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Attention Employers: IRS Ramping Up ACA Compliance

There are signs that the Internal Revenue Service is starting to step up its enforcement of the Affordable Care Act employer mandate.

During the past six months, there’s been an uptick in the number of employers receiving initial notices stating they may be out of compliance with the requirement that they offer their workers coverage. 

Also, the IRS has announced that it will no longer provide “transition relief” to employers that file incomplete 1094/1095C forms, make mistakes on them or fail to file them. 

Notices were recently sent out for the 2018 tax year. Many of the proposed assessments would result in penalties that are in the millions.

The IRS is charged with ensuring that employers with 50 or more full-time or full-time-equivalent workers comply with the employer mandate, which requires them to offer them health coverage that is affordable and covers 10 essential benefits, as per the ACA. These “applicable large employers” (ALEs) are subject to penalties for not complying.

For 2021, the fines are as follows:

Internal Revenue Code Section 4980H(a) violations: $2,700 per employee. This penalty applies when an ALE does not offer coverage or offers coverage to less than 95% of its full-time staff (and their dependents), and when at least one full-time employee receives a premium tax credit to help pay for coverage through a marketplace exchange.

Internal Revenue Code Section 4980H(b) violations: $4,060 per employee.This applies when an ALE offers coverage to at least 95% of its full-time employees (and their dependents), but at least one full-time worker receives a premium tax credit to help pay for coverage through a government-operated marketplace.

This can occur if the employer did not offer coverage to that particular employee or because the coverage they were offered was either unaffordable or did not provide minimum value.

What the IRS is doing

No statute of limitations for 4980H violations — At the end of 2020, the IRS Office of Chief Counsel issued a memo that stated there is no statute of limitations for employers to avoid penalties for violating Section 4980H.

This means that ALEs who fail to comply with the ACA can be hit with penalties at any time in the future once the IRS discovers the violation.

Ceasing its ‘good faith transition relief’ — This was intended to temporarily give employers more time and a break on penalties when they report incomplete or incorrect information on their 1094/1095C forms. Last year was the final year this good faith transition relief would be offered. The IRS explicitly noted that it would not be extended again.

The relief available to employers who needed it included a 30-day extension for meeting the deadline to file IRS Form 1095-C, as well as good faith relief from penalties for making mistakes, filing incomplete or not filing the ACA-related forms with the IRS or not filing on time.

What to do

The IRS has been sending out notices of ACA non-compliance for the 2018 policy year.

If you receive one of these notices — a Letter 226-J — you need to act quickly to avoid penalties as you have just 30 days to respond. If you need more time, the most that the IRS will likely grant you is a 30-day extension.

Regardless of if you’ve received a notice, you may want to review your 2018 ACA filings. If you identify any mistakes in them, you can correct the filings before the IRS will issue a Letter 226J penalty notice or another type of penalty.

To avoid penalties related to the annual filings of the 1094/1095C forms, make sure that you stay on top of filing deadlines. Also, ensure that the forms are correct and complete to avoid penalties. You can expect the IRS to be diligent in reviewing these forms.