Today (March 31, 2016) is the due date by which “applicable large employers” (ALEs) must furnish 1095-Cs to employees who were full-time in 2015. For self-insured plans, both large and small employers must furnish 1095-Cs or 1095-Bs to full-time and part-time employees who were enrolled in coverage (and to enrolled non-employees such as dependents, former employees or outside directors).
For some employers, today’s question is:
What are the penalties for furnishing 1095-Cs/or Bs) late (after March 31, 2016), or for furnishing incorrect 1095-Cs/Bs and then sending corrected forms in the next week?
If this does not apply to you, you can just skip the rest of this article!
The Short Answer
- There is no penalty for furnishing incorrect forms today and sending corrected forms (preferably as soon as possible), as long as you made a good faith effort to comply with information reporting requirements for 2015.
- The penalty for furnishing forms late is $250 per form, to a maximum of $3,000,000 (only $1,000,000 for smaller employers, as defined below). Additionally, if you furnish the forms within 30 days (i.e., by April 30), the penalty is reduced from $250 to $50 per form. The IRS may waive or reduce the penalty if you furnish the forms late but you can show it was due to “reasonable cause and not to willful neglect.” (IRC section 6724)
So, the safer course of action is to send incorrect forms today and send corrected forms as soon as possible. (Yes, this is an administrative burden and you will incur double mailing costs if you have not obtained employees’ prior consent to receive 1095-Cs electronically; but it’s probably less expensive than a $50/form penalty, if the IRS does not waive the late penalty.)
Why Might You be in this Situation?
Let’s hope you have made a good faith effort to accurately complete the 1095-Cs for full-time employees, so you qualify for the penalty relief for inaccurate filing. Some examples:
- You hired an outside information reporting vendor or payroll company, and you sent your information or input it online, but when you got the 1095-C forms from the vendor, you noticed that some of the information or codes were incorrect (perhaps lines 14-16?). You notified the vendor, but at this point they told you to send them out as is and send corrected forms later because they can’t correct them before March 31. (Not unreasonable on their part, if a lot of clients have sent them information just recently or if they have taken on additional clients since the IRS extended the due dates.)
- You did not hire an outside vendor, and you have your own payroll software (maybe you created it through QuickBooks), and you input all your payroll information, but the 1095-Cs just are not printing correctly.
- You did use the ACA method to count employees in 2014, and you thought you had fewer than 50 full-time employees or “full-time equivalents” in 2014 so were not subject to the Employer Mandate or the Information Reporting requirements in 2015, but you recently realized that you actually had 50-99 full-time equivalents in 2014, so you are subject to Information Reporting even though not to the Employer Mandate in 2015.
An example of NOT a good faith effort is: You thought this would all just go away by now so you did not deal with it, because you have too much “real work” to do anyway.
Late-Filing Penalties and “Reasonable Cause”
For 2015 filings the IRS will not impose an “inaccuracy” penalty, but it will impose a penalty for late or non-filing (with the IRS) or furnishing (forms to employees). However, an employer MAY get relief if it can show that the failure to timely file or furnish was due to reasonable cause and not willful neglect. Below are details on the late-filing penalties and on what constitutes “reasonable cause.”
Late Filing/Furnishing Penalties
- Late filing penalty is $250 per return (e.g., per 1095-C), to a maximum of $3,000,000 per year.
- There is a lower cap (only $1,000,000, not $3,000,000) for smaller entities with gross receipts of not more than $5,000,000.
- However, these amounts are reduced if late or non-filings are corrected by the following dates:
- 30-Day Rule. If 1095-Cs (or Bs) are furnished to enrollees within 30 days after the due date (e.g., by April 30, 2016):
- the per-return penalty is reduced from $250 to $50 per return, and
- the calendar-year cap is reduced to $500,000 ($175,000 for small entities with gross receipts of not more than $5,000.000). (Code §§6721(b)(1) and 6722(b)(1).
