As companies and individuals experience turnover, growth and even repositioning within the marketplace, it’s critical to ensure that professionals in key roles have the awareness and ability to understand the financial reporting environment in order to assume to such responsibilities.  Join us as for a brief discussion of: 

    Responsibilities of key personnel regarding the environment and presentation of financial information

    Individuals and groups to whom these responsibilities apply

    How to demonstrate best practices to newcomers to and within the organization

On the second Wednesday of each month, Sovos experts host a 30-minute webinar, Water Cooler Wednesday, to share the latest updates on statutory filings. In March, Sarah Stubbs shared information about the many filings due after March 1, from Market Conduct Annual Statements to health supplements for P&C and life insurers writing A&H businesses and more.

 This blog will serve as a revisiting of some reminders for the post-March 1 filings that many companies must contend with.

LTC Insurance Experience Reporting 

Writers of long-term care (LTC) coverage need to file the LTC Experience Reporting Supplement. Forms 1 through 5 are due on April 1. Anyone who has started the form may have noticed a few interesting changes from last year.

Spoiler alert – The reporting periods on Form 2 have changed.  And no, the dates haven’t simply rolled forward for the new year, but instead, the dates were never meant to change.

To better understand this change, we must remember that the purpose of this supplemental filing is to provide information to regulators on certain LTC benefits – specifically those that are subject to rating rules under the LTC Model Regulation.

The Regulation has specific disclosure requirements that customers must be given information on rating practices (pricing), rate increases and loss ratios. The loss ratio explains that for each dollar of premium earned, x% of it was spent on claims. This information can help consumers understand fluctuation in price.

Form 2 of this filing is designed to monitor changes in data over time based on the policy issue period. By focusing on specific issue periods and tracking data for policies within those periods, we can analyze trends or potential concerns. However, to conduct this analysis effectively, the periods must remain consistent. Unfortunately, this wasn’t the case.

The LTC Experience Reporting Supplement underwent revisions in 2020, resulting in the current version of the five forms. The issue arose with Form 2. While the 2020 reporting was accurate and introduced primary issue periods for tracking over time, errors occurred in the reporting for 2021 and 2022 due to human error. Consequently, the data was incorrect for two years, rendering it less useful for regulators. The issue has been addressed for the 2023 filing season.

Market Conduct Annual Statement

Another filing that many companies are going to be subject to is the Market Conduct Annual Statement (MCAS).

The Premium Exhibit, part of the March 1 Annual Statement filing, required insurers (excluding fraternal benefit companies) to indicate yes or no on a state-by-state basis regarding direct premiums in specific lines of business. Filing the Premium Exhibit served as “Step 1”, alerting regulators about potential follow-up MCAS filings.

“Step 2” involves submitting the MCAS to states where “yes” was indicated on the Premium Exhibit. Excluding New York and North Dakota, which don’t require the MCAS.

The MCAS is separate from regular Annual Statement software and is filed via a specific website, with deadlines staggered by jurisdiction and/or product type, typically falling in April, May and June.

Pet Insurance as new line of business

Despite pets being cherished family members, most states legally consider them as property, and have historically classified pet insurance under the Inland Marine line of business.

With a significant increase in pet insurance policies written, premiums in this area surged from 2020 to 2021. However, regulators had limited visibility into this growth due to how the economics were traditionally reported in the Annual Statement. 

Starting in 2024, pet insurance will have its own reporting line in the Annual Statement, separate from Inland Marine. Pet insurance will be designated as line 9.2, while Inland Marine becomes line 9.1. This change affects various components throughout the Annual Statement, including the U&I exhibits, state pages and the IEE.

A new Schedule P Section U specifically for Pet Insurance will also be introduced. This requires breaking out all current and prior-year data from Inland Marine and separately reporting it on the new Pet Insurance line. This includes direct, ceded and assumed activity, both affiliate and non-affiliate activity, activity by state, and allocations and sub-allocations of expenses. Additionally, claim counts and prior-year data for Schedule P need to be disaggregated and reported accordingly.

Major P&C Schedule P change coming

In March 2023, it was decided that Pet Insurance would become its own reporting line, initially planned as a two-year reporting cycle akin to Auto Physical Damage or Special Property, representing a short-tail line of business. However, recent developments indicate that all lines of business (LOBs) will transition to a ten-year reporting cycle, starting with the 2024 annual statement.

