IRS Expected to Increase Penalties for Affordable Care Act Non-Compliance for 2019 Tax Year

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Applicable Large Employers (ALEs) should take steps to avoid the following common errors in Affordable Care Act (ACA) compliance reporting. Although filing the ACA compliance Forms1095-C, 1094-C, 1095-B and 1094-B with the IRS can be complicated and time-consuming, accounting for the following filing mistakes can prevent employers from incurring costly IRS penalties.

  • Failure to properly consider the Employer Aggregation Rules
    Employers should note that companies that share a common owner, or are otherwise connected under certain rules of section 414 of the Internal Revenue Code, can be grouped together as an ALE. In that case, all the companies under that shared umbrella are responsible for filing the proper forms demonstrating ACA compliance.
  • Failure to properly account for full-time and full-time equivalent employees
    As a reminder, the IRS defines an ALE as any employer with 50 or more full-time or full-time equivalent employees. The IRS defines a full-time employee as any individual who works 30 hours or more per week during the calendar month, or who averages at least 130 hours per month. For any employee that meets this definition, the employer is responsible for demonstrating proof that minimum essential health coverage was made available for that individual.

    A full-time equivalent employee, on the other hand, is a combination of part-time employees that together add up to one full-time worker. The number of full-time equivalent employees is relevant to whether any employer classifies as an ALE. Make sure to calculate the number of full-time equivalent (and part-time) employees to account for this determination. Although employers are not required to offer minimum essential coverage to employees who are not full-time, they should make sure they know whether or not they are subject to the ACA requirements for ALEs.

  • Failure to properly file forms 1094-C and 1095-C
    ALEs must remember to file an individual form 1095-C for each full-time employee that was offered minimum essential coverage. Employers need to demonstrate that these forms were supplied to the individual employees but also make sure that all of the forms are accurately filed with the IRS. In addition, ALEs will need to properly file transmittal Form 1094-C, along with the Forms 1095-C s to avoid incurring penalties. In addition to serving as a transmittal form, the ALEs also use Form 1094-C to demonstrate compliance with the requirement to offer Minimum Essential Coverage to at least 95% of their full-time workforce.  This component carries a huge potential penalty, as failure to comply can result in a penalty of $2,320 (amount will be indexed annually for inflation) MULTIPLIED BY NEARLY ALL OF THE EMPLOYER’S FULL-TIME EMPLOYEES, including those who did receive coverage.   This large penalty can also be assessed to companies who file Form 1094-C incorrectly.
  • Failure to file forms on time
    Employers should be sure to mail and file their forms on time. If forms are filled out incorrectly and filed late, the IRS penalties could add up quickly.

Above all, employers should take care when filling out forms 1094-C and 1095-C to demonstrate ACA compliance. It is important to remember that it can be quite common to incur penalties for incorrectly filing these forms, even if the employer is complying with the ACA requirements.

Consider working with a reputable vendor, like SPS/GZ, to ensure that you are meeting the IRS’s requirements under the Affordable Care Act and filing the appropriate forms correctly to avoid any penalties.