IRS Effectively Eliminates Paper Filing For Forms 1095-C
Applicable Large Employers (ALEs)—which generally include employers with an average of at least 50 full-time employees, including full-time equivalent employees—are intimately familiar with the Form 1094-C and Form 1095-C filing requirements. And while we suspect that most ALEs electronically file their Forms 1095-C, ALEs that were required to file less than 250 Forms 1095-C were permitted to file those forms with the IRS on paper. The IRS issued a final rule on February 23, 2023 that will effectively eliminate the paper filing option for 2023 Forms 1095-C that must be filed during the first quarter of calendar year 2024.
Previously, the IRS allowed filers of various informational returns, such as Forms 1095-C, the option to file those informational returns with the IRS on paper if the employer was required to file less than 250 informational returns. Importantly, when determining the application of the 250-informational return threshold, employers were generally not required to aggregate different informational returns.
For example, an ALE that was required to file 300 Forms W-2, but only 175 Forms 1095-C, was required to file the Forms W-2 with the IRS electronically because it was required to file more than 250 Forms W-2. However, the ALE was permitted to file the Forms 1095-C with the IRS in paper format because it was required to file less than 250 Forms 1095-C. And, importantly, the ALE was not required to aggregate its number of Forms W-2 with its number of Forms 1095-C to determine whether it crossed the 250-informational return threshold.
In the final rule, the IRS dropped the threshold for electronic filing to 10 informational returns and now requires employers to aggregate certain informational returns when determining whether the employer has satisfied the 10-informational return threshold (while there are forms in addition to the Forms W-2 and 1095-C that must be aggregated for this purpose, these appear to be two of the more common informational returns that are subject to this aggregation requirement).
Because an employer is only an ALE if it employs at least 50 full-time employees, including full-time equivalent employees, it appears impossible that an ALE will fall below this 10-informational return threshold. Even, for example, if an ALE was an ALE with just one full-time employee for which the ALE was required to file a Form 1095-C, the ALE would still not be able to file the Form 1095-C on behalf of this employee in paper format. This is because the ALE would have to employ at least 49 full-time equivalent employees—each who would be required to receive a Form W-2—in order to be an ALE. This employer would be required to file 50 Forms W-2 (one for the full-time employee and 49 for the full-time equivalent employees) and one Form 1095-C. Since the employer is required to aggregate its Forms W-2 and 1095-C to determine if it files more than 10 informational returns and is, therefore, required to file the forms electronically, the ALE will be required to file both its Forms W-2 and 1095-C (as well as any other informational returns subject to the aggregation requirement that must be filed by the ALE) electronically with the IRS.
Please contact the author of this client alert or any of the other attorneys in the employee benefits group if you have questions about this client alert or the Form 1095-C filing requirement.