While there’s no Schedule P in the quarterly filings, theoretically allowing time until the March 1, 2025 deadline, the crucial question is whether you have the necessary data readily available. Depending on how your Annual Statement software handles aggregation, disaggregation and year-to-year rollover, obtaining this data may not be straightforward. Recreating prior-year information might involve sourcing from historical reports, company records and older software files, potentially requiring a significant time investment.

Take Action

Looking for more statutory filing education? Join Sovos experts the second Wednesday of every month for Water Cooler Wednesday to keep up with statutory filing requirements and to earn 0.5 CPE credits.

The IRS recently published an updated version of Form 15397, Application for Extension of Time to Furnish Recipient Statements. This form replaces the previous process for requesting an extension of time to furnish recipient statements as outlined in the General Instructions for Certain Information Returns, and was recently introduced with little fanfare for tax year 2023. After its previous release earlier in 2024, a new version is now available through the IRS.

The latest version of the form displays a February 2024 revision date, and one significant update: Box 5 now applies to Forms W-2 and 1099-NEC only. Box 5 outlines five reasons for requesting an extension of time, mirroring a similar set of checkboxes on Form 8809. With the latest revision, filers must complete Box 5 only if they are requesting an extension to furnish either the W-2 or 1099-NEC. Completing Box 5 is not necessary for all other information return types covered by the form, which include forms like the 1042-S, ACA forms, other 1099 series forms, and the 5498 series of forms.

To review an updated copy of Form 15397, please click here to visit the IRS online.

The IRS recently released its 2024 update to Form 1098-E, the form used to report student loan interest to the IRS. Year to year, this form changes very little generally. This year, the changes follow much the same pattern that most updates for 2024 have seen. For the copies of the Form itself, the only change was the update of the form year from 2023 to 2024 both in the form year box and in the copy descriptor box. The document packet from the IRS now includes an introductory page which details the uses for each copy along with a notice regarding the 10-form electronic filing threshold for 2024. Copy C and the instructions for the Recipient/Lender have been removed from the form packet for this year as well. No other changes were made to the form or the packet for this year.

For detailed information about Form 1098-E and links to both the form and instructions, click here.

The IRS recently published Form 15397, Application for Extension of Time to Furnish Recipient Statements. This is the first iteration of the form and is meant to replace the previous procedure for requesting an extension of time to furnish recipient statements. That process is detailed in the General Instructions for Certain Information Returns and involves faxing a letter to the IRS Technical Services Operations office with information about the payer, form type, and the reason for the delay warranting an extension. Form 15397 stands in the place of that letter, with one notable exception: the filer must select from one of five predetermined reasons for requesting an extension which are similar in severity to the reasons for delay when requesting an extension using Form 8809. The process detailed in the previously mentioned General Instructions did not outline specific reasons for requesting an extension of time to furnish recipient copies.

Notably, this form and related change in process is not presently detailed in the General Instructions for Certain Information Returns publication from the IRS. While an update to this publication is likely forthcoming, taxpayers seeking an extension of time to furnish recipient statements should use Form 15397 going forward.

To review this form in its entirety, click here to visit the IRS online.

The IRS recently released an updated version of Form 1099-K, the form used to report payment card and third-party network transactions, and its accompanying instructions. Changes to the form itself were minimal, falling in line with changes made to several other forms in the 1099 series. These include adding a notice about the 10 form electronic filing threshold and making the form year box completely fillable. As with the updates done with many forms recently, Copy C was also removed from the downloadable PDF of the form. Two notes were added to the instructions included with the form. The first directs a recipient to an information page to help them understand why they received a Form 1099-K. The second explains what the gross amount reported on Form 1099-K refers to.

The instructions received some updating including a notice about the $600 or greater filing threshold application. There were some minor language and section titling changes dealing with payment settlement entities (PSEs) which served to simplify some of the language previously found in the instructions.

For more information on Form 1099-K along with links to the form and instructions, click here.

