IRS Finalizes Permanent ACA Information Reporting Extensions

Practical Law Legal Update w-037-9149 (Approx. 8 pages)

IRS Finalizes Permanent ACA Information Reporting Extensions

by Practical Law Employee Benefits & Executive Compensation

IRS Forms 1095-B and 1095-C; Related Penalty Provisions

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 disclosed under Code Section 6055 was used to administer and enforce the ACA's individual mandate, until the amount of the mandate payment was reduced to zero beginning in 2019 by the Tax Cuts and Jobs Act (TCJA) (26 U.S.C. § 5000A; see Practice Note, Affordable Care Act (ACA) Overview: Individual Mandate and Tax Cuts and Jobs Act (TCJA) Compliance for Fringe Benefits and Health Plans Toolkit).

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 2020 Reporting Years

In a series of notices, the IRS extended the deadlines for ACA information reporting for the 2015 through 2020 calendar years. The 2015 extensions (under Notice 2016-4) applied both to information returns filed with the IRS and statements furnished to individuals. Since then, the extended deadlines applied only to statements furnished to individuals. For more information on these extensions, see Practice Note, Information Reporting for Employers That Self-Insure and Insurers (Section 6055): Due Dates for Filing and Furnishing Forms 1094-B and 1095-B.

Extended Deadline for Providing Forms 1095-B

In November 2020, the IRS extended the deadline for furnishing individuals their 2020 Forms 1095-C and 1095-B, as applicable, from January 31, 2021, to March 2, 2021 (Notice 2020-76). The extended due date applied automatically and did not require submission of a request or other documentation to the IRS. However, this extension did not apply to the deadline for furnishing information returns to the IRS. Because of the automatic extension, rules allowing the IRS to grant an extension of up to 30 days to furnish Forms 1095-C and 1095-B did not apply.

In comments provided in response to Notice 2020-76, employers, health insurers, and other entities indicated that the current January 31 deadline for furnishing Forms 1095-C and 1095-B generally are difficult to meet. Among other reasons, this is because reporting requires some employers—on a compressed timetable—to:

Gather health coverage offer and enrollment information for their employees (which may be derived from multiple systems).
Verify the information's accuracy.
Transmit the information to third-party service providers to furnish the statements.

Because this information reflects the month of December, these activities cannot be completed until after the end of the year.

The December 2021 proposed regulations would have amended the rules under Section 6055 to give reporting entities an automatic extension of up to 30 days to furnish individuals Forms 1095-B. In a slight change intended to provide a clearer rule, the final regulations grant reporting entities a permanent, automatic 30-day extension in which to provide these statements (26 C.F.R. § 1.6055-1).

The final regulations also eliminate a provision that allows reporting entities to make written requests to the IRS for time extensions for furnishing written statements required under Code Section 6055 (26 C.F.R. § 1.6055-1(g)(4)(i)(B)(1)). The IRS declined to adopt a commenter's suggestion that the final regulations also retain the IRS's authorization to provide additional automatic extensions for providing written statements in appropriate cases (26 C.F.R. § 1.6055-1(g)(4)(i)(B)(2)).

Alternative Method for Providing Forms 1095-B

Effective beginning in 2019, as noted, 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 provided notice relief—for 2020—from Code Section 6722 penalties for failures to furnish Forms 1095-B to individuals (Notice 2020-76). However, this relief was only available if a reporting entity:

Prominently posted a notice on its website stating that individuals could receive a copy of their 2020 Form 1095-B on request.
Provided contact information so that individuals could send requests or questions.
Furnished a 2020 Form 1095-B to an individual on request within 30 days of the date the request was received.

The final regulations adopt the proposed alternative method for furnishing Forms 1095-B. Under this alternative method:

A reporting entity must post a clear and conspicuous notice on the entity's website that:
- is reasonably accessible; and
- states that individuals may receive a copy of their statement on request.
The website notice must contain:
- an email address;
- a physical address to which a request for a statement may be sent; and
- a telephone number that individuals may use to contact a reporting entity with questions.

(26 C.F.R. § 1.6055-1(g)(4)(ii)(B).)

