IRS Instruction 1094-C and 1095-C

IRS Instruction 1094-C and 1095-C – In the ever-evolving landscape of Affordable Care Act (ACA) compliance, understanding the IRS instructions for Forms 1094-C and 1095-C is essential for applicable large employers (ALEs). These forms are critical for reporting employer-provided health insurance offers and coverage, helping determine eligibility for premium tax credits and potential employer shared responsibility payments under section 4980H. This comprehensive guide breaks down the 2025 instructions, including key changes, filing requirements, and step-by-step completion tips to ensure seamless compliance.

What Are IRS Forms 1094-C and 1095-C?

Form 1094-C serves as the transmittal document, summarizing aggregate data for each ALE Member and transmitting Forms 1095-C to the IRS. Form 1095-C, on the other hand, provides detailed information about health coverage offers to individual full-time employees and reports enrollment in self-insured plans. These forms fulfill reporting obligations under IRC sections 6055 (minimum essential coverage) and 6056 (offers of coverage by ALEs).

Employers use these forms to report whether they offered affordable, minimum value coverage to at least 95% of full-time employees and their dependents. This data helps the IRS assess compliance with the employer mandate and allows employees to verify eligibility for subsidies on health insurance marketplaces.

Who Must File Forms 1094-C and 1095-C?

Applicable Large Employers—those with 50 or more full-time employees (including full-time equivalents) in the previous calendar year—must file these forms. An ALE Member is any entity within an Aggregated ALE Group under common control. Even if an individual ALE Member has fewer than 50 employees, they must file if the group as a whole qualifies.

  • Full-Time Employees: Defined as those averaging 30 or more hours per week (or 130 hours per month) using either the monthly measurement method or look-back measurement method.
  • Self-Insured Plans: ALEs sponsoring self-insured coverage must also report covered individuals in Part III of Form 1095-C, including non-full-time employees and nonemployees if enrolled.
  • Governmental Units: These entities can designate a Designated Governmental Entity (DGE) for reporting, but must ensure one Authoritative Transmittal covers aggregate data.
  • Exceptions: Non-ALEs use Forms 1094-B and 1095-B for self-insured reporting. No filing is required solely for non-full-time employees unless under self-insured coverage.

If you’re unsure about your ALE status, calculate full-time equivalents by combining part-time hours (up to 120 per employee) and adding to full-time headcount.

Key Changes in the 2025 Instructions for Forms 1094-C and 1095-C

The 2025 instructions introduce significant updates to simplify compliance while maintaining accuracy:

  • Alternative Furnishing Method: Employers are no longer required to automatically furnish Form 1095-C to individuals. Instead, post a clear, conspicuous notice on your website by March 2, 2026, allowing requests for copies. Furnish statements within 30 days of request or by January 31, 2026, whichever is later. The notice must remain accessible until October 15, 2026.
  • Affordability Threshold: The required contribution for coverage to be considered affordable is 9.02% of the federal poverty line for 2025 (down from previous years).
  • Plan Start Month: This field is now mandatory on Form 1095-C to indicate when the plan year begins (e.g., 01 for January).
  • Individual Coverage HRAs: Expanded codes (1L–1U) for reporting offers of individual coverage health reimbursement arrangements (HRAs), with new rules for affordability based on location and age.

These changes reflect ongoing efforts to reduce administrative burdens while ensuring accurate reporting.

How to Complete Form 1094-C: Step-by-Step Instructions?

Form 1094-C is divided into parts for employer info, aggregate data, and other ALE Members. Designate one as the Authoritative Transmittal (line 19) for summary reporting.

