IRS Extends Deadlines for 2020 Individual Statements Under ACA Information Reporting Rules and Provides Limited Penalty Relief | Practical Law

IRS Extends Deadlines for 2020 Individual Statements Under ACA Information Reporting Rules and Provides Limited Penalty Relief | Practical Law

The Internal Revenue Service (IRS) has provided limited relief from the Internal Revenue Code's penalty provisions for failures to furnish 2020 Forms 1095-B to individuals under the Affordable Care Act (ACA) (Notice 2020-76 (Oct. 2, 2020)). The guidance also extends the deadlines for providing individual statements for 2020 (IRS Forms 1095-C and 1095-B)—from January 31, 2021, to March 2, 2021—and provides additional relief for certain penalties under Sections 6721 and 6722 of the Internal Revenue Code (Code).

IRS Extends Deadlines for 2020 Individual Statements Under ACA Information Reporting Rules and Provides Limited Penalty Relief

by Practical Law Employee Benefits & Executive Compensation
Published on 05 Oct 2020 • USA (National/Federal)
The Internal Revenue Service (IRS) has provided limited relief from the Internal Revenue Code's penalty provisions for failures to furnish 2020 Forms 1095-B to individuals under the Affordable Care Act (ACA) (Notice 2020-76 (Oct. 2, 2020)). The guidance also extends the deadlines for providing individual statements for 2020 (IRS Forms 1095-C and 1095-B)—from January 31, 2021, to March 2, 2021—and provides additional relief for certain penalties under Sections 6721 and 6722 of the Internal Revenue Code (Code).
As in years past, the IRS has once again provided limited relief from the Internal Revenue Code's penalty provisions for not furnishing 2020 Forms 1095-B to individuals under the Affordable Care Act (ACA) (Notice 2020-76 (Oct. 2, 2020)). This disclosure requirement is part of the ACA's information reporting and disclosure provisions (see Practice Note, ACA Information Reporting: Forms 1095-C and 1094-C (Overview)). Among other topics, the IRS's guidance addresses a Tax Cuts and Jobs Act (TCJA) change that reduced to zero the penalty for violating the ACA's individual mandate (Pub. L. No. 115-97 (2017); see Tax Cuts and Jobs Act (TCJA) Compliance for Fringe Benefits and Health Plans Toolkit).
The IRS's guidance extends the deadlines for certain 2020 ACA information reporting requirements applicable to:
Specifically, the guidance extends:
  • The deadlines for providing individuals 2020 Forms 1095-C (Employer-Provided Health Insurance Offer and Coverage) and Forms 1095-B (Health Coverage), as applicable, from January 31, 2021, to March 2, 2021.
  • Good-faith transition relief from penalties under Code Sections 6721 and 6722 (26 U.S.C. §§ 6721 and 6722), so that the relief applies to 2020 ACA information reporting requirements under Code Sections 6055 and 6056.
For analysis of the ACA information reporting requirements, see Practice Notes:

IRS Forms 1095-B and 1095-C

As background, Code Section 6055 requires employers with self-insured health plans, health insurers, and other providers of MEC to file and furnish annual information returns and statements regarding coverage provided. Information provided under Code Section 6055 was used to enforce the ACA's individual mandate (26 U.S.C. § 5000A; see Practice Note, Affordable Care Act (ACA) Overview: Individual Mandate).
Code Section 6056 requires large employers (in general, those with 50 or more full-time employees in the previous year) to file and furnish annual information returns and statements regarding the health insurance, if any, offered to their full-time employees.
In addition, Code Section 6721 imposes a penalty for either:
  • Failing to timely file an information return.
  • Filing an incorrect or incomplete information return.
(26 U.S.C. § 6721.)
Code Section 6722, meanwhile, imposes a penalty for either:
  • Failing to timely furnish an information statement.
  • Providing an incorrect or incomplete information statement.
(26 U.S.C. § 6722.)
These penalty provisions apply to ACA information returns and statements required under Code Sections 6055 and 6056.