- Oct. 1, 2016 Rule. If 1095-Cs/Bs are furnished after April 30, 2016, but on or before Oct. 1, 2016:
- the per-return penalty is reduced from $250 to $100 per return, and
- the calendar-year cap is reduced to $1.5 million ($500,000 for small entities with gross receipts of not more than $5,000.000). (Code §§6721(b)(2) and 6722(b)(2).) (Note that for years after 2016, the dates are earlier, and the Oct. 1 rule is August 1 instead.)
- Note that for paper and electronic filings with the IRS (as opposed to furnishing 1095-Cs/Bs to enrollees), the late filing dates for reduced penalties are different:
- For paper returns filed with the IRS, late filings by June 30, 2016, will be subject to reduced penalties of $50 per return to a maximum of $500,000 ($175,000 for small entities), and late filings by November 1, 2016 will be subject to reduced penalties of $100 per return to a maximum of $1.5 million ($500,000 for small entities).
- For electronic returns filed with the IRS, late filings by July 30, 2016, will be subject to reduced penalties of $50 per return to a maximum of $500,000 ($175,000 for small entities), and late filings by November 1, 2016 will be subject to reduced penalties of $100 per return to a maximum of $1.5 million ($500,000 for small entities).
Code section 6724 provides that no penalty shall be imposed if the filer shows “that such failure is due to reasonable cause and not to willful neglect.”
In evaluating whether a particular ALE meets the “reasonable cause” test, the IRS will consider whether there were “significant mitigating factors” and whether the failure to timely file “arose from events beyond the filer’s control.” Additionally, the filer must establish that it “acted in a responsible manner.” Some practical applications of these terms:
- One “mitigating factor” the regulations note is whether the filer was required in the past to file or furnish the particular type of return or statement. Since this is the first year that 1095s and 1094s are required, this would be a “mitigating factor” for all employers.
- One type of “event beyond the filer’s control” noted in the regulations is if the filer can show that it contracted with an agent (third party) to furnish timely correct statements and provided the proper information sufficiently in advance of the due date.
- In determining whether an employer “acted in a responsible manner,” the IRS will likely take into account whether the employer made reasonable efforts to develop the appropriate procedures, collect the data needed, prepare the forms itself or contract with outside entities to prepare the forms, and furnish the forms to employees and covered individuals or test its ability to transmit information to the IRS directly. The IRS also will take into account the extent to which the employer is taking steps to ensure that it is able to comply with the reporting requirements for 2016.
(For more detail on “reasonable cause,” see IRS regulations at 301.6724-1; for specific application to 1095-1094 filings, see Q/A 3 on the IRS webpage entitled “Questions and Answers on Reporting of Offers of Health Insurance Coverage by Employers” – here.
Since this is the first year that 1095s and 1094s are required, I think the IRS is unlikely to impose penalties if an employer made reasonable efforts to timely furnish 1095-Cs or Bs but ended up sending them a few days or a week late, but that is just my personal opinion. Leavitt is not guaranteeing this. Employers should consider their own tolerance for risk and also consult with their legal counsel.
What if you send inaccurate forms on time (i.e., by March 31, 2016) and then send corrected forms, since there is no penalty to do that as long as you made a good faith effort to comply with information reporting requirements for 2015 and to obtain accurate information?
The following rules apply if you send corrected Forms 1095-C or B. For additional information, see page 4 of the “2015 Instructions for Forms 1094-C and 1095-C , here.
- You must complete all applicable lines of the form, not just the lines with corrected information.
- If you are correcting a form 1095-C that you previously furnished to an enrollee but have not yet filed with the IRS, you should write CORRECTED on the revised form to the recipient, but you should not check the checkbox on Form 1095-C that indicates a corrected form. (This will apply if you furnish corrected forms to enrollees next week.)
- If you are correcting a form 1095-C that you have already filed with the IRS, you must check the checkbox on Form 1095-C to indicate a corrected form. Do not write CORRECTED on this form.