The IRS may expand ACA e-filing requirements. Are you prepared?

The IRS has proposed a new regulation to expand mandatory e-filings and require more employers to e-file specific employee forms, including the Affordable Care Act’s (ACA) 1095-B and 1095-C. An amendment to the current e-filing regulations, the proposed rule would change employer requirements by considering the aggregate number of employee forms across all types, which have been treated separately in past years.

While most employer information returns are now filed electronically (in 2016, 98.5 percent of forms were e-filed), this regulation would impact a large number of smaller employers who were never required to e-file before. Here’s what employers need to know about the regulation, and how to prepare for the next reporting season.

Expanding the e-filing requirement

The current e-filing requirement states if an employer has 250 or more of any form (ACA Forms 1095-B and 1095-C, 1099 forms, or W-2 forms) they’re required to e-file. Each form is treated on an individual basis. For example, if you have 200 1095-C forms and 215 W-2s to submit to the IRS, you can do so via paper filing, per the existing regulation. However, if you have 250 or more of one of these forms, they must be e-filed.

The IRS’s proposed regulations would require that all information returns, regardless of form type, be taken into account to determine if an employer meets the 250-form threshold for e-filing. If the aggregate number of 1095-Cs, W-2s, and all other included forms exceeds 250, the employer would be required to e-file. So, the employer with 200 1095-C forms and 215 W-2s would be required to e-file all of them.

What will it mean for employers?

The expanded rule poses a practical problem for employers who may not be equipped to handle the e-filing process, which can be more complicated than it sounds. A company must first become certified as an electronic filer by the IRS -- through the IRS’s Affordable Care Act Information Returns (AIR) program for 1095-C and 1094-C forms, and through the Filing Information Returns Electronically (FIRE) program for payroll forms (W-2 and 1099 forms).

Companies will have to register for the IRS e-Services tools, apply for an information return Transmitter Control Code (TCC), and pass all applicable test scenarios to ensure communication with the IRS through the AIR and FIRE systems. To maintain their certifications, employers must complete yearly testing on new development schemas and business rules.

Managing the reporting process poses additional complications. Employers must obtain specific coding from the IRS to build the XML file required for e-filings. Maintaining and updating the XML files per the IRS’s parameters can be complex and time consuming, especially for those who are new to the process.

How to prepare for e-filing success

As with most IRS rulings, preparation is key for employers. The final rule on expanding mandatory e-filings is expected by the end of September, but employers should take stock of their filings now to determine if they will be affected.

Here are three critical steps to take:

  1. Estimate your total forms. If you’ve historically been a paper filer, tally up how many 1094-Cs, 1095-Cs, 1099s, and W2s you filed in total last year. Then consider your 2018 employment numbers to estimate how many forms you might have to submit this year. If the aggregate number is close to 250, you’ll want to start educating yourself on the e-filing process.
  2. Consult a trusted advisor. Whether you rely on an HR partner, payroll provider, or another consultant to handle reporting, get their advice on whether you will be required to e-file and how you can prepare. If you have an accountant who files your W-2 and ACA forms, speak with them about the new rule and ask they provide an e-filing service. If not, they can usually recommend a third party to help with the process.
  3. Decide the best approach to e-filing. If you determine you’ll need to e-file, start considering how you’re going to do it--through a vendor or internally. Research e-filing vendors and understand the benefits of working with a proven expert, especially if it’s your first time. E-filing solutions can streamline the process to save companies time and headaches, and most importantly, to avoid penalties for improper reporting and noncompliance

    If you decide to forgo the vendor route, dedicate an individual or team to become certified and trained on the ins and outs of e-filing. Certification takes time and resources to complete. Without a dedicated team for reporting and compliance, internal e-filing is not feasible.

Should the proposed regulation pass, the new e-filing rules won’t take effect until Jan. 1, 2019. But if you wait until then to start the certification process, you’re going to be too late. Review the proposed rule now and start taking these three steps to help you prepare and avoid any unwanted surprises in the midst of reporting season.