Extended Deadlines for 2015 Through 2019 Reporting Years

The IRS previously extended the deadlines for ACA information reporting for the 2015 through 2019 reporting years. The 2015 extensions (under Notice 2016-4) applied both to information returns filed with the IRS and statements furnished to individuals. For 2016 through 2019, the extended deadlines applied only to statements furnished to individuals. For more information on these extensions, see Legal Updates:

Extended Deadlines for Providing 2020 Individual Statements

This year's IRS guidance extends the deadline for furnishing individuals their 2020 Forms 1095-C and 1095-B, as applicable, from January 31, 2021, to March 2, 2021. The extended due date applies automatically and does not require submission of a request or other documentation to the IRS. This extension does not apply to the deadline for furnishing information returns to the IRS.

Penalty Relief for Furnishing Forms 1095-B

Effective beginning in 2019, the TCJA reduced to zero the penalty for violating the ACA's individual mandate. As a result, individuals do not need the information on Form 1095-B to determine their federal tax liability or file a tax return with the IRS. Because reporting entities must expend resources to furnish Forms 1095-B, the IRS's guidance provides relief—for 2020—from Code Section 6722 penalties for failing to furnish Forms 1095-B to individuals. However, this relief is only available if the reporting entity:
  • Prominently posts a notice on its website stating that individuals may receive a copy of their 2020 Form 1095-B on request, and providing contact information so that individuals can send requests or questions.
  • Furnishes a 2020 Form 1095-B to an individual on request within 30 days of the date the request is received.
(See also Practice Note, ACA Information Reporting: Forms 1095-C and 1094-C (Overview): Short-Term Penalty Relief for Good Faith Compliance.)

Relief Generally Does Not Extend to Forms 1095-C, as to Full-Time Employees

The IRS's guidance clarifies that the "2020 Section 6055 furnishing relief" does not—subject to an exception—apply to failures to furnish 2020 Forms 1095-C. Large employers that sponsor self-insured health plans generally must use Form 1095-C, Part III (rather than Form 1095-B) to satisfy Code Section 6055. (Regarding this combined reporting, see Practice Note, ACA Information Reporting: Forms 1095-C and 1094-C (Overview): Reporting for Self-Insured Health Plans.) Because of combined reporting on Form 1095-C for full-time employees of large employers enrolled in self-insured health plans, the 2020 furnishing relief does not extend to the requirement to furnish Forms 1095-C to full-time employees. For full-time employees enrolled in self-insured health plans, the IRS will continue to assess penalties for a large employer's failure to furnish Form 1095-C (including Part III).
However, the 2020 furnishing relief does apply to penalty assessments for providing Forms 1095-C to employees enrolled in a large employer's self-insured plan who are not full-time employees for any month of 2020. (This assumes the two conditions for the 2020 furnishing relief, addressed above, are satisfied.)
The 2020 Section 6055 furnishing relief also does not affect penalty assessments regarding failures to timely file 2020 Forms 1094-B, 1095-B, 1094-C, or 1095-C with the IRS.

Transition Relief for Penalties Involving ACA Information Reporting

The IRS's guidance also provides transition relief for Code Sections 6721 and 6722 penalties involving incorrect or incomplete information. The relief applies to reporting entities that can show they made good-faith efforts to comply with the information reporting requirements for 2020 (that is, furnishing individual statements and filing information returns with the IRS) under Code Sections 6055 and 6056 relating to incorrect or incomplete information reported on the statement or return.
This transition relief applies to missing and inaccurate taxpayer identification numbers, dates of birth, and other information required on the individual statement or information return. The transition relief is not available to entities that:
  • Do not make a good-faith effort to comply.
  • Fail to furnish a statement or file a return by the due dates, as extended.
Good faith is based on whether an entity made reasonable efforts to prepare for filing information with the IRS and furnishing statements to individuals (for example, by testing the entity's ability to transmit data to the IRS).
Importantly, however, the IRS indicated in its guidance that 2020 is the last year it plans to provide this transition relief.

Practical Impact: Final Year for Extension?

In its guidance, the IRS again requested comments concerning whether an extension for providing employee statements under Code Sections 6056 and 6055 is needed going forward. In this regard, the IRS noted that it received few comments in response to a similar request issued last year—suggesting, in the IRS's view, that such relief may no longer be necessary. Absent comments explaining why such relief should be provided in future years, the IRS does not plan to provide furnishing relief after 2020. Plan administrators, their advisors, and other entities that benefit from the extension and wish to have it available in future years are encouraged to submit comments in support of the extension. Comments are due by February 1, 2021.