Comprehensive ACA Software Streamlines Data Management
This post is for Applicable Large Employers (ALEs) required to comply with the Affordable Care Act. We hope you find it useful.
The IRS recently confirmed the end of good-faith transition relief, and it announced a permanent 30-day extension for furnishing forms 1095-C to employees. Note that the extension applies to furnishing, not filing.
According to the IRS, “This [good-faith transition] relief applied only to furnishing and filing incorrect or incomplete information reported on a statement or return and not to a failure to timely furnish or file a statement or return.”
Transition relief applied to the 2015-2020 tax years, providing exemption from IRC 6721/6722 penalties to ALEs that could explain why they did not file or furnish accurate information. Various entities requested that the IRS extend transition relief through the 2024 tax year, but this did not occur.
IRS will continue to provide penalty relief for “reasonable cause,” which differs from good faith transition relief. Reasonable cause applies to missing and incorrect name/TINs (Taxpayer Identification Numbers).
The IRS explains that “filers must establish both that they acted in a responsible manner both before and after the failure occurred and that: there were significant mitigating factors with respect to the failure . . . or the failure was due to events beyond the filer’s control.”
Penalty exemption is not guaranteed, and penalties can be steep for failure to file or furnish in an accurate and timely manner.
Our ACA software and services help streamline compliance management, and our Full Service option is the easiest. With ACA Full Service, we do it all for you throughout the entire year – just provide a spreadsheet with employee data, and we do the rest including filing.
We provide penalty response services and have helped many companies drastically reduce or avoid penalties. Our friendly experts can help you file for past years, make corrections, and walk you through the entire compliance management process. Our experts can help you determine how our ACA software and/or ACA services will meet your specific needs.
IRC 6721/6722 Penalties
An IRC 6721 penalty is issued by the IRS when an ALE fails to file in a timely manner or files an incorrect/incomplete form. The IRC 6722 penalty is levied when an ALE fails to furnish correct 1095-C forms by the mandated deadline.
The IRS has published definitions and current penalty amounts as of December 2022:
- IRC 6721 provides for a penalty when an information return or statement is not timely and/or correctly filed by the due date of the return. IRC 6722 provides for a penalty when a payee statement is not timely and/or correctly furnished. Penalties assessed under IRC 6721 and IRC 6722 are based on a time sensitive penalty rate.
- The Trade Preferences Extension Act (TPEA) of 2015, section 806, increased the tiered penalty amounts for IRC 6721 and IRC 6722. The following penalty amounts (subject to inflationary adjustment) are effective for returns and statements required to be filed on or after January 1, 2016:
- $50 per failure, not to exceed an annual maximum of $500,000 for returns filed correctly within 30 days of the due date,
- $100 per failure, not to exceed an annual maximum of $1,500,000 for returns filed correctly after 30 days, but on or before August 1, or
- $250 per failure, not to exceed an annual maximum of $3,000,000 for returns filed after August
There are lower annual maximums applicable to small businesses with gross receipts of $5 million or less. Penalty amounts are higher, with no maximum amounts, if the failure is due to intentional disregard.
IRC 6721 and IRC 6722 penalty rates and maximum amounts are subject to annual inflationary adjustments enacted by the Tax Increase Prevention Act (TIPA) of 2014, section 208, effective for returns required to be filed in a calendar year beginning after 2014. See Exhibit 20.1.7-1 and Exhibit 20.1.7-2 for penalty rates and maximum amounts with inflationary adjustments. Also refer to these exhibits for penalty rates for prior years.
Common ACA Filing Errors
The IRC 6271/2 penalties can become costly due to numerous form errors and missed deadlines. Passport Software’s comprehensive ACA software streamlines data management and tracking year-round, and our experts can answer any ACA-related questions you may have. Our IRS-certified ACA software solution provides an easy-to-use dashboard that resembles the 1095-C, and we can help ease the burden of compliance.
It is important to avoid reporting errors in general, and our ACA software and services can help you better manage your ACA-related data. Data accuracy is crucial for error-free reporting, and there are several common filing errors to avoid.
Note that a company can qualify as an Applicable Large employer (ALE) if they have less than 50 full-time employees but 50+ full time equivalents (FTEs). Employers should be mindful of the calculation used to determine full-time equivalent status.
Employers with multiple EINs under common ownership must total all the employees from their multiple business entities.
The IRS defines the Employer Aggregation Rule as follows:
“Companies with a common owner or that are otherwise related under certain rules of section 414 of the Internal Revenue Code are generally combined and treated as a single employer for determining ALE status. If the combined number of full-time employees and full-time equivalent employees for the group is large enough to meet the definition of an ALE, then each employer in the group (called an ALE member) is part of an ALE and is subject to the employer shared responsibility provisions, even if separately the employer would not be an ALE.”
ACA penalties can be steep, and Passport Software’s ACA software and services can help you simplify compliance and avoid penalties year-round.