Form 1095 Update

Form 1095 is a family of IRS tax forms used to document and verify health insurance coverage in connection with the Affordable Care Act's individual mandate and employer shared responsibility provisions. Three variants exist, each with distinct filers. Form 1095-A (Health Insurance Marketplace Statement) is issued by the Health Insurance Marketplace to individuals who enrolled in coverage through an ACA exchange, and is used to reconcile Premium Tax Credit claims on Form 8962. Form 1095-B (Health Coverage) is filed by insurance companies, self-insured employers with fewer than 50 full-time equivalent employees, and other providers of minimum essential coverage, to document that individuals had qualifying health coverage. Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) is filed by Applicable Large Employers (ALEs)—generally those with 50 or more full-time equivalent employees—to report whether they offered qualifying, affordable, minimum value coverage to each full-time employee and their dependents, and whether each employee enrolled. ALE filing obligations under Section 6056 are a key component of demonstrating compliance with the employer shared responsibility requirements and avoiding potential assessable payments.

Form 1095-B and Form 1095-C both document health coverage but serve different purposes and have different required filers. Form 1095-B is used to report minimum essential coverage provided to individuals—it is filed by health insurance issuers, self-insured employers with fewer than 50 full-time equivalents, and other MEC providers. It identifies who was covered and for which months, supporting individual tax compliance. Form 1095-C is used specifically by Applicable Large Employers to satisfy their Section 6056 reporting obligations under the ACA employer mandate. It contains two distinct sections: Part II documents the offer of coverage (or lack thereof) and affordability for each full-time employee each month, using a series of indicator codes on Lines 14, 15, and 16; Part III documents actual enrollment in self-insured employer-sponsored coverage. ALEs that sponsor self-insured plans must complete all three parts of 1095-C; ALEs that offer fully insured coverage complete only Parts I and II, while the insurance carrier handles 1095-B for enrolled employees. Understanding which form applies, which sections are required, and how to correctly populate the indicator codes is essential for benefits administrators and payroll teams managing ACA compliance.

Form 1095-C requires Applicable Large Employers to report detailed information about their health coverage offerings and enrollment for each full-time employee. Part I captures employee and employer identification information. Part II—the most substantive section—uses a series of Line 14 offer codes to indicate what coverage was offered each month (for example, whether minimum essential coverage offering minimum value was offered to the employee and their dependents); Line 15 to report the employee share of the lowest-cost self-only minimum value coverage offered each month; and Line 16 safe harbor codes to indicate situations where the employer may avoid penalty liability, such as the employee's eligibility for Medicaid or the coverage meeting one of the affordability safe harbors (W-2, federal poverty line, or rate of pay). Part III is completed only by ALEs sponsoring self-insured plans and lists covered individuals and their coverage months. Incorrect completion of the indicator codes on Lines 14, 15, and 16 is one of the most prevalent 1095-C errors, and these errors can affect the employer's ability to demonstrate compliance with the affordability and minimum value requirements when the IRS assesses potential employer shared responsibility payments.

The penalties for ACA information reporting failures under Sections 6721 and 6722—which govern forms 1095-B and 1095-C—are substantial and have increased with inflation adjustments. For the 2024 tax year, the standard penalty for failure to file a correct return with the IRS is $330 per return, capped at $3,987,000 per year; the same penalty applies for failure to furnish a correct statement to each covered individual. If both filing and furnishing failures occur for the same return, both penalties can apply, potentially doubling the exposure. Penalties are reduced for corrections made within 30 days of the deadline ($60 per return) or by August 1 ($120 per return). Willful disregard carries higher penalties with no annual cap. The IRS has historically sent Letter 226-J to ALEs proposing Employer Shared Responsibility Payments (ESRPs) when 1095-C data suggests coverage was not offered or was not affordable—these letters can propose significant assessable payments if the reporting data is incorrect or incomplete. Organizations must respond to 226-J letters promptly and with documented evidence to contest or reduce proposed ESRPs, making accurate 1095-C completion and timely filing critical compliance priorities.

Form 1095 reporting requirements have continued to evolve through IRS guidance, legislative changes, and court decisions affecting ACA compliance. Key recent updates include changes to electronic filing thresholds—the IRS significantly lowered the threshold requiring electronic filing to just 10 aggregate information returns (across all types), meaning virtually all ALE filers are now required to file Forms 1095-C electronically. The IRS has also updated the 1095-C form to add new indicator codes reflecting coverage scenarios including individual coverage health reimbursement arrangements (ICHRAs) and other coverage options. Furnishing deadline accommodations that were automatic for several years have been codified in regulations, simplifying the compliance calendar for HR and benefits teams. The IRS has also updated its enforcement approach to Letter 226-J ESRP assessments, with some modifications to the process and timeline for employer responses. Benefits administrators, payroll professionals, and HR compliance officers must stay current on these updates annually—as indicator codes, deadlines, electronic filing requirements, and penalty amounts are subject to change—to ensure 1095-C filings accurately reflect the employer's coverage offerings and avoid inadvertent non-compliance.