Unbeknownst to many issuers of 1099 and other information returns, Form 15397 Application for Extension of Time to Furnish Recipient Statements was debuted by the IRS in November 2023 and was required to be submitted by filers requesting an extension of time (EOT) for 2023 recipient statements.
However, the IRS did not communicate the changes to the EOT process to the industry and most issuers likely continued to follow the legacy process.

Conflicts in IRS instructions for 2023 and 2024

Recipient statements are due to be issued on a variety of deadlines spanning from January through May depending on the type of statement. Failure to issue an information return to the recipient by the due date can result in a penalty being assessed to the issuer per Internal Revenue Code § 6722 Failure to furnish correct payee statements.

When an issuer needs to file an EOT to issue recipient statements by the due date, the 2024 General Instructions for Certain Information Returns publication currently indicates that the issuer should fax a letter to the IRS and that include specific information including –

(a) payer name,
(b) payer TIN,
(c) payer address,
(d) type of return,
(e) a statement that the EOT is for providing statements to recipients,
(f) the reason for the delay, and
(g) the signature of the payer or authorized agent.

This process of sending a written letter to the IRS was also reflected in the 2023 version of this General Instructions publication.

Separately, in November 2023 the IRS released the brand-new Form 15397 – Application for Extension of Time to Furnish Recipient Statements which requires issuers to utilize the form to make the request rather than the written letter. Use of this form limits an issuer’s ability to request the extension of time unless one of the following events has occurred:

1) the transmitter suffered a catastrophic event,
2) Fire, natural disaster,
3) death or serious illness of individual responsible for filing,
4) transmitter was in first year of establishment,
5) transmitter did not receive data on K-1, 1042-S, or sick pay statement required under 31.6051- 3(a)(1) in time to prepare an accurate information return.

For 2023, issuers that needed to file an EOT to send recipient statements likely followed the written letter process for requesting the extension. The IRS neither updated the General Instructions Publication nor the online resource Topic no. 803 Electronic filing waivers and exemptions and filing extensions with information or instruction about the use of the new form.

Hopefully, the IRS will accept written requests that comply with the process details outlined in the General Instructions publication in lieu of Form 15397 given the conflicts that exist(ed) in published information.

Preparing for 2024 season

Limiting options for requesting an EOT will ensure that most recipient statements are issued by the statutory due date, which increases taxpayer compliance in the annual income tax return process.

However, in some cases it may accelerate the issuance of erroneous statements and increase the volume of corrected statements. For instance, there are other scenarios in which an issuer may not have all the data in time to prepare an accurate return in addition to the available options on the current version of Form 15397. This means the issuer will likely issue incorrect statements to the recipient to meet the statutory deadline, only to turn around and issue corrected versions within a subsequent 30-day period.

In the coming weeks, the IRS will likely update the 2024 General Instructions Publication to reflect the details of the new process. Issuers should generally be prepared to issue recipients statements by the required due date for the information return they are issuing, unless one of the applicable reasons on the new Form 15397 exists.

Take Action

Watch our recent webinar “Navigating Tax Year 2023’s Most Impactful Regulatory Updates” to learn more about combatting new regulations for reporting season.

The IRS recently released its 2024 Form 941, Schedule B, and Schedule R along with the accompanying instructions. Several changes have been made to the 941 and to Schedule R, while Schedule B remained largely unchanged for 2024. Many of the changes found throughout the form, schedules, and instructions this year are related to the expiration of portions of the Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 regarding sick or family leave.

For Form 941 and its accompanying instructions, all changes are related to the removal of the expired credits from the Tax Relief Act and the American Rescue Plan Act. The form itself has been updated for the 2024 tax year and should be used exclusive of prior versions for reporting taxes for the first quarter of 2024. Several lines have been removed, including Part 1 lines 5a(i) and 5a(ii), lines 11b through 11g, lines 13b through 13i, and Part 3 numbers 19 through 28, all of which are either related to qualified sick or family leave wages or were lines reserved for future use. In the instructions, aside from the removal of sections relating to the expired credits, the references for information about certified professional employer organizations (CPEOs) requirements to file electronically have been updated to access Rev. Proc. 2023-18. Additionally, notice is given regarding the new Spanish-language Pub. 15 which contains information previously found in Publications 51, 80, and 179. The sections referencing medical and family leave specific to the expired portions of the two Acts were removed from the instructions, leaving the majority of the remaining instructions untouched.

