The Affordable Care Act (ACA) requires employers with 50 or more full-time equivalent employees to offer healthcare coverage to full-time employees or potentially face a fine. The 1095-C form is the government’s way of tracking this. 

Starting in 2016, employers with more than 50 full-time employees were required to produce and send a second government form to employees—Form 1095-C. While the W-2’s main purpose is to communicate payment information to the IRS, the 1095-C’s function is to communicate health insurance information.

In addition, the form helps the IRS determine which employees were eligible for subsidies for individual health insurance during the year. Employees who were offered qualified coverage by their employers are not eligible for these subsidies in the months they were offered qualified coverage.

If an employee claimed a subsidy anyway, the IRS can end up recouping the subsidy from the employee. On the other hand, if an employee claims a subsidy and has an employer that did not offer qualified coverage, the employer can expect the penalty

Only applicable large employers (ALEs) are required to file these forms. In order for employers to be considered an ALE, 50 full-time workers or full-time equivalents must be in employment on average during the prior year.

• Full-time Employee: 30+ hours per calendar week or 130+ hours per calendar month on average 
• Full-time Equivalent (or FTE): Combination of two or more part-time workers whose hours are equivalent to a single full-time employee.

Form 1095-C contains a series of codes that indicate employee health insurance coverage. For traditional health coverage, applicable codes include 1A through 1H. If using a benefits administration software that automates the Form 1095-C process, the software should populate the codes for the months they were enrolled in coverage. 

For filing in 2021, the IRS introduced new codes to indicate the affordability of ICHRAs offered by employers. They should be used under the following circumstances:

• 1L: If an ICHRA is offered to employees only and affordability is determined by a ZIP Code, which identifies an employee’s primary residence
• 1M: If an ICHRA is offered to employees and dependent(s) (not spouse) and affordability is determined by a ZIP Code, which identifies an employee’s primary residence
• 1N: If an ICHRA is offered to employees, spouses, and dependent(s) and affordability is determined by a ZIP Code, which identifies an employee’s primary residence
• 1O: If an ICHRA is offered to employees and affordability safe harbor is determined by the ZIP Code of the employment site
• 1P: If an ICHRA is offered to employees and dependent(s) (not spouse) and affordability safe harbor is determined by the ZIP Code of the employment site
• 1Q: If an ICHRA is offered to employees, spouses, and dependent(s) (not spouse) and affordability safe harbor is determined by the ZIP Code of the employment site
• 1R: If an ICHRA is not affordable and is offered to employees; employees and spouses or dependent(s); or employees, spouses, and dependent(s)
• 1S: If an ICHRA was offered to a worker who isn’t a full-time employee

For a full rundown of Form 1095-C changes in 2021, watch the following video.