  • Part I: ALE Member Information: Enter name, EIN, address, and contact details (lines 1–8). For DGEs, provide their info in lines 9–16.
  • Part II: ALE Member Information: Report total Forms 1095-C submitted (line 20). Indicate if part of an Aggregated ALE Group (line 21). Check certifications like Qualifying Offer Method (for alternative furnishing if affordable coverage offered all months) or 98% Offer Method (if coverage offered to 98% of employees, skipping full-time counts).
  • Part III: ALE Member Information (Monthly):
    • Column (a): MEC Offer Indicator (Yes/No if offered to 95%+ full-time employees).
    • Column (b): Full-time employee count (exclude Limited Non-Assessment Periods like waiting periods).
    • Column (c): Total employee count.
    • Column (d): Aggregated Group Indicator (if applicable).
  • Part IV: Other ALE Members: List up to 30 other members in the group by name and EIN.

Tip: Use the 98% Offer Method to simplify if you meet the threshold—no need for monthly full-time counts.

How to Complete Form 1095-C: Step-by-Step Instructions?

This employee-specific form has three parts:

  • Part I: Employee and ALE Member: Enter employee name, SSN (or TIN), address (lines 1–6), and employer details (lines 7–13). Include plan start month (e.g., 01–12).
  • Part II: Employee Offer and Coverage:
    • Line 14: Offer codes (e.g., 1A for Qualifying Offer, 1E for minimum value family coverage, 1H for no offer).
    • Line 15: Employee required contribution (monthly dollar amount for lowest-cost self-only coverage; required for certain codes).
    • Line 16: Coverage codes (e.g., 2C for enrolled, 2F for Form W-2 safe harbor affordability).
    • Line 17: ZIP code for HRA affordability calculations.
  • Part III: Covered Individuals (Self-Insured Only): List names, SSNs/TINs/DOBs, and coverage months for the employee and dependents. Check the all-12-months box if applicable.

For accuracy, apply safe harbors like the federal poverty line (9.02% for 2025) or Rate of Pay method when calculating affordability.

Filing Deadlines and Methods for 2025 ACA Reporting

  • Furnishing to Employees: Due by March 2, 2026 (automatic 30-day extension from January 31). Use the alternative method via website notice to avoid mailing.
  • Filing with IRS: Paper by March 2, 2026; electronic by March 31, 2026. Electronic filing is mandatory for 10 or more returns (aggregated across types).
  • Methods: File electronically through the IRS Affordable Care Act Information Returns (AIR) system. For paper, mail to designated IRS centers. Request extensions via Form 8809 (automatic 30 days; additional for hardship).
  • Corrected Returns: File as soon as errors are found; mark “CORRECTED” and submit with a non-authoritative 1094-C.

Electronic filing is recommended for efficiency and to avoid penalties.

Penalties for Non-Compliance with Forms 1094-C and 1095-C

Failure to file or furnish accurate forms can result in hefty penalties:

  • Per-Return Penalty: $340 for each incorrect or late return/statement (up to $4,098,500 maximum for large businesses).
  • Intentional Disregard: Higher penalties without caps.
  • Waivers: Available for reasonable cause, such as TIN solicitation efforts under section 6724.

De minimis errors (e.g., $100 or less on line 15) may qualify for safe harbors. Maintain records for at least three years to demonstrate compliance.

Tips for ACA Compliance and Avoiding Common Mistakes

  • Track Hours Accurately: Use consistent measurement methods to classify full-time employees correctly.
  • Leverage Safe Harbors: Apply affordability tests like W-2 or federal poverty line to minimize assessments.
  • Handle HRAs Carefully: Use the lowest-cost silver plan premium lookup for affordability in individual coverage HRAs.
  • Software and Resources: Utilize IRS-approved software for electronic filing and consult FAQs at IRS.gov/ACA for troubleshooting.
  • Common Pitfalls: Avoid truncating EINs (only SSNs on recipient copies); report for all 12 months even if employment was partial-year.

By following these instructions, ALEs can streamline their 2025 ACA reporting and reduce risk.

Conclusion

Navigating the IRS instructions for Forms 1094-C and 1095-C doesn’t have to be overwhelming. With the 2025 updates emphasizing flexibility in furnishing statements, employers can focus on accurate reporting to meet ACA requirements. Stay updated via IRS.gov for any future developments, and consult a tax professional for personalized advice. Proper compliance not only avoids penalties but also supports employee access to affordable health coverage.