For Schedule R, a great many of the fields have changed due to the expiration of the leave credits previously mentioned. These include fields F, and K through Y, all of which were related to lines which were removed from Form 941 for 2024. While some of the changes reserve lines for future use, others are now used for the sum of two different lines and fields Q and R now reference data from lines 12 and 13 on Form 941 respectively. The instructions for Schedule R were similarly updated with changes reflecting the changes found with the fields on the form itself.

More information about Form 941 and its Schedules can be found on the IRS Form 941 page, here.

Join us as we delve into the latest legislative updates impacting unclaimed property.  In this session, we will explore recent changes and proposed changes in to state unclaimed property statutes and regulations.  Learn how these changes can impact compliance.

Managing compliance with unclaimed property has become challenging due to the constantly changing legislative environment. A recent obligation gaining traction among states, which companies must be mindful of, is the requirement to conduct outreach to owners before their property is considered abandoned. This obligation, referred to as “pre-presumption outreach,” stems from the enactment of the Revised Uniform Unclaimed Property Act of 2016 (“RUUPA”). According to RUUPA, holders are mandated to reach out to specific property owners if there has been no owner-generated activity for two years before their property is presumed abandoned.

RUUPA’s Pre-Presumption Outreach Requirements

Generally, RUUPA language reads as follows: 

If the holder does not send communications to the apparent owner of an account by first-class United States mail, the holder shall attempt to confirm the apparent owner’s interest in the property by sending the apparent owner an electronic-mail communication not later than two years after the apparent owner’s last indication of interest in the property. However, the holder promptly shall attempt to contact the apparent owner by first-class United States mail if:

  1. the holder does not have information needed to send the apparent owner an electronic mail communication or the holder believes that the apparent owner’s electronic mail address in the holder’s records is not valid;
  2. the holder receives notification that the electronic-mail communication was not received; or
  3. the apparent owner does not respond to the electronic-mail communication not later than 30 days after the communication was sent.

Consequently, in states where this language has been adopted, there is typically a mandate for holders to provide advance notice via email before the escheatment process, in addition to the required due diligence. This obligation is specific to property owners who receive communications from the holder through email. The pre-escheat notice becomes mandatory after two years of inactivity, regardless of the dormancy period applicable to the property type. It is essential to track the period of inactivity separately from the dormancy period. A follow up letter by U.S. mail must be sent if one of the three conditions above applies.

Per RUUPA, the pre-presumption outreach requirement applies to tax-deferred retirement accounts, custodial accounts for minors and securities-related accounts.  However, since the finalization of RUUPA, states selectively adopt and modify portions of RUUPA to align with their preferences. This trend is also evident in the pre-presumption outreach provision.

In practice, states seldom adopt the exact RUUPA provision, opting instead to tailor it to their specific needs. After examining all enacted pre-presumption outreach provisions, we can categorize the differences into three main areas: the types of property subject to the pre-presumption outreach obligation, the conditions triggering the requirement for pre-presumption outreach, and the mandate to follow up with outreach via U.S. Mail.

Property types requiring pre-presumption outreach by all holders

In implementing laws inspired by RUUPA, states have not necessarily applied the pre-presumption requirement to the same property types outlined in RUUPA. Instead, many states have expanded the scope of the requirement to encompass additional property types. Specifically, states have included the requirement for some combination of bank accounts, securities accounts, tax-deferred retirement accounts, fiduciary accounts and custodial accounts.

Requirements leading to pre-presumption outreach obligation

According to RUUPA, if an owner’s account is designated for electronic mail and they do not receive communications via first-class mail from the holder, the holder is obligated to attempt confirmation of the owner’s interest in the property by sending an email no later than two years after the owner’s last indication of interest. However, states have also modified this aspect of the provision. some states requiring the outreach to owners that do not receive communications from the holder by first class mail on at least an annual basis.  Other states have extended the timeframe for conducting outreach from two to three years.

