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The Internal Revenue Service (IRS) has released finalized instructions for forms 1094-C and 1095-C for the year 2025. These forms have been essential for applicable large employers (ALEs) and self-insured organizations for over a decade. However, many employers remain unclear about their obligations, particularly when faced with proposed penalty notices. This article outlines a simplified approach for distributing forms 1095-C to employees, highlights the importance of forms 1094-C and 1095-C, emphasizes the necessity of timely filings, and details the steps to take if a proposed Employer Shared Responsibility Penalty (ESRP) notice is received.
How it works
The 2025 instructions introduce an alternative method for employers to provide forms 1095-C to their employees. Instead of mailing these documents, ALEs and self-insured employers can now post a clear notice on their company website. This notice must inform employees of their right to request a copy of their form 1095-C. Employers should include an email address, mailing address, and phone number for requests. To utilize this method, employers must meet the following conditions:
- The notice must be posted on the employer’s website by March 2, 2026, which aligns with the regular deadline for furnishing these forms, including a standard 30-day extension.
- The notice must remain visible in the same location until at least October 15, 2026.
- When an employee requests their form 1095-C, it must be provided no later than January 31, 2026, or 30 days after the request date, whichever is later.
This alternative can significantly reduce the compliance burden on employers, helping them avoid potential penalties linked to incorrect information returns.
The significance of forms 1094-C and 1095-C
Employers with 50 or more full-time employees, including full-time equivalent workers, are classified as ALEs and are required to provide minimum essential health coverage that satisfies specific standards for their full-time employees and dependents. Forms 1094-C and 1095-C are essential reporting tools that outline whether such coverage was offered to employees. The IRS uses these forms to determine employer liability for ESRPs, while employees rely on them to verify their health coverage and establish eligibility for premium tax credits.
To remain compliant, forms 1094-C and 1095-C for the 2025 calendar year must be electronically filed with the IRS by March 31, 2026. This electronic filing is mandatory for all ALEs unless a waiver is granted. Additionally, each full-time employee must receive their respective form 1095-C by March 2, 2026. The alternative method for providing these forms was enabled by the Paperwork Burden Reduction Act, enacted at the end of 2025. Employees may also consent to receive their forms electronically, provided that all Treasury Regulations are adhered to. If the alternative method or electronic consent is not used, forms must be delivered manually or by postal service.
Consequences of non-compliance
ALEs must be aware that significant penalties can arise from failing to comply with their obligations regarding forms 1094-C and 1095-C. For example, if an ALE does not file these forms, the IRS may impose ESRPs based on the number of W-2 forms submitted by the employer for that calendar year. Specifically, if an ALE does not provide group health plan coverage to at least 95% of its full-time employees, and any of those employees claim a premium tax credit (PTC), the penalty under Internal Revenue Code (Code) Section 4980H(a) can reach $2,900 for each full-time employee, excluding the first thirty employees.
Furthermore, if the coverage is deemed not “affordable” or fails to meet “minimum value” criteria, Code Section 4980H(b) imposes a more substantial penalty of $4,350 for each full-time employee who receives a PTC or cost-sharing reduction. These penalties are anticipated to increase significantly in the following year. Non-compliance issues can escalate rapidly when the IRS calculates penalties based on W-2 filings rather than full-time employee counts.
Responding to proposed ESRP notices
Employers who receive a proposed ESRP notice have a limited window of 90 days to respond. Ignoring such notices is not advisable. If there are discrepancies or the need for clarification arises, it is prudent to consult with an ERISA counsel for assistance. Many proposed ESRP notices stem from incomplete or inaccurate forms 1094-C and 1095-C. In these situations, negotiations with the IRS have successfully reduced proposed ESRP amounts for clients.
As the deadline for filing forms 1094-C and 1095-C approaches, seeking guidance from a knowledgeable attorney is essential.