What Happens When You Don’t File Forms 1094/1095-C
If you have received IRS Letter 5699 or similar notices about unfiled informational returns 1094/1095-C, you need to act now. Failure to submit these forms can lead to significant penalties.
The Affordable Care Act (ACA) requires employers with at least 50 full-time workers to offer their employees health insurance. These businesses must also furnish their employees with Form 1095-C (Employer-Provided Health Insurance Offer and Coverage). And they should file Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns).
In late 2018, the IRS started issuing penalties under IRC Sections 6721/6722 to employers for failing to distribute, not filing, or incorrectly filling out these forms. The penalties can be severe.
If you received a notice about these forms, we can help you. The tax attorneys at The W Tax Group have extensive experience dealing with unfiled information returns and penalties — contact us today.
Who Needs to File Form 1094/1095-C?
The IRS refers to the businesses that need to file these forms as applicable large employers (ALE)s. A business is considered an ALE if it had an average of 50 or more full-time employees during the preceding year.
For example, if you employed 50 or more full-time employees in 2020, you are required to prepare and distribute Form 1095-C to the full-time employees working for you during 2021.
What Is Form 1095-C?
Form 1095-C has been mandatory for ALEs since 2015, and it requires the following information:
- Employee name, Social Security Number, and address.
- Employer name, Employer Identification Number, and address.
- The health insurance coverage offered to the employee.
- The lowest-cost premium available to the employee.
- The months of the year when the coverage was available.
You must provide this form to all of your employees who are eligible for coverage, even if they didn’t participate in your health plan. You must distribute or postmark these forms by the last day of January along with W2s, 1099-NECs, and other employee tax documents. For tax year 2021, the 1095-C deadline has been extended to March 2, 2022.
What Is Form 1094-C?
The 1094-C is basically a “cover sheet” for the 1095-C forms. When you send your employees’ 1095-C forms to the IRS, you also send a completed Form 1094-C. These forms are due on February 28 if you file on paper and by March 31 if you e-file.
Employers with fewer than 250 employees can choose whether they want to mail a paper return or e-file. If you have 250 or more employees who receive 1095-C forms, you must e-file.
This form requires the following details:
- The name, address, phone number, and EIN of your business.
- The number of full-time employees you have.
- The name of a contact person.
- How many 1095-C forms you generated for your employees.
If you’re filing as part of an Aggregated ALE Group, you must list the other members of your aggregated group.
How the IRS Uses Forms 1095-C and 1094-C
The IRS needs information from the 1095/1094-C forms to track ACA compliance. If employers are supposed to offer coverage but don’t, they must pay a penalty. The IRS uses these forms to identify which employers should face a penalty.
Why the IRS Is Focusing on 1095/1094 Compliance Now
Perhaps you’ve never filed a 1095-C or a 1094-C and you’ve never received a notice until now. Or maybe you weren’t even aware of this requirement. If so, you’re probably wondering, why is the IRS cracking down on this rule now?
For the first five or six years that this filing requirement was in place, the IRS offered good-faith transition relief. Basically, that means the IRS was saying, “We know new rules are complicated. We’re going to give you time to figure it out.”
Now, however, the agency thinks that employers should be compliant. In the IRS’s eyes, ALEs have had since 2015 to get accustomed to this requirement, and now the agency is rolling out the penalties.
Penalties for Not Filing or Incorrectly Filing Forms 1094/1095-C
As of 2022, the penalty for failing to file an informational return is $280 per return, up to $3.426 million per business. Failure to provide a correct payee statement is also $280 per statement and can be up to $3.426 million per employer.
These penalties can be stacked. If you don’t furnish an employee with a correct 1095-C and you don’t file the form with the IRS, your penalty will be $560 per employee.
Additionally, the IRS can impose much stricter penalties for a general lack of ACA compliance. If you don’t offer adequate health insurance to your employees, the penalty is $2,570 per employee. You don’t pay this penalty on the first 30 employees, just the employees over that threshold.
If you offer coverage that doesn’t provide minimum value or is not considered affordable, your penalty will be the lesser of the following:
- $3,860 per full-time employee who received a tax credit for purchasing insurance on the marketplace.
- $2,570 per full-time employee, minus the first 30.
The IRS is expected to issue more than $228 billion in ACA-related penalty assessments to employers. Just a single year of non-compliance can lead to penalties in excess of $200,000 for employers with 50 to 60 employees. You need to file these forms if you want to avoid the penalties.
What to Do If You Receive Letter 5699
Generally, the IRS makes initial contact with employers by sending Letter 5699 (Missing Information Return Form 1094/1095-C). This letter outlines the following reasons for not filing along with these resolution options:
- If you filed under a different EIN, you should provide the name, EIN, and date that you used when filing.
- If you are not an ALE, you should respond with information to prove that you don’t have that many employees.
- If you should have filed but didn’t, you can submit the delinquent forms now or send in an explanation of when you will be able to e-file them.
- If you had another reason to not file these forms, you should contact the IRS.
Ideally, you should get help dealing with this letter, and you should respond as soon as possible. After this letter, the IRS may send out penalty notices and start collection actions.
Get Help with Late, Unfiled, or Incorrect 1095-C Forms Today
The 1094/1095-C forms are among the newest information forms required by the IRS. Overlooking these forms is understandable, but to minimize penalties as much as possible, you need to deal with these forms, especially if you’ve been contacted by the IRS. You have to meet the IRS’s deadlines if you want to preserve your rights to appeal or dispute penalties.
If you have received an IRS notice don’t ignore it. Instead, get help from a tax professional who understands how the IRS works. At The W Tax Group, our tax attorneys have the experience and knowledge you need — contact us for help with ACA filing requirements today.
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