Requirements to follow up with U.S. mail

The requirements as to when holders must follow up the pre-presumption emails with first class mail have also been altered by several states.  The requirements for follow up with a U.S. mailing include any combination of the following:

Similar to all unclaimed property requirements, keeping track of the differing pre-presumption outreach requirements and the changes thereto is a daunting task.  However, the importance of understanding the state requirements cannot be underestimated as the outcome of the pre-presumption outreach is a factor in determining the start of the dormancy clock.  If the holder receives a response to the outreach, the holder should document and update the date of last contact and the account is preserved from escheatment.

Take Action

Discover the top red flags that trigger an unclaimed property audit on our blog.

Join us every 2nd Wednesday at 1 ET for a 30-minute webinar going over what’s new and what’s coming as it pertains to your statutory filings. Live participants will earn 0.5 CPE credits.

With the annual statutory filing behind us (or soon enough, at least), we’ll turn our attention to what’s new for some of the other filings due after March 1. Whether related to supplemental filings for 2023 or quarterly filings for 2024, there are a handful of things to keep in mind. During this webinar, we’ll discuss reminders for:

Under the recently published Notice 2024-26, “Administrative Exemption from Requirement to Electronically File Form 1042”, the IRS has effectively waived the electronic filing requirement via administrative exemption for Form 1042 for calendar year 2024, and for withholding agents that are foreign persons continuing into calendar year 2025.   Notice 2024-26 cites a number of reasons for this last-minute announcement, including the limited number of approved Modernized e-File Business Providers and difficulties accessing the schema and business rules for Form 1042.

In anticipation of the forthcoming March 15, 2024 due date, withholding agents (both U.S. and foreign) will be exempt from filing Form 1042 for tax year 2023 electronically. Beyond calendar year 2024, only withholding agents that are foreign persons will continue to be administratively exempt for calendar year 2025 when filing Form 1042 for tax year 2024.

It is important to note that associated electronic filing requirements remain unchanged, namely the e-file requirement for information returns and the e-file requirement for Form 1042-S. Despite being exempt from electronic filing, Form 1042 still counts towards the threshold for electronic filing of information returns like Forms 1099 and W-2: if 10 or more information returns in the aggregate are filed by an entity, including Form 1042, that entity is required to file their information returns electronically. Additionally, this administrative exemption does not apply to Form 1042-S, which must be filed electronically like its other information return counterparts mentioned previously.

To review Notice 2024-26, click here.

The IRS has released its 2024 instructions for form 1099-R and 5498.  The revised instructions incorporate a variety of changes, including the following.

To review the forms’ instructions, click here.

In a recurring theme, the IRS released communication this week that exempts the requirement to e-file Form 1042 Annual Withholding Tax Return for U.S. Source Income (Form 1042) information for 2023 transactions.

Form 1042 for 2023 transactions must be filed with the IRS by March 15, 2024.

Notice 2024-26 delays the new requirement to electronically file the form information in the IRS’s Modernized e-File (MeF) system. Specifically, the notice indicates that Withholding agents, including U.S. and non-U.S. Financial Institutions, are exempted from the electronic filing requirement for information due on March 15, 2024. Additionally, non-U.S. or foreign Withholding Agents were granted an additional year of relief and are not required to file the Form 1042 electronically for 2024 transactions.

Some in the industry had a list of concerns, according to the IRS

Despite the fact that the IRS notified the industry of the new e-file requirements over a year ago, a majority of the industry struggled to transition to the new process throughout 2023. According to the Notice, a variety of concerns were expressed to the IRS including the limited number of approved MeF providers for Form 1042. As of February 15, Sovos was listed as the only approved MeF provider for Form 1042. Other issues cited included needing additional time to build out systems for those that don’t use third-party providers. Foreign withholding agents cited the challenges specific to gaining access to IRS systems due to the IRS authentication requirements for users of their systems.

No concern to Sovos or our customers

While this was the first year the IRS required Form 1042 to be filed electronically, it is not the first year they have allowed for electronic filing of Form 1042 information. As the leading provider of U.S. tax solutions, Sovos obtained IRS approval to file 2022 versions of Form 1042 and successfully filed returns for our clients. While other providers have had over a year to build e-filing capabilities, the reality is the IRS proposed these electronic filing regulations in 2021 and other providers have had multiple years to bring their systems and processes into compliance and failed to do so. As a trusted partner, Sovos is ready to electronically file Forms 1042 for our clients for 2023 and beyond.

