ACA 1095 BEST PRACTICES:
AUTOMATED LINE 16 EMPLOYEE STATUS CODE CALCULATIONS
Definition – A technology-based approach for automatically determining and assigning the appropriate 1095-C, Part 2 Employee Status Code (also referred to as Safe Harbor Codes and Other Relief) for each of the 12 months for each respective recipient and covered individual.
Rationale – The penalty for putting the wrong Employee Status Code in Line 14 is $250 per incorrect form. In addition, using an inappropriate code can also be problematic for the affected employee particularly if they are wrongly accused and it impacts their subsidy status. Examples of Line 16 Employee Status Codes and their impact follow.
1. 2B Not Full time or Termination - A 2B in Line 16 indicates the employee is either not fulltime or was terminated in the respective month(s). Particularly in the case of mid-month terminations where the benefits terminate at month end it is essential a 2B is used. If a 2C is erroneously shown in that scenario this would show the employee has being enrolled which ultimately conflict with the same employee’s 1094-B filing to the IRS which then in turn could trigger an IRS inquiry/audit.
2. 2C Enrolled – A 2C in Line 16 indicates the recipient and covered individual is enrolled in the medical plan. It is important to note a 2C may only be used for a full month of coverage. If for example, an employee’s coverage doesn’t start on the first of the month, end on the last day of the month or is enrolled in COBRA then a 2C cannot be used. Also, if multiple Series 2 codes options exist, 2C always takes precedence.
- Review source data
- Develop metric estimates (e.g. Enrolleds, Mid-month Terminations, Waivers)
- Run test data
- Compare actual results to estimates
- Refine software and re-test
Since it is no longer a “best efforts” year, employers should embrace best practices or simply accept the dire likelihood of material penalties. In order to mitigate future risks employers should thoroughly review and improve their supporting processes and technologies. Employers have the opportunity to fortify their environments and avoid penalties. As they say, “there’s no time like the present – do it now!”