The Taxpayer First Act of 2019 authorized the IRS to issue regulations to reduce the threshold for electronically filing Affordable Care Act (ACA) information returns. Internal Revenue Code § 6011(e) originally required ACA electronic filing when there are 250 or more returns through tax year 2022. The IRS published the final rule on February 23, 2023, reducing the threshold to 10 or more total forms aggregated with other forms for filings due in calendar year 2024, which includes ACA filing for the 2023 tax year.
The rule requires all employers subject to the ACA, and most small employers sponsoring a self-funded or level-funded health plan, to file their ACA information returns electronically with the IRS. The rules specify the inclusion of the following forms when aggregating the number of forms:
Form 1094-B: Transmittal of Health Coverage Information Returns (ACA)
Form 1095-B: Health Coverage (ACA)
Form 1094-C: Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns (ACA)
Form 1095-C: Employer-Provided Health Insurance Offer and Coverage (ACA)
Form 1099 Series
Form W-2: Wage and Tax Statement
Additional form types, including Form 5500, are included in the final rule. Some form types have broader aggregation rules than others.
Electronic Filing Hardship Waiver
The IRS offers employers an opportunity to apply for an electronic filing hardship waiver. To apply for the waiver, employers must complete and submit Form 8508 at least 45 days before the electronic filing due date of March 31, or the next business day if it falls on a weekend or holiday, but no later than the due date. A current version of the form may be found on the IRS Forms, Instructions & Publications page.
Page two of Form 8508 contains important instructions, including a list of examples of hardship reasons as follows:
Undue financial hardship in which the cost of filing the information returns, in accordance with this section, exceeds the cost of filing the returns on other media. Provide two cost estimates comparing the filing of information returns with the cost to file in paper form.
Rural filers without access to the internet and filers who lack digital literacy are expected to make a good faith effort to comply with the electronic filing requirement. Filers may submit a Form 8508 if obtaining the necessary assistance to file electronically would cause undue financial hardship. Provide two cost estimates comparing the filing of information returns, in accordance with this section, with the cost to file in paper form.
Businesses that suffered a catastrophic event in a federally declared disaster area that made the business unable to resume operations or made necessary records unavailable.
Fire, casualty, or natural disaster affected the operation of the business.
Death, serious illness, or unavoidable absence of the individual responsible for filing the information returns affected the operation of the business.
The business was in its first year of establishment.
The business is a foreign entity that is unable to file electronically due to inability to obtain software, third-party provider, or other issues outside of their control.
The IRS requires supporting documentation to justify the request for a hardship waiver.
Note: An approved waiver only applies to one tax year and must be resubmitted for any subsequent years.
Undue financial hardship is a common reason an employer may cite after receiving cost estimates from third-party vendors to perform their electronic filing. The IRS requires the waiver to include current cost estimates from third parties (i.e., payroll vendor, ACA vendor) that must reflect the total amount that each will charge for software, software upgrades, programming for the current system, or costs to prepare or obtain assistance to meet and comply with electronic filing requirements. Cost estimates must be for the applicable tax filing year and be attached to Form 8508, or the request will automatically be denied.
Lack of digital literacy is another viable hardship once an employer reviews the process of establishing electronic filing for their business. Justification in the form of a written statement may include details of an employer’s understanding of and ability to complete the process of obtaining a Transmitter Control Code, proper completion and technology needed to complete the required XML spreadsheet, execution of the transmission, etc. The IRS application and process for employers to file their own information returns electronically is detailed in Publication 3112. Additional information is available on the IRS Become an Authorized e-file Provider web page.
It is strongly recommended an employer work with their tax and legal professionals to complete and submit Form 8508.