This notice must be written:

In plain, non-technical terms.
Using letters in a font size that is large enough (including visual clues or graphical figures) to call an individual's attention to the fact that the information is about tax statements for reporting that individuals had health coverage.

To comply with these "clear and conspicuous" standards, a reporting entity's website may:

Include a statement on the main page (or a link on the main page) that reads "Tax Information," and directs to a secondary page that includes the statement, in capital letters, "IMPORTANT HEALTH COVERAGE TAX DOCUMENTS."
Explain how individuals may request a copy of Form 1095-B (or Form 1095-C, as applicable).
Contain the reporting entity's email address, mailing address, and telephone number.

This alternative furnishing method applies only to tax years when employer mandate penalties are zero (as is presently the case under the TCJA).

The IRS declined a commenter's request to extend the alternative method of furnishing to Forms 1095-C, noting that:

Form 1095-C and Form 1095-B serve different purposes (that is, demonstrating whether the employer has complied with the ACA's employer mandate versus determining individual mandate penalties).
The TCJA changes only affected Form 1095-B.

However, the final regulations (as with the December 2021 proposed regulations) do permit large employers that sponsor self-insured health plans to use the alternative manner of furnishing for non-employees and non-full-time employees for whom furnishing is required under 26 C.F.R. Section 1.6055-1 (see Practice Note, Information Reporting for Employers That Self-Insure and Insurers (Section 6055): Combined Reporting (Code Sections 6055 and 6056)). Large employers may not use this alternative furnishing method for full-time employees who are enrolled in the self-insured plan.

Website Retention Period for Furnishing Relief Notice

Reflecting a change from the December 2021 proposed regulations, the final regulations clarify the deadline for posting the "clear and conspicuous" notice described above. A reporting entity must post the notice on its website by the extended deadline for furnishing Form 1095-B. Reporting entities must keep the website notices posted until October 15 of the year after the calendar year to which the statement relates (or the first business day after October 15, if October 15 is a Saturday, Sunday, or legal holiday)

Extended Deadline for Providing Forms 1095-C

The December 2021 proposed regulations would have amended the rules under Section 6056 to give reporting entities an automatic extension of up to 30 days to furnish individuals their Forms 1095-C. In a slight change, the final regulations expressly provide for a permanent, automatic 30-day extension (26 C.F.R. § 301.6056-1(g)(1)). The IRS declined to adopt a commenter's suggestion that the final regulations retain the IRS's authorization to provide additional automatic extensions (26 C.F.R. § 1.6056-1(g)(1)(ii)(B)).

Elimination of Transition Relief for ACA Information Reporting Penalties

In past years, the IRS provided transition relief for Code Sections 6721 and 6722 penalties involving incorrect or incomplete information reported on a statement or return. The relief applied to reporting entities that could show they made good-faith efforts to comply with the Code Section 6055 and 6056 information reporting requirements (that is, furnishing individual statements and filing information returns with the IRS).

This transition relief applied to missing and inaccurate taxpayer identification numbers, dates of birth, and other information required on the individual statement or information return. The transition relief was not available to entities that:

Did not make a good-faith effort to comply.
Failed to furnish a statement or file a return by the due dates, as extended.

In Notice 2020-76, however, the IRS indicated that 2020 was the last year the IRS would make available this transition relief.

In issuing the final regulations, the IRS observed that the ACA's reporting requirements have now been in place for seven years and that transitional relief from Code Sections 6721 and 6722 is, as a result, no longer appropriate. The transitional good faith relief penalties for reporting incorrect or incomplete information on information returns or statements therefore will not available for reporting for 2021 and later tax years.

Effective Date and Applicability Date

The final regulations were effective on December 15, 2022. The provisions concerning the automatic extended deadlines and alternative method for providing Forms 1095-B apply for calendar years beginning after December 31, 2021.

Practical Impact

Plan administrators and their advisors will likely welcome the relief provisions under the final regulations. Having clear and permanent time extensions going forward also will help avoid some of the guesswork of having to track extended deadlines under the IRS's annual extension notices. The IRS will be revising its instructions for Forms 1094-B and 1095-B to address the permanent, 30-day automatic extension of time for furnishing required statements.

IRS Finalizes Permanent ACA Information Reporting Extensions | Practical Law