The exemption does NOT impact e-file requirements applicable to Forms 1042-S

An important distinction to be aware of is that the delays provided in Notice 2024-26 do not impact the new e-file requirements for Forms 1042-S. Forms 1042-S are required to be issued to the recipient and filed electronically in the IRS’s Filing Information Returns Electronically (FIRE) system no later than March 15, 2024. A business is required to file Forms 1042-S electronically following the new 10-form threshold finalized in the broader e-file regulations that were released on February 1, 2023.

Why filing electronically for 2023 is still the smart move

Although the IRS provided this exemption, e-Filing should still be the preferred method for Withholding Agents due to the following reasons:

Take Action

Interested in eliminating errors and building good faith with the IRS ahead of 1042 e-filing requirements? Learn more about how Sovos can help e-File your 1042 forms.

The IRS has released its 1099-R form for tax year 2024. Form 1099-R reports payments from pensions and annuities.

For 2024, the revised form now notes that parties filing ten or more tax-information records must do so electronically; removes recipient instruction to include for Copy B with their own tax returns; makes reference to form W-4R as well as W-4P; notes that the required minimum distributions are now required for those seventy-three or older; and generally changes the year referenced to 2024.

Review the 2024 form 1099-R here.

The IRS recently updated its continuous use Form 1099-DIV. The 1099-DIV is the IRS’s form for reporting dividends and distributions as income. This year the IRS has updated the form following the same pattern of updates that most of the continuous use format forms have followed. A notice regarding the 10-or-more-form electronic filing requirement has been added to the first page of the online document. The only other changes to the form itself include the removal of the “20___” and replacement by a fill-in line for the “For calendar year” box, and a revision date update to January 2024 at the top and bottom of the form. The IRS has removed Copy C from the pdf and has also taken off the Instructions for Payer section. All of the changes mentioned are the same changes made across the other forms which have been updated this year.

To view the complete form, click here.

The IRS has released its 2024 General Instructions for Forms W-2 and W-3. Form W-2 is used to report employment income to the IRS and Form W-3 is the employer’s transmittal of wage and tax statements to the IRS. These instructions cover the W-2, W-2c, W-2GU, W-2VI, and W-2AS forms along with form W-3 for both general and specific instructions.

First, the IRS included W-2 series forms in their 10 or more-form electronic filing requirement. Following this is notice that corrected forms should be filed in the same format as the originals. This means that if an original was filed electronically, the corrected form should also be filed electronically. The same goes for paper filings. The IRS removed references to Form 941-SS which has been discontinued in favor of Form 941 or the Spanish version, 941 (sp). References to Form 1040-SR have also been removed.

Publication 15 (Circular E) now contains information previously found in Pub. 51, Pub. 80, and Pub. 179. These publications are no longer used and Publication 15 (Circular E) should be used to obtain specific information. Following the current trend of creating Spanish publications, there is information about a new Spanish Language Pub. 15 (sp), along with some information on how to access it. References to the discontinued publications throughout the instructions have been updated to Pub. 15.

The IRS also provided information regarding Roth contributions. Under the SECURE 2.0 Act, certain nonelective contributions and matching contributions made after December 29, 2022 can be designated as Roth contributions. Such contributions should not be reported on Form W-2 but instead on Form 1099-R. Also under SECURE 2.0, employer contributions to employee emergency savings accounts as designated Roth contributions should be reported on Form W-2, box 12. Finally, SEP and SIMPLE IRA plan contributions are also subject to federal income tax, social security, and Medicare tax withholding, which are included in boxes 1, 3, and 5 (or box 14 for railroad retirement taxes).

Under the Military Spouses Residency Relief Act (MSRRA), language has been added to the instructions, to include the permanent duty station of the servicemember along with the residence of the servicemember or the residence of the spouse for purposes of taxation. This relates to the rules by which the spouse of an active duty servicemember may keep their prior residence or domicile for tax purposes when accompanying the servicemember spouse who is relocating under military orders, to a new military duty station in a U.S. state, D.C., or a U.S. territory.

