Legal Alert: New ACA-Related Laws Provide More Flexibility to Employers

On Monday, December 23, 2024, President Biden signed into law two bills, H.R. 3797 (the “Paperwork Reduction Act”) and H.R. 3801 (the “Employer Reporting Improvement Act”),which will positively impact applicable large employers (“ALEs”) and other entities required to furnish forms 1095-B or 1095-C to individuals.

Background

Under the Affordable Care Act, ALEs (i.e., employers who have employed an average of 50 or more full-time equivalent employees in the prior year) must file forms 1094-C and 1095-C with the IRS and furnish forms 1095-C to full time employees. In addition, sponsors of self-funded plans must furnish forms to covered individuals. The furnishing deadline is generally March 1 of each year.

Further, the IRS issues a penalty letter (Letter 226J) when an employee of an ALE receives a premium tax credit for Marketplace coverage and the ALE reports the employee as full-time without a qualified reason as to why affordable health insurance was not offered. An ALE’s response to Letter 226J is generally due 30 days from the date of Letter 226J. If the ALE does not respond timely to Letter 226J or any reminder letter, the IRS will assess the amount of the proposed penalty and issue a notice and demand for payment.

Summary of the New Laws

The Paperwork Reduction Act considers employers to meet their requirement to furnish form 1095-B or 1095-C to employees if the following conditions are met:

The employer or reporting entity (e.g., insurance carrier) provides a clear, conspicuous, and accessible notice that any individual who is otherwise required to receive the form 1095-B or 1095-C can request a copy, and
The employee can request a copy of the form, which the employer or reporting entity must provide no later than the later of:
- January 31 of the year following the calendar year for which the return was required to be made, or
- 30 days after the date of such request.

The Paperwork Reduction Act is effective for calendar year 2024 forms that are required to be furnished to employees in 2025.

The Employer Reporting Improvement Act allows employers to provide form 1095-B or 1095-C to individuals electronically if they have consented to receive it electronically. It also allows employers to use an individual’s date of birth, in lieu of a social security number, if the social security number is not available when completing the forms, except when reporting the employee on form 1095-C.

In addition, the Employer Reporting Improvement Act provides employers more time to respond to IRS ESRP letters. In many cases, employers are given approximately 30 days to respond to an initial ESRP letter from the IRS; however, the new law requires the IRS to give employers 90 days to respond to the initial letter before the IRS can take any action against the ALE. This gives employers significantly more time to review Letter 226J and gather the necessary data to prepare an appeal. The law applies to assessments proposed in taxable years beginning after the enactment of the law, so initial Letters 226J sent after December 23, 2024. It will not extend the deadline for Letters 226J already sent to employers before December 23, 2024.

Finally, the Employer Reporting Improvement Act established a 6-year statute of limitations, beginning from the date the forms 1094-C and 1095-C were required to be filed (or the date they were filed if filed after the filing deadline) for the IRS to seek an ESRP. This portion of the law is effective for the 2024 tax year forms (which are due in 2025) and beyond.

Next Steps for Employers

While these new laws are currently effective, it is important to note that none of these changes impact an ALE’s obligation to (1) offer affordable, minimum essential coverage meeting minimum value requirements to its full-time employees, or (2) file forms 1094-C and 1095-C with the IRS by the applicable filing deadline.

ALEs are, however, afforded more flexibility when furnishing these forms to their employees or former employees, and more time is permitted when responding to initial IRS ESRP letters.

Further, while ALEs are given more time to respond to IRS Letters 226J, they should ensure they have a process in place to identify the letters, ensure the letters are routed to the appropriate person at the company, and timely respond to the letters.

Thus, ALEs and other reporting entities such as sponsors of small, self-funded plans should:

Be aware of the changes applicable to using an individual’s birthdate in lieu of a social security number when completing the filing.
Work with their filing vendors to determine whether they can amend current contracts to eliminate the mail furnishing provisions if they do not want to furnish the forms by mail.
If they will be furnishing the forms or notice electronically, work with their filing vendor, payroll provider, or their benefit administration system to notify individuals of how and where to access their form 1095-B or 1095-C.
Ensure they have processes in place to ensure any Letters 226J are appropriately and timely routed to the correct department and responded to timely.
Also, because this does not change an ALE’s obligation to file forms 1094-C and 1095-C with the IRS, they should recall that all forms must be filed electronically for any company that files 10 or more returns with the IRS, which includes most tax forms required to be filed by the company.

About the Author. This alert was prepared for Tooher-Ferraris by Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Stacy Barrow or Nicole Quinn-Gato at [email protected] or [email protected].

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