ACA Reporting: Forms 1094-C and 1095-C Explained

If your business has grown to 50 or more full-time employees (or equivalents), you've entered new territory with the Affordable Care Act. Along with the requirement to offer health insurance comes a significant paperwork obligation: annual ACA reporting using Forms 1094-C and 1095-C. Many business owners find this reporting complex and intimidating, but understanding the basics can help you stay compliant and avoid costly penalties.

What Is ACA Reporting?

ACA reporting is the IRS's way of verifying that large employers are meeting their obligations under the employer mandate. Think of it as a detailed report card that shows whether you offered adequate, affordable health coverage to your full-time employees throughout the year.

Businesses with 50 or more full-time employees (including full-time equivalents) are called Applicable Large Employers, or ALEs. If you're an ALE, you must file these forms annually, even if you offered health insurance to all eligible employees. The reporting serves two purposes: it helps the IRS enforce the employer mandate, and it provides employees with documentation they need for their personal tax returns.

How the Forms Work Together

The ACA reporting system uses two forms that work as a pair. Form 1094-C is the master form that provides a company-wide summary. Form 1095-C provides individual employee-level details. Every full-time employee gets their own 1095-C form.

Form 1094-C includes basic company information, total employee counts, and whether you offered minimum essential coverage. It also indicates if you're claiming any special circumstances or safe harbors that might reduce your penalty exposure.

Form 1095-C is more detailed and specific to each employee. It shows month-by-month whether that employee was offered coverage, whether it was affordable and provided minimum value, and what the employee's required contribution would have been. This form also tracks the employee's employment status each month.

Filing Deadlines and Distribution Requirements

The reporting process has two key deadlines each year. First, you must provide copies of Form 1095-C to your employees by early in the calendar year, typically by the end of January (though extensions are sometimes available). Second, you must file the forms with the IRS by a later deadline, usually in late February for paper filing or late March for electronic filing.

The employee distribution requirement is crucial because employees need their 1095-C forms to complete their personal tax returns accurately. If an employee claims they're exempt from the individual mandate penalty because their employer's coverage was unaffordable, the IRS will check your 1095-C to verify that claim.

Why Employers Must Handle This Reporting

ACA reporting isn't optional for ALEs—it's a legal requirement with significant penalties for non-compliance. The IRS can assess penalties for failing to file forms, filing incomplete or inaccurate forms, or failing to provide forms to employees on time. These penalties can add up quickly when multiplied across your entire workforce.

Beyond avoiding penalties, proper ACA reporting protects your business by documenting your good faith efforts to comply with the employer mandate. If the IRS ever questions whether you offered adequate coverage, your forms serve as your primary defense. Accurate reporting also helps your employees by providing them with the documentation they need for their own tax compliance.

What Employees Need to Know

Your employees should understand that receiving Form 1095-C doesn't mean they owe additional taxes or have done anything wrong. The form is simply documentation of the health coverage you offered them during the year. Employees use this information when filing their personal tax returns, particularly if they purchased insurance through a marketplace or are claiming exemptions from coverage requirements.

Some employees may have questions about the codes and numbers on their 1095-C forms. The forms use various codes to indicate offer status, affordability, and coverage details for each month of the year. While the codes may look confusing, they're simply a standardized way of communicating coverage information to the IRS.

Common Errors to Avoid

Many businesses struggle with ACA reporting because it requires careful tracking of employee hours, coverage offers, and premium amounts throughout the entire year. Common mistakes include incorrect employee classification (full-time versus part-time), wrong affordability calculations, missing or incorrect offer codes, and inconsistencies between the master form and individual employee forms.

Another frequent error is failing to account for employees who change status during the year—for example, part-time employees who become full-time, or vice versa. The forms must accurately reflect these changes month by month. Additionally, many employers struggle with the technical aspects of the safe harbor elections, which can provide protection against penalties if properly claimed.

How Benton Oakfield Helps

ACA reporting requires year-round attention to detail and deep understanding of complex regulations that change frequently. At Benton Oakfield, we handle the entire ACA reporting process as part of our comprehensive plan administration services. We track your employee hours, monitor coverage offers, calculate affordability, and prepare accurate forms that meet all IRS requirements.

Our team stays current with regulatory changes and can help you choose the right safe harbors to minimize penalty exposure. We also ensure your employees receive their forms on time and understand what the information means for their personal tax situations. This comprehensive approach helps Long Island businesses focus on running their operations while maintaining full ACA compliance.

Ready to simplify your ACA reporting obligations? Contact our team to learn how we can handle this complex requirement for your business, ensuring accuracy and compliance while saving you time and stress.

Compliance Note: Benefit plan rules and tax implications vary based on company size and location. This guide is for educational purposes only. Please contact your Benton Oakfield representative to discuss how this applies to your specific situation.

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