One of the most difficult parts of ACA compliance is accurately completing Lines 14 and 16 of IRS Form 1095-C.
An employer's offer of coverage is indicated on Line 14. Line 16 is used to identify a reason to be excepted from a penalty.
The IRS provides a series of Codes, starting with a “2” that may be used to populate Line 16. Only one Code may be entered on Line 16 even if more than one Code applies.
The following situations may have codes for Line 16:
- The employee was not employed or was not a full-time employee,
- The employee enrolled in the minimum essential coverage offered,
- The employee was in a Limited Non-Assessment Period with respect to section 4980H(b),
- The employer met one of the section 4980H affordability safe harbors with respect to this employee, or
- The employer was eligible for multiemployer interim rule relief for this employee.
The Instructions for Form 1095-C specifically say that if no indicator code applies, Line 16 should be left blank. They also confirm- There is no code to enter on line 16 to indicate that a full-time employee offered coverage either did not enroll in the coverage or waived the coverage.
Despite these instructions about no code for waivers of coverage, employers have been reporting employer shared responsibility penalty assessments from the IRS when there is no entry on Line 16 in the case of a waiver of coverage. Employers are well-advised to try to complete Line 16 when there is a waiver situation.
Line 16 can be used to identify if the plan is adopting an affordability safe harbor..
The affordability safe harbors are as follows:
- W-2 Safe Harbor: The employee’s monthly contribution for self-only coverage does not exceed 9.78% (in 2020) of the employee’s W-2 wages
- Rate of Pay Safe Harbor: The employee’s monthly contribution for self-only coverage does not exceed 9.78% (in 2020) of the employee’s regular rate of pay
- Federal Poverty Line Safe Harbor: The employee’s monthly contribution for self-only coverage does not exceed 9.78% (in 2020) of the federal poverty line ($12,490) divided by 12
To potentially deter an ESRP penalty, an employer may wish to use identify it's affordability safe harbor on Line 16.
If you use BAS for Affordable Care Act data collection and reporting services, make sure you have properly identified if your plan uses an affordability safe harbor. This will allow BAS to populate Line 16 for employees who waive coverage and potential avoid ESRP penalty assessments.