By Christy Abend
Since the inception of Internal Revenue Service (IRS) Affordable Care Act (ACA) employer mandate reporting requirements, beginning with tax year 2015, many employers have leaned on the “good faith effort” relief clause when not able to adhere to deadlines or ensure accurate 1094-C and 1095-C reporting. But with the next filing deadline of March 31 looming, it’s vital that employers recognize that the rules have changed dramatically. In fact, the concept of good faith relief has expired, and the Internal Revenue Service has stepped up with a more robust enforcement policy that could bring you surprising penalties.
Historically, employers were given a great deal of leeway in the timing of their ACA filings while typically avoiding penalties – referred to as Good Faith Transition Relief, which officially ended in 2020. During that previous era of ACA compliance, we have assisted many employers who had received a series of notices requiring them to file for the last five years and as long as they complied by the date in their warning notice, no penalties were to be imposed. In addition, there are many examples of employers who admitted they had thousands of Tax Identification Number (TIN) errors in their ACA filings, but since the IRS had not historically imposed inaccurate reporting penalties, employers simply chose to ignore them. Not anymore. The days when employers could rely upon a “good faith effort” to avoid late or inaccurate reporting penalties is gone.
Among the reasons for the accelerated enforcement of ACA penalties:
This past year, the IRS announced it was removing that implicit period of forgiveness for inaccurate ACA reporting.
The U.S. Supreme Court’s 2021 upholding of the ACA means the ACA employer mandate will continue into the foreseeable future.
The Internal Revenue Service, previously burdened by budgetary restraints, has now received more financial resources to enforce penalties more vigorously. You can expect that the increase in new IRS positions will support more robust ACA compliance enforcement.
Finally, the IRS is being urged to enforce penalties by the Treasury Inspector General for Tax Administration. These penalties can be stunning – IRS penalties under IRC 6722 for companies larger than $5 million in gross receipts can top $570 per return that failed to be issued to an applicable employee.
In simple terms: HR and benefits professionals who administer ACA programs but who do not plan for potential new penalties could be on a collision course with a career-altering event – the unexpected notification of hundreds of thousands of dollars in assessed penalties.
To help avoid that fiscal catastrophe, employers should move quickly to:
First and foremost, plan on getting your annual ACA filing in on time, by March 31. Employers can request a 30-day extension, but it’s wise to make every effort to meet the March 31deadline. Applicable Large Employers (ALEs) who have not already filed an extension with the IRS are facing that March 31 deadline. Remember that filing can be performed by mail for employers filing fewer than 250 returns, but all others must file electronically using the IRS AIR system.
Make sure your Chief Financial Officer and other members of your C-Suite are ready financially to cope with any late penalties that may be assessed by the IRS, including penalties based upon previous years. For smaller businesses, a six figure assessment in ACA filing penalties might literally put a company out of business.
Consider the value of an ACA Management service such as Equifax. Expert ACA software vendors: a) can help make sure your company is receiving employee eligibility information in real time and b) provide you with a list of employees who are eligible under the ACA, to help you understand who requires an offer of health insurance coverage to reduce penalty risk. An outside vendor helps configure your solution using all of your designated parameters (ie. duration of lookback, admin and stability periods, benefit plan costs, etc.) and helps you better understand your ACA penalty risk.
Keeping up-to-date with changing requirements around the Affordable Care Act can be challenging. Equifax Workforce Solutions has subject matter experts who can help you better manage your ACA efforts, including helping with calculating affordability, employee eligibility, tracking offers of coverage, reporting, and more. For more information, visit our ACA Management page and check out our guide, ACA Penalties and What They Could Mean for Your Company.
The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel. Links to sources may be to third party sites. We have no control over and assume no responsibility for the content, privacy policies or practices of any third party sites or services.
About the Author
Job Title: Director, Product Management
Christy Abend has more than two decades working in the human resources and product management space, with a concentration in health and welfare benefits and a focus on employer regulatory alignment. Her background and interests facilitate her work on the ACA products offered by Equifax Workforce Solutions. She has a Bachelor of Science degree with a concentration in Human Resource Management from the State University of New York, Empire State College and also holds a SHRM-SCP certification as well as a Group Benefits Associate designation awarded by the International Foundation of Employee Benefit Plans and the Wharton School of the University of Pennsylvania.