One of the more controversial aspects of recent legislation was the increase of funding for the Internal Revenue Services’ enforcement team. Many expect that the IRS will turn their attention to previously neglected areas of enforcement, including the Affordable Care Act (ACA).
Affordable Care Act: Compliance Basics
If it’s been a while since you reviewed ACA compliance, here is a brief refresher. Large employers with 50 or more full-time employees are required to provide adequate and affordable medical coverage to their employees. If they fail to do so, the penalties include a fine of $229.17 a month or $2,750 for 2022, multiplied by the total number of full-time employees in excess of 30. The 49080H(b) penalty amount of $343.33 a month or $4,120 for 2022 is assessed on a per-employee basis for every full-time employee who receives a premium tax credit after not being offered adequate or affordable coverage.
Compliant Companies May Still Face Audits
Let’s assume that your company meets the ACA coverage requirements and fully complies with the Affordable Care Act. You may feel you’re in the clear. However, just because your company is complying does not mean it is exempt from an ACA assessment. Failing to complete forms 1094 and 1095-C can raise red flags especially if you report health insurance amounts on forms W2 filed with the IRS. This kind of discrepancy can lead to questions from the IRS and/or employees when trying to file their taxes which could lead to fines and assessments being charged to you for non-compliance. This failure can also flag other governmental agencies leading to other non-compliance fines and penalties.
Up until 2021, the IRS held a policy of “good faith,” meaning that if employers can demonstrate they were trying to comply with the requirements in good faith by showing their due diligence, they were given grace to rectify any incomplete or incorrect reports. That grace period, however, ended in 2022, and many are seeing an uptick in IRS inquiries over incomplete or incorrect ACA reporting.
Common ACA Reporting Mistakes
Employers make many ACA reporting mistakes, but these are the most common. Check to ensure you’re not making these common errors on forms 1094 and 1095-C which can lead to unnecessary penalties and requests from the IRS for further information.
- Over reporting employees: You only need to issue 1095-C to full-time employees. There’s no need to issue it to part-time employees.
- Not validating safe harbor codes: You must validate, or provide documentation, to claim safe harbor for affordability on 1095-C. Speak with your accounting expert or CPA to determine if your company does indeed meet the safe harbor requirement
- Avoid “free” reporting services: If your bookkeeping software comes with “free” ACA reporting features, use with caution, and have someone double check the results that understands ACA 1095/1094 filing requirements, even if it comes out of your payroll/accounting system.
- Not responding to marketplace notices: Responding to marketplace notices is the first opportunity to prevent mistaken penalties. When an employee is determined eligible for a premium tax credit to purchase coverage from the Marketplace, they typically receive a notice of eligibility determination. If the employee can prove to the Marketplace that affordable, adequate coverage wasn’t made available by the employer when in fact it was, the employer can and should appeal. Don’t ignore marketplace notices or employee concerns that come up while they try to file their taxes annually.
- Get a benefit plan review annually if you are offering health insurance and other benefits to your employees unless you are an expert in ACA compliance and filing requirements. Another option is to outsource ACA processing and associated compliance to a third-party provider like your health insurance plan providers. Paying for a benefit plan review or outsourcing this function to a third party that specializes in this area will be well worth the cost of these services. Increased priority has been given to ACA filing & compliance starting in 2022 from the IRS and is evident with the number of agents they have assigned to this area for 2022.
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