fact that the information has little utility since Congress lowered the penalty for the “individual mandate” to $0, effective as of 2020.
  • Elimination of Transitional Good Faith Relief – In Notice 2020-76, the IRS first announced that it would cease to provide the “transitional good faith relief” that it had offered since the requirements for reporting minimum essential coverage first went into effect in 2015. In the preamble to the proposed regulations, the IRS reiterated that this relief from penalties for reporting incorrect or incomplete information is “no longer appropriate” and is not available beginning in 2021. The IRS noted that an exception from penalties may still be available if the filer can show reasonable cause for the failures.

PRACTICE POINTER: During the era of transitional good faith relief, the IRS has been accommodating of employers filing incomplete or inaccurate information on Forms 1094 and 1095. With the relief coming to an end, employers should take extra care to ensure the information they are reporting, especially the coding on Forms 1095-C, is accurate. Presumably, the IRS may continue to allow corrections to avoid the assessment of a shared responsibility payment. However, the effective cost of such corrections may be the information reporting penalties.

  • Medicaid Coverage of COVID-19 Testing and Diagnostic Services – The proposed regulations would revise the definition of minimum essential coverage to align the regulations with the IRS’s view in Notice 2020-66 that Medicaid coverage limited to COVID-19 testing and diagnostic services is not minimum essential coverage. If such coverage was considered minimum essential coverage, it would prevent the covered individual from qualifying for the premium tax credit.

The proposed regulations, if finalized, are generally proposed to be effective beginning in 2022. However, the IRS stated that taxpayers may rely on the regulations now.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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