Must ALEs File Forms 1095-C for Foreign Employees?

Note to readers: Efforts continue in Washington to repeal and replace the Affordable Care Act. As of this writing, House Republicans have issued a detailed "Policy Brief" outlining one replacement plan, and other proposals have been introduced. President Trump has indicated that a replacement bill will be introduced sometime this month. Please bear this in mind as you read the article below, and consult your benefits advisor for the latest developments.

Question: We're an applicable large employer (ALE) under the Affordable Care Act (ACA). We have foreign employees — that is, non-U.S. citizens — who are working 40 hours per week legally in the United States. Do we have to prepare Forms 1095-C for them?

Employees standing around a conference table

Answer: As you know, Form 1095-C satisfies the requirement for ALEs to file information returns with the IRS and provide statements to employees regarding their health plan coverage. Under the ACA, you must provide the form to all employees credited with enough service hours to be considered full-time for purposes of calculating employer-shared responsibility penalties.

Per Section 4980H of the Internal Revenue Code, this generally means those working 130 or more service hours in a calendar month for at least one calendar month. And the rule applies regardless of an employee's citizenship.

Calculating Service Hours

For purposes of Sec. 4980H, an hour of service means each hour for which an employee is paid, or is entitled to payment, for the performance of duties for the employer. It also generally includes hours for which an employee is entitled to payment even if no duties are performed (for example, vacation and sick pay).

To the extent that compensation for services constitutes income from sources outside the United States (within the meaning of Sections 861–863 of the Internal Revenue Code), hours attributable to those services are excluded. Thus, when calculating service hours, the location where the services are performed is relevant but, as mentioned, the citizenship of the employee generally isn't.

So, in short, non-U.S. citizens credited with enough hours to be considered full-time employees must receive a Form 1095-C for two primary reasons:

  1. Non-U.S. citizens performing services for an ALE in the United States must typically be credited with hours with respect to those services.
  2. ALEs must furnish Forms 1095-C to all employees credited with full-time hours for at least one calendar month.

An employee working 40 hours per week will easily pass the 130-hour threshold for full-time status.

Conversely, a Form 1095-C typically isn't required for U.S. citizens who work outside the United States and whose entire compensation from the employer constitutes income from outside the country. Because those employees will not be credited with hours for services performed beyond U.S. borders, they won't be considered full-time employees and, thus, will not be subject to reporting requirements.

Counting Correctly

Note that special rules may apply in the year of transfer with respect to employees transferring to or from positions within or outside the United States. Also, a number of special rules may apply when identifying the source of compensation as inside or outside the United States.

Therefore, as an ALE that employs non-U.S. citizens within the United States, you should consult legal counsel when deciding which service hours to count. This also holds true for ALEs employing U.S. citizens outside of the country.

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