The employer mandate of the Affordable Care Act requires employers with 50 or more full-time equivalent employees (Applicable Large Employers, aka ALEs) to offer healthcare coverage to their full-time employees or potentially pay a penalty to the IRS. One of an employer’s responsibilities as an ALE is to complete Form 1095-C, which is then distributed to employees and the IRS, and details the employer-based health insurance coverage being provided. Employees can use this form to help determine their eligibility for a premium tax credit. Think of the form as “proof of insurance” to the IRS.
The final rule, Health Reimbursements Arrangements and other Account-Based Group Plans, established that, beginning with the 2020 tax year, an individual coverage HRA (ICHRA) may be used to satisfy the requirements of the employer mandate. A key component of meeting this mandate is that coverage must be affordable. Consequently, on July 13, 2020, the IRS released a draft of Form 1095-C, which adds new codes (1L - 1S) for employers to indicate the method they used to determine affordability for their ICHRA plan. These codes are reproduced here:
- 1L. Individual coverage health reimbursement arrangement (HRA) offered to you only with affordability determined by using employee’s primary residence location ZIP Code.
- 1M. Individual coverage HRA offered to you and dependent(s) (not spouse) with affordability determined by using employee’s primary residence location ZIP Code.
- 1N. Individual coverage HRA offered to you, spouse and dependent(s) with affordability determined by using employee’s primary residence location ZIP Code.
- 1O. Individual coverage HRA offered to you only using the employee’s primary employment site ZIP Code affordability safe harbor.
- 1P. Individual coverage HRA offered to you and dependent(s) (not spouse) using the employee’s primary employment site ZIP Code affordability safe harbor.
- 1Q. Individual coverage HRA offered to you, spouse and dependent(s) using the employee’s primary employment site ZIP Code affordability safe harbor.
- 1R. Individual coverage HRA that is NOT affordable offered to you; employee and spouse or dependent(s); or employee, spouse, and dependents.
- 1S. Individual coverage HRA offered to an individual who was not a full-time employee
Note: These codes are from a document labeled as draft, as of July 13, 2020 and are subject to change.
Conclusion
The added codes to Form 1095-C can help employees understand how their employer determined ICHRA affordability. Employers providing an ICHRA typically must provide Form 1095-C to employees by January 31st, 2021. Employers must file the form by February 28, 2021 for paper filing and March 31, 2021 for electronic filing).
Note: For 2021, the IRS extended the date employers need to provide form 1095-C to employees from January 31st to March 2. The date for filing forms was not automatically extended, but filers can obtain a 30-day extension by submitting Form 8809 (Application for Extension of Time to File Information Returns) by the filing due date.
Wondering if the allowance you are planning to offer is affordable for an employee? Use our online ICHRA affordability calculator to see.
Are you interested in learning more about offering an ICHRA?
Watch our webinar: How the HRA works for employers
