Common Form 1095-C Errors and How to Fix Them

By February, most Applicable Large Employers (ALEs) have furnished Form 1095-C to employees or are preparing to do so. This is also the point when questions and corrections begin. Many reporting issues repeat year after year and usually come from eligibility tracking, payroll timing, or misunderstanding indicator codes rather than complicated compliance failures.

Below are some of the most frequent mistakes and practical steps to correct them.

1. Indicator Code Errors on Line 14

Line 14 describes the offer of coverage made to the employee for each month. The most common mistake is reporting what the employer intended to offer instead of what was actually offered and available.

Frequent Problems

• Using 1E (employee plus dependents) when dependents were not actually eligible
• Using 1A (qualifying offer) when affordability was not met under the federal poverty level safe harbor
• Reporting 1H (no offer) during waiting periods that should be coded differently
• Leaving months blank instead of coding each month individually

How to Fix It

Go month by month and confirm three facts:

1. Was coverage available?
2. Who was eligible?
3. What did it cost for self-only coverage?

Correct the form using the code that reflects the coverage available to the employee, not enrollment status. If an employee waived coverage, the offer is still reported.

2. Indicator Code Errors on Line 16

Line 16 explains why a penalty should not apply for that month. It should only be completed when applicable. Many employers incorrectly complete Line 16 for every month.

Frequent Problems

• Using 2C (enrolled) when the employee waived coverage
• Using 2F, 2G, or 2H affordability safe harbor codes without verifying affordability calculations
• Missing 2D for limited non-assessment periods such as waiting periods or initial measurement periods
• Entering a code when none applies

How to Fix It

Line 16 is optional unless it provides penalty protection. If no defense applies, leave the line blank. Review payroll records, measurement periods, and affordability calculations before assigning safe harbor codes.

3. Incorrect Offer Months

A very common issue is reporting a full year offer when eligibility actually began mid-year.

Frequent Problems

• Showing coverage offered starting on hire date instead of first eligible date
• Not stopping offers after termination
• Failing to account for rehire rules
• Not reflecting measurement period transitions for variable hour employees

How to Fix It

Match the form to eligibility records, not payroll status. The coverage offer should begin the first day the employee could enroll and end when eligibility ended. If coverage starts the first of the month following 30 days, the first month should typically reflect a limited non-assessment period rather than a full offer.

4. Dependent Coverage Reporting Mistakes

ACA reporting requires an offer of coverage to dependents, not just the employee. Many forms incorrectly report dependent availability.

Frequent Problems

• Reporting employee-only offers as compliant
• Assuming spousal coverage satisfies dependent requirements
• Failing to update forms when dependent eligibility rules changed
• Using 1A or 1E when dependent coverage was not actually offered

How to Fix It

Confirm the plan eligibility rules for children up to age 26. The form must reflect whether dependent children had the opportunity to enroll, regardless of whether they did. Spousal coverage is not required for ACA compliance and does not substitute for dependent coverage.

Correcting Filed or Furnished Forms

If an error is identified after forms were provided:

1. Prepare a corrected Form 1095-C
2. Furnish the corrected copy to the employee
3. File the corrected form with the IRS if the original was already submitted

Corrections should be made as soon as possible, particularly if a Marketplace subsidy notice has been received.

Preventing Future Errors

Most mistakes originate from disconnected data between HR, payroll, and eligibility tracking systems. Consider:

• Monthly eligibility audits instead of year-end reviews
• Documented affordability calculations
• Tracking measurement periods throughout the year
• Verifying plan eligibility rules annually

Takeaway

Form 1095-C errors are usually data alignment issues rather than compliance failures. Reviewing coverage eligibility month by month and applying indicator codes based on actual availability rather than assumptions significantly reduces correction work and penalty exposure. For information about BAS’ ACA data collection and reporting services, contact your account manager or solutions@basusa.com.  

Benefit Allocation Systems (BAS) provides best-in-class, online solutions for: Employee Benefits Enrollment; COBRA; Flexible Spending Accounts (FSAs); Health Reimbursement Accounts (HRAs); Leave of Absence Premium Billing (LOA); Affordable Care Act Record Keeping, Compliance & IRS Reporting (ACA); Group Insurance Premium Billing; Property & Casualty Premium Billing; and Payroll Integration.

MyEnroll360 can Integrate with any insurance carrier for enrollment eligibility management (e.g., Blue Cross, Blue Shield, Aetna, United Health Care, Kaiser, CIGNA and many others), and integrate with any payroll system for enrollment deduction management (e.g., Workday, ADP, Paylocity, PayCor, UKG, and many others).

This article is for informational purposes only and is not intended as legal, tax, or benefits advice. Readers should not rely on this information for taking (or not taking) any action relating to employment, compliance, or benefits. Always consult with a qualified professional before making decisions based on this content.