Common 1095-C Errors and How to Avoid Them

Applicable Large Employers (ALEs) filing Form 1095-C face a reporting framework governed by Internal Revenue Code §§ 6055 and 6056, administered by the IRS. Errors on these forms can trigger penalty assessments under IRC § 6721 and § 6722, with per-form penalties reaching $310 for 2024 filings (IRS Revenue Procedure 2023-57). Understanding where mistakes concentrate — and the mechanical rules that produce them — is essential for any employer subject to the ACA's employer mandate. The fuller regulatory landscape is described in the regulatory context for ACA.

Definition and Scope

Form 1095-C is the employee-level statement ALEs must furnish to full-time employees and file with the IRS to report health coverage offers, coverage months, and employee share of premiums. It is distinct from Form 1094-C, which is the transmittal document summarizing the employer's aggregate filing. The IRS defines "error" on this form in two categories: (1) incorrect or missing information on a filed return (§ 6721 applies), and (2) incorrect or missing information on a statement furnished to an individual (§ 6722 applies).

The scope of 1095-C reporting requirements covers every full-time employee employed for at least one month during the calendar year. For self-insured plans, the form also serves as the coverage statement under § 6055 for all enrolled individuals, including part-time employees and dependents. ALEs that sponsor fully-insured plans do not use Part III for dependents — the insurer files Form 1095-B instead. That distinction is a structural source of classification errors. The 1095-C reporting requirements overview provides the full filing framework.

How It Works

1095-C errors fall into 5 structural categories based on where the mistake occurs within the form:

  1. Part I identification errors — incorrect or transposed employee name, SSN, or employer EIN.
  2. Part II Line 14 coding errors — wrong indicator code describing the type of coverage offered.
  3. Part II Line 15 errors — incorrect employee required contribution (premium) amount, or a dollar amount entered when no amount is required.
  4. Part II Line 16 coding errors — wrong or missing safe harbor or exception code.
  5. Part III enrollment errors — incorrect covered individual records for self-insured plan sponsors.

The IRS uses Lines 14 and 16 together to assess whether a penalty under IRC § 4980H applies. Code 1A on Line 14 (qualifying offer) paired with specific Line 16 codes can shield an employer from penalty exposure. An incorrect code combination — even if the underlying coverage was compliant — can generate an IRS penalty notice Letter 226-J that requires a formal response.

Under IRS Notice 2016-4 and subsequent guidance, the IRS uses the 1094-C transmittal data to match aggregate ALE member filings against individual 1095-C data. Discrepancies between the two documents — such as a mismatch between the "Minimum Essential Coverage Offer Indicator" on the 1094-C and the population of employees coded on 1095-Cs — trigger automated flags.

Common Scenarios

Scenario 1: Wrong Line 14 code for a conditional offer. An employer offers coverage only to employees who work 30 or more hours per week. If the benefits administrator codes a variable-hour employee who averaged below 30 hours as having received a qualifying offer (Code 1A), the form overstates compliance. The correct code depends on the measurement period outcome. Code 1H (no offer or offer to less than minimum value) paired with an appropriate Line 16 code would be accurate for that employee in months where no offer was extended.

Scenario 2: Line 15 amount reported incorrectly for employees on a rate-of-pay safe harbor. Employers using the rate-of-pay affordability safe harbor — explained at affordability safe harbors — must report the actual lowest-cost self-only premium on Line 15, not $0.00. Entering $0.00 when a premium exists, or leaving Line 15 blank when Code 1B, 1C, 1D, or 1E is entered on Line 14, is a reportable error under IRS instructions for Form 1095-C.

Scenario 3: Incorrect plan-start-month code on the 1094-C causing Part II mismatches. If the employer's plan year begins in a month other than January and the Plan Start Month box is entered incorrectly on the 1094-C, the IRS matching logic may flag all 1095-Cs in the filing as inconsistent even when the individual forms are accurate. This is a transmittal-level error with form-level consequences.

Scenario 4: Missing or wrong covered individual data in Part III. Self-insured plan sponsors must report every individual — employees, spouses, and dependents — who was enrolled for at least one month. Omitting a dependent's SSN when it is known (or substituting a date of birth only when the SSN is genuinely unavailable) violates the IRS instructions for Part III completion.

Decision Boundaries

The critical distinction in 1095-C error remediation is whether the error is material or non-material under IRS regulations. Treas. Reg. § 301.6722-1(a)(2) defines a safe harbor for de minimis errors: if no single dollar amount on a payee statement is incorrect by more than $100 (or $25 for amounts related to withholding), the penalty under § 6722 may not apply. This threshold does not apply to SSN or EIN errors, which are always considered material.

A second boundary separates voluntary correction from IRS-initiated correction. Corrected forms filed before the IRS issues a notice carry reduced or waived penalties under the good-faith standards described in IRS Notice 2020-76. Once a 226-J letter arrives, the employer is in a penalty response posture rather than a voluntary correction posture — a meaningfully different procedural position.

For employers on the acaauthority.com home page, the overarching framework reinforces that 1095-C accuracy is not merely a paperwork obligation but a direct input into IRS penalty calculations under § 4980H(a) and § 4980H(b). A coding error on Line 14 or Line 16 for a single full-time employee who received a premium tax credit can generate a standalone § 4980H(b) assessment of $4,460 per year (2024 amount, per IRS Rev. Proc. 2023-29).

Employers with correctable errors should review the correcting ACA reporting errors procedures before the applicable correction deadline, and cross-reference the ACA reporting codes Series 1 and Series 2 guidance to verify that each code on Lines 14 and 16 is internally consistent.

References

The law belongs to the people. Georgia v. Public.Resource.Org, 590 U.S. (2020)