ACA Non-compliance Penalties
This post is for Applicable Large Employers (ALEs) required to comply with the Affordable Care Act. Passport Software provides penalty relief consultation as part of our ACA Reporting Services. We hope you find this information useful. The following was sourced from mazconsulting.com and the acatimes.com.
This has been a tumultuous year full of business disruptions and unknowns. How will this affect ACA compliance and reporting for the 2020 tax year?
Five years into mandatory ACA compliance, many ALEs have the process figured out, however there may be some obstacles due to the disruptions caused by the pandemic.
Because the economy was put into a state of flux, and many employees were laid off, furloughed or worked fluctuating hours. Many other companies, such as Amazon, profited from the economic changes and increased hiring to meet rising demands.
With all the shifting employee hours, it’s crucial to accurately track employee status changes in order to make appropriate coverage offerings to remain compliant.
In addition, some companies’ HR staff may have downsized and new employees, managing unfamiliar responsibilities, may have been tasked with ACA compliance and reporting. Hence, there may be some training needed, support calls, or long hold times with the IRS to have questions answered.
It may be better to begin preparations for reporting earlier than usual this year in order to compensate for the learning curve that staff may need to report data accurately.
And, the risk for penalties may be higher this year as tracking has become more complicated due to fluctuating employee statuses.
According to mzqconsulting.com, “The IRS recently released the draft versions of Forms 1094 and 1095-C for the 2020 tax year. Form 1094-C is the same as prior years, but Form 1095-C changed significantly.
The IRS added eight new codes (1L-1S), and a line 17 (zip code) to account for the information needed to assess coverage offers related to individual coverage health reimbursement arrangements (ICHRAs).
These changes will require alterations to existing employer reporting systems. Plus, as drafted, the 1095-C statement for employees will print on two pages.
Even though we don’t know too many ALEs who went with the ICHRA option, we’re going out on limb and predicting that those who did are going to find the new codes a bit baffling.”
Late Filing Penalties
Late filing of the 1094-C and 1095-C forms can result in steep penalties depending on the number of forms not filed on time. An additional penalty is incurred for not furnishing 1095-Cs to employees.
The IRS will waive these penalties but a company must provide “reasonable cause.” Otherwise failure to file or furnish is considered “willful neglect.”
Reasonable cause includes circumstances that are beyond the filer’s control, and that the filer made a responsible attempt to file before and after a late filing.
For example, a contracted vendor may have failed to file in a timely manner or provided incorrect information. The filer must have then made an attempt to correct the error in an attempt to fulfill filing requirements.
According to law.cornell.edu, reasonable cause also includes “significant mitigating factors” and as well as a due diligence safe harbor.
Good Faith Transition Relief
Transition relief is available to companies that filed/furnished on time and, in spite of missing or inaccurate taxpayer information, have “made reasonable efforts to prepare for reporting the required information” to the IRS “such as gathering and transmitting the necessary data to an agent to prepare the data for submission.”
Transition Relief does not apply to ALEs that have failed to file/furnish forms by the mandated deadlines.
Also, ALEs that have failed to file forms 1094-C/1095-C or failed to furnish these to applicable employees may not claim reasonable cause by saying they were not aware of the requirement to furnish these forms.
The IRS is serious about non-compliance, and has even been sending some assessed penalties to debt collection agencies.
Passport Software provides consultation services for penalty notices, and has helped many clients completely avoid, or greatly reduce, penalties. Call 800-969-7900 to see how we can help.