Small Business

What is a 1095 Tax Form?

Updated on December 02, 2019


As a small business owner, you value and appreciate your employees. Even though you might not be required to offer health insurance due to the size of your business, you may have chosen to do so anyway. Whether you already have a small business health insurance plan available for your employees to enroll in, or you’re thinking about getting one, it’s important to know what your responsibilities are when it comes to preparing the necessary forms, like the 1095 tax form.

If you plan to extend small business health insurance to your employees, it’s important to prepare for all the administrative and financial challenges. Chief among these is the need to report your small business health insurance plan to the IRS. Depending on the nature of your company and your insurance plan, you may have to fill out a 1095 tax form. The following guide will help you determine whether you need to do this and if so, what 1095 tax form to complete.

The 1095 tax form

The 1095 tax form was created to ensure that individuals and businesses comply with the Patient Protection and Affordable Care Act. Individuals who fail to obtain health insurance in 2018 – and businesses over a certain size that neglect to provide it for their workers – have to pay a penalty. The 1095 tax form can determine who faces such a penalty. Keep in mind, though, that while the 1095 tax form does provide you with information that can be helpful on your taxes, you are not required to forward a copy to the IRS as a tax filer.  Also, under current legislation, the IRS will stop enforcing the tax penalty on individuals who do not maintain qualifying health insurance in 2019 and later years.

This form can also help people figure out if they qualify for tax credits, or subsidies that the federal government provides to help individuals and businesses pay for insurance.

There are three separate versions of the 1095 tax form, each suited to different situations. They are:

  • The 1095 Tax Form A – Form 1095-A is intended for individuals who buy health insurance plans on the Affordable Care Act federal or state marketplaces. It is not used for small business health insurance.
  • The 1095 Tax Form B – This version of the 1095 tax form is usually sent out by insurance companies, but certain types of employers need to use it as well. If you are self-insured and have fewer than 50 full-time workers or full-time equivalent employees, you must send this form to everyone who is covered. Self-insurance means you pay your employees’ medical bills on your own rather than buying a small business health insurance plan from an external insurance company.
  • The 1095 Tax Form C – Designed for larger employers who provide small business health insurance, this 1095 tax form must be filled out if you have 50 or more full-time employees or full-time equivalent employees. Send it to everyone included in the group plan. If you don’t send it or the insurance coverage your employees report doesn’t meet ACA standards, you may have to pay a fine.

Not every employer who provides health insurance needs to provide 1095 tax forms. In particular, if you have fewer than 50 full-time workers or equivalents, this form may not be necessary.

Figuring out the forms

Unless you’re self-insured, you likely only have to provide a 1095 tax form if you have more than 50 full-time employees or full-time equivalents. A full-time worker is someone who works at least 30 hours a week. “Full-time equivalent” means that you have multiple part-time employees whose hours add up to 30 a week. If you have six employees who work ten hours a week, that adds up to 60 hours a week, or the equivalent of two full-time workers.

You should make sure your employees understand what to do on their end, which can be aided by having a small business payroll service. If you’re sending out a 1095 form, let your workers know ahead of time that they should keep their eye out for its arrival.

This article is for general information and may not be updated after publication. Consult your own tax, accounting, or legal advisor instead of relying on this article as tax, accounting, or legal advice.

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