Though there were many minor changes, most of the changes to the instructions this year are updates to dollar amounts. These changes are generally increases to penalties, maximum taxable income for SSA, and increased allowances for FSA cafeteria plans and adoption exclusion. Along with the updating of amounts, the most notable change is the addition of a new box 12 code, II, for Medicaid waiver payments excluded from gross income under Notice 2014-7.

To view the complete instructions, click here.

Affordable Care Act (ACA) reporting has started for tax year 2023. ACA reporting can quickly become complicated and costly with IRS penalties if your business does not have an efficient process in place. Although regulations have generally stayed the same for this reporting season, there are some important updates all businesses should be aware of when filing their ACA forms with the IRS this year. 

The IRS requires ACA filing with the goal of knowing where each individual gets their healthcare coverage from during the calendar year. Taxpayers can get insurance coverage through one of three places: 

  1. ACA Marketplace (Form 1095-A) 
  2. Insurance company (Form 1095-B) 
  3. Applicable large employers (ALEs) (Form 1095-C) 

Knowing this information allows the IRS to deliver penalties to applicable ALEs and determine persons who are eligible for tax credits on their individual returns. As a refresher, IRS Form 1095-C is usually filed by ALEs (generally those who employ 50 or more people), which is required under code 6056. This tax form proves an offer of minimum essential coverage (MEC) was provided to each applicable employee as required under action 4980H. 

ACA updates for tax year 2023

For tax year 2023, we did not see many changes from the IRS surrounding ACA tax forms. However, there are three important penalty changes to be aware of for the 2023 reporting season: 

T.D.9972 now requires businesses to electronically file information returns, including ACA Forms, at a threshold of 10+ returns, counted in the aggregate. The lowered threshold includes a variety of information returns including W-2s, 1099s, ACA Forms, 1042-S Forms, and more. Prior to 2023 reporting, the threshold was 250+ returns, applied to each form individually.  

  1. The 4980H(a) penalty increased to $2,880 for tax year 2023. This penalty is issued when an employer does not offer the MEC to at least 95% of its full-time employees (and their dependents) for any month during the tax year, and at least one-full time employee receives a Premium Tax Credit (PTC) for purchasing coverage through the marketplace. 
  2. The 4980H(b) or Employer Shared Responsibility Penalty increased to $4,320 for tax year 2023. This penalty is assessed when an employer fails to offer coverage that meets the affordability and minimum value requirements. This penalty is typically only issued when the 4980H(a) penalty does not apply. 

The penalties specified under codes 4980H(a) and 4980H(b) are slated for another increase for 2024, increasing to $2970 and $4460, respectively. For 2023 returns (filed in early 2024), the penalty for failing to file electronically, failure to provide a correct payee statement, and/or filing inaccurate information is $310 per return (with a maximum of $3,783,000 per calendar year).  

ACA reporting deadlines for 2023

As of tax year 2023, all businesses filing ten or more forms must file electronically. The ACA reporting deadline for electronic filing is April 1, 2024, while the ACA reporting deadline for paper filing is February 28. 

How should I prepare for the 2023 ACA reporting season? 

We’ve compiled a few key tips to help you prepare for the ACA reporting deadlines for 2023: 

  1. Ensure your data is accurate. Doing a cleanse of your data can help eliminate errors when transmitting, which often lead to costly penalties. 
  2. File electronically to ensure you have enough time to accurately report your data. The due date for Forms 1094-C and 1095-C is April 1 when filing electronically, versus February 28 for paper filings. This gives you an extra month to prepare your data for transmittal. 
  3. Find a solution that fits your needs. If you are a business that hovers around 50 employees, finding a solution and contract terms that allows for flexibility in your reporting from year to year is essential. 
  4. Confirm your business’ state reporting obligations. Since the mandate to have health insurance was removed at the federal level in 2017, many states began to administer their own requirements on healthcare. California, Massachusetts, New Jersey, Rhode Island, Vermont and the District of Columbia all require ACA reporting at the state level, with more states expected to edict mandates in the future. 

It is not too late to implement a Sovos solution to help with your ACA reporting needs. Sovos can give valuable time back to your team and simplify your ACA reporting process. 

Take Action

With over 10 years of experience filing ACA forms, our Tax Information Reporting – ACA solution can handle all of your reporting needs, no matter how regulations change. Talk to our compliance experts today.