Form 1095: Health Coverage Reporting and ACA Compliance

• admin
• February 21, 2025
• 6 min read

Mastering Health Coverage Reporting and ACA Compliance with Form 1095

Navigating the complexities of health coverage reporting is crucial for both employers and individuals, especially under the Affordable Care Act (ACA). Form 1095 plays a pivotal role in this process, serving as a key document in demonstrating compliance with ACA mandates. Understanding and accurately completing this form can help you avoid penalties and ensure you receive any applicable tax credits.

Key Takeaways

• Form 1095 Overview: A critical document for reporting health coverage information to the IRS and individuals.
• Types of Form 1095: Includes Forms 1095-A, 1095-B, and 1095-C, each serving distinct purposes based on coverage sources.
• ACA Compliance: Accurate completion and timely distribution of Form 1095 are essential for adhering to ACA requirements.

Understanding Form 1095

Form 1095 is an IRS document used to report information about an individual’s health coverage. It is instrumental in verifying compliance with the ACA’s individual mandate, which requires most Americans to have health insurance. There are three variations of this form, each corresponding to different sources of health coverage:

Types of Form 1095

• Form 1095-A: Issued by the Health Insurance Marketplace to individuals who purchased coverage through the exchange. This form provides details necessary for claiming the Premium Tax Credit (PTC), which helps lower the cost of health insurance for eligible individuals.
• Form 1095-B: Provided by health insurance providers, including employers with fewer than 50 full-time employees, and government programs like Medicaid and the Children’s Health Insurance Program (CHIP). IRS Form 1095-B reports information about individuals who had minimum essential coverage (MEC), including those with employer-provided insurance.
• Form 1095-C: Furnished by Applicable Large Employers (ALEs)—those with 50 or more full-time employees—to report information about health coverage offered to their employees. This form assists the IRS in determining employer compliance with the employer shared responsibility provisions and employee eligibility for the Premium Tax Credit.

The Importance of Accurate Health Coverage Reporting

Accurate health coverage reporting via Form 1095 is vital for several reasons, not only for proving coverage compliance but also for understanding its impact on your income and taxes:

• Individual Mandate Compliance: While the individual shared responsibility payment was reduced to zero beginning in 2019, some states have their own mandates requiring proof of coverage. Form 1095 serves as evidence of coverage for state tax purposes.
• Premium Tax Credit Eligibility: For individuals purchasing insurance through the health insurance marketplace, Form 1095-A provides information necessary to reconcile advance payments of the Premium Tax Credit on their federal tax returns.
• Employer Mandate Compliance: ALEs must offer affordable health coverage to full-time employees and use Form 1095-C to report this compliance to the IRS. This form ensures that employers meet the ACA’s employer shared responsibility provisions, avoiding penalties under Section 4980H.

Key Details for Employers and Individuals

Distribution Deadlines and Filing Requirements

For the 2025 tax season, the IRS has established the following deadlines for distributing and filing Form 1095:

• Employers/Providers: Must distribute Form 1095 to employees or covered individuals by March 4, 2025 (extended from the usual January 31 deadline).
• IRS Filing: Employers filing electronically must submit Forms 1095-B or 1095-C to the IRS by March 31, 2025. Paper filers have until February 28, 2025.

Employers and insurers that fail to meet these deadlines may face penalties under Section 6721 (failure to file correct information returns) and Section 6722 (failure to furnish correct payee statements).

How Individuals Use Form 1095

• Form 1095-A: Essential for reconciling the Premium Tax Credit on Form 8962. Individuals who received advance payments of the PTC must compare these payments to their final credit eligibility when filing their tax return.
• Form 1095-B and 1095-C: While not required to file a federal tax return, these forms provide proof of minimum essential coverage for individual recordkeeping or state tax requirements.

Common Errors to Avoid

For employers and individuals, ensuring accuracy on Form 1095 is critical. Some common mistakes to watch for include:

• Incorrect Taxpayer Identification Numbers (TINs): Double-check all Social Security Numbers or Employer Identification Numbers.
• Inconsistent Coverage Dates: Verify that coverage periods reported match actual enrollment records.
• Failure to File Electronically: Employers submitting more than 10 forms must file electronically unless granted an exemption.

ACA Compliance for Employers

Reporting Obligations for ALEs

Applicable Large Employers must ensure compliance with the ACA’s reporting requirements, including providing affordable, minimum-value coverage to at least 95% of their full-time employees and their dependents. Form 1095-C plays a central role in documenting this.

Penalties for Non-Compliance

The penalties for non-compliance with ACA mandates can be significant. For 2025, the penalty for failing to file correct information returns or furnish statements is $310 per return, with a maximum penalty of $3,783,000 per calendar year. However, penalties may be reduced if errors are corrected within 30 days.

ACA Safe Harbors

To avoid penalties under Section 4980H, ALEs may use affordability safe harbors based on Form W-2 wages, the federal poverty line, or an employee’s monthly rate of pay.

Frequently Asked Questions (FAQs)

Do I need Form 1095 to file my federal tax return?

For most taxpayers, Form 1095-B or 1095-C is not required to file a federal return, as the individual shared responsibility payment has been reduced to zero. However, Form 1095-A is crucial for taxpayers who received advance Premium Tax Credit payments through the Marketplace.

What happens if I don’t receive my Form 1095?

If you don’t receive Form 1095-B or 1095-C by March 4, 2025, contact your employer or health insurance provider. For Form 1095-A, log into your Marketplace account to download a copy.

What if there’s an error on my Form 1095?

If you identify an error, contact the issuer immediately to request a corrected form. It’s important to resolve inaccuracies before filing your tax return.

Embracing the Future of Health Coverage Reporting

For employers and individuals alike, staying informed about the latest Form 1095 requirements is essential for accurate health coverage reporting and maintaining ACA compliance. Employers should ensure timely distribution and filing of forms, while individuals should carefully review their documents for any discrepancies. By proactively addressing these responsibilities, you can avoid penalties, maximize tax credits, and maintain peace of mind during tax season.

Take the time to review your health coverage reporting needs today—whether you’re an individual taxpayer or an employer managing compliance. Small steps now can save you significant stress and costs later. For more detailed guidance, visit the IRS website or explore resources on FileLater.com.