In early August the draft instructions were released for the Forms 1094-C and 1095-C for 2016. While not much has changed, there are some differences in the Forms compared to 2015, and the IRS emphasized certain areas that many filers struggled with in 2015. This article is intended to provide an overview of the changes, provide helpful reminders, and point out things the IRS emphasized in the instructions to the Form 1094-C.
Different 1094 Deadline in 2017 for 2016 Data
First, and most importantly, the deadline for the Form 1094-C will be three or four months earlier in 2016 compared to 2015. The IRS has been clear that it does not plan to issue an extension as it did for the 2015 Forms. Therefore, the filing deadline for non-electronic filers for the 2016 Form 1094-C is February 28, 2017. The filing deadline for electronic filers for the 2016 Form 1094-C is March 31, 2017. However, both non-electronic filers and electronic filers can take advantage of an automatic 30 day extension by completing a Form 8809. This would delay the deadline to March 30, 2017 for non-electronic filers and May 1, 2017 (the 30th day is a Sunday which prolongs the extension deadline for electronic filers by one day in 2017) for electronic filers.Increased Risk of Penalties for Failure to Timely File
While more pertinent to the Form 1095-C, the penalty for the failure to file a correct information return (in this case the Form 1094-C) generally is $260 for each return for which a failure occurs. This penalty can be waived if the failure was due to reasonable cause and not willful neglect. However, employers no longer have the protection of the good faith effort standard in Q1 2017 for 2016 data. Getting the Forms right will matter more next filing season; just trying hard won't cut it.Clarification for Controlled Groups
Each Controlled Group Company Must File Form 1094
One area that caused particular confusion in 2015 and is reemphasized in the instructions is the need for each controlled group company (that is, each applicable large employer member, to use the parlance of the 1095 instructions) to file its own Form 1094-C. The easiest way to illustrate this is through a simple example. Suppose ABC Inc. owns 100 percent of XYZ Inc. ABC Inc. has 200 full-time employees and XYZ Inc. has 99 full-time employees. To keep the full-time equivalent (FTE) count easy, let's assume neither company has part-time employees. Together, ABC Inc. and XYZ Inc. make up one controlled group and one applicable large employer. However, both ABC Inc. and XYZ Inc. are each individually considered "applicable large employer members," and each company will need to file a separate Form 1094-C.It is important to remember the name, EIN, and address entered for the employer on the Form 1094-C and the accompanying Form 1095-Cs should match. However, if an employer wishes, the contact person on the Form 1094-C and Form 1095-Cs can be different.
Authoritative Transmittals Explained
Another area the instructions pay particularly close attention is the authoritative transmittal. In general, the authoritative transmittal will be any Form 1094-C that an employer submits. This should be the default and a Form 1094-C will only not be an authoritative transmittal in rare circumstances. Going back to the example discussed above, both ABC Inc. and XYZ Inc. would have to file a Form 1094-C that is an authoritative transmittal. This means ABC Inc. would complete a Form 1094-C that is an authoritative transmittal for its 200 employees. XYZ Inc. would complete a separate Form 1094-C that is authoritative transmittal for its 100 employees.A Form 1094-C would not be an authoritative transmittal if ABC Inc. decided it wanted to file its Form 1095-Cs in two batches. In this uncommon scenario, ABC Inc. would file one batch of Form 1095-Cs with a Form 1094-C that is not an authoritative transmittal which would only complete Part I of the Form 1094-C (every Form 1095-C or batch of 1095-Cs must be submitted with a Form 1094-C). The other batch of Form 1095-Cs would be filed with an authoritative transmittal. There is virtually no reason to do this, and I believe the IRS created more confusion and offered little, if any, benefit by allowing the option. That said, in the case of a corrected Form 1095-C being submitted to the IRS, an accompanying Form 1094-C that is not an authoritative transmittal would need to be submitted with the corrected Form 1095-C. This is the only relevant application we see for a non-authoritative transmittal.
More Fields Require Resubmission if Incorrect
Lastly, the IRS added an item specific to controlled groups that must be corrected if the initial submission contained inaccurate information. On Form 1094-C there is a section entitled, “Other ALE Members aggregated ALE group (name and/or EIN).” If an employer is part of a controlled group or an affiliated service group that makes up an aggregated ALE group, the employer will check the “Yes” box on line 21, complete column (d) in Part III for each month the employer is part of a controlled group or an affiliated service group, and then complete part IV. Part IV allows an employer to list up to 30 members of the controlled group or affiliated service group. In general, these should be listed in descending order starting with the employer with the highest average monthly number of full-time employees from column (b) of Part III of the Form 1094-C. The employer who is listed in part I of the Form 1094-C should not be listed in Part IV. If any of this information is incorrect, the 2016 instructions make it clear that a corrected return would need to be filed with the IRS.Big Changes to Form 1094 Line 22: Transition Relief
The biggest changes to the Form 1094-C came with regard to line 22. Box B, which was to be checked if an employer was using the Qualifying Offer Method Transition Relief in 2015, has been eliminated as that transition relief provision is no longer applicable. Box B on the Form 1094-B is now marked as “reserved” and cannot be checked.Box C on line 22 has also changed for 2016 reports that will be filed in Q1 2017. For an employer that has a calendar year plan (a plan that runs from January 1 through December 31), this box should never be checked on 2016 forms. If an employer only sponsors a non-calendar year plan, then this box will almost always be checked. The reason for this is one of the two options for which box C should be checked for the 2015 plan year will almost always apply.
The first reason box C should be checked is if the employer had fewer than 100 full-time equivalent employees—that is, full-time employees plus equivalent employees reflected in part-time employee hours. For the “Fewer than 100 Full-Time Employees” transition relief to apply, an employer must certify that it meets the following three conditions:
- the employer must average at least 50 full-time equivalent employees (full-time employees plus equivalent employees reflected in part-time employee hours) but fewer than 100 full-time equivalent employees (again, including part-time employee hours) in 2014;
- from February 9, 2014 thru December 31, 2014 the employer cannot reduce its workforce or its workforce’s hours of service to meet the condition of having fewer than 100 full-time equivalent employees in 2014 (there is an exception for a bona fide business reason); and
- the employer must maintain and not materially reduce the health coverage the employer offered as of February 9, 2014 until the last day of the 2015 plan year.
The second reason box C should be checked is if the employer has 100 or more full-time equivalent employees (that is, full-time employees plus equivalent employees reflected in part-time employee hours). There are no conditions for this transition relief provision other than the employer having 100 or more full-time equivalents. This transition relief allows an employer to reduce its number of full-time employees by 80 instead of 30 when calculating the section 4980H(a) penalty for the months in 2016 attributed to the 2015 plan year. In general, an employer filing a Form 1094-C with a non-calendar year plan will always qualify for one of these two provisions, so there's little harm for such plans to almost always check box C on line 22.
Finally, column (e) of Part III of the Form 1094-C is directly tied to line 22 box C. This column will only be completed for the months in 2016 that are attributed to the 2015 plan year. If the employer is checking box C on line 22 because of the “Fewer than 100 Full-Time Employees” transition relief, it will enter code “A” in column (e) for each calendar month in 2016 attributed to the 2015 plan year. If the employer is checking box C on line 22 because the employer has 100 or more full-time employees (including FTEs), it will enter code “B” in column (e) for each calendar month in 2016 attributed to the 2015 plan year. An employer should never have A or B for all 12 months for the 2016 Form 1094-C. Additionally, either A or B will apply for the months corresponding to the 2015 plan year. There will never be an occasion where an employer puts A for some months and B for other months.