1099-SA vs 1095-C: Key Differences You Need to Know
Understand the distinctions between 1099-SA and 1095-C forms, focusing on tax reporting, employer coverage, and filing responsibilities.
Tax season brings a variety of documents that require careful attention. Among these are the 1099-SA and 1095-C forms, which report health-related financial information to individuals and the IRS. Understanding the distinctions between these forms is essential for compliance and avoiding penalties.
1099-SA Tax Reporting for Distributions
The 1099-SA form is issued to individuals with Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs), or Medicare Advantage MSAs. It reports distributions made during the tax year, whether for qualified medical expenses or not. The taxability of these distributions depends on whether they were used for qualified medical expenses as defined by the IRS.
Non-qualified distributions are subject to income tax and may incur a 20% penalty unless the account holder is over 65, disabled, or deceased. Accurate records of medical expenses are critical to avoid this penalty. The form includes details such as total distribution amounts, earnings on excess contributions, and the account’s fair market value, all of which impact tax liability.
1095-C Employer Coverage Documentation
The 1095-C form is required for large employers—those with 50 or more full-time employees or equivalents—under the Affordable Care Act (ACA). It outlines the health insurance coverage offered, including the months coverage was available and the employee’s share of the lowest-cost monthly premium for self-only coverage.
Discrepancies in this form can result in penalties under IRC Section 4980H. For instance, failing to offer coverage to at least 95% of full-time employees and their dependents can lead to penalties of $2,750 per full-time employee, excluding the first 30 employees, for the year 2024. This highlights the importance of precise record-keeping and timely filing.
Filing Roles and Responsibilities
For the 1099-SA, trustees or custodians of HSAs, Archer MSAs, or Medicare Advantage MSAs are responsible for issuing the form to account holders and the IRS. Accuracy in reporting distribution amounts and account values is essential to avoid penalties or errors in tax reporting.
The 1095-C form is the responsibility of large employers. They must provide accurate documentation to employees by January 31 and file with the IRS by February 28 for paper submissions or March 31 for electronic submissions. Employers should maintain detailed records of health coverage offers and employee elections to ensure compliance with IRS rules.
Taxable and Non-Taxable Items
Understanding what is taxable versus non-taxable is essential for financial clarity. Employer-provided health insurance premiums are generally non-taxable under IRC Section 106, allowing employees to receive these benefits without increasing their taxable income. This encourages participation in employer-sponsored health plans.
On the other hand, certain fringe benefits, such as employer-provided gym memberships, may be taxable depending on their purpose and whether they primarily benefit the employer or the employee, as outlined in IRS guidelines.