The IRS' Mission Statement states, "Provide America's taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all."
Sounds pretty business-like and unwavering to us. Ultimately, the IRS's role is to help compliant taxpayers with tax law and ensure those who are unwilling to comply pay their fair share. This responsibility doesn't only apply to individuals but to businesses and corporations as well. Applicable Large Employers (ALEs) have an obligation under tax law, and if they fail to meet the requirements, they will face harsh penalties.
Two Obligations for ALEs
An ALE has two obligations under federal tax law. First, the employer must offer 95% of full-time employees (FTEs) coverage that meets the minimum actuarial value. This is included in §4980H (a) & (b). Second, under §6055 and 6056, employers must report that coverage to the IRS and furnish the correct forms to FTEs. Here is where it gets complicated for ALEs, so we will break it down a bit further:
- §6055: All providers of insurance (employers who offer benefits to employees) must report who took coverage (which employees opted-in) under a health plan.
- For Fully-Insured plans the carriers provide Form 195-B
- For Self-Funded plans, employers complete Part Three of Form 1095-C and furnish to employees.
- §6056: All ALEs must report to the IRS the coverage they offered or coverage they did not offer, to their FTEs. They must also provide this information to their employees.
These two areas account for significant potential penalties and are considered low-hanging fruit for the IRS. In 2015 and 2016, the IRS was more understanding due to the recent inception of the ACA and confusing rules and regulations. Since that time, however, they are not as easy on employers and will follow up on any mistakes or missing filings. Employers must be aware and on top of their reporting, especially after the Inspector General Report from last summer stating the IRS was too far behind their penalty collection. The IRS has ground to make up, and ALEs may get run over in the process.
Furnish to Employees & File with IRS, or Face Penalties
ALEs must timely furnish Form 1095-C to FTEs and file Forms 1095-C and 1094-C with the IRS. Each form must be 100% accurate. If an employer is filing more than 250 forms, they must file electronically with the IRS Air System. If they attempt to mail the forms, they will not be counted, and the employers will be marked for failure to file.
If an employer fails to file or submits files with errors, the penalties are typically reduced to $50 per form if corrections are submitted within 30 days or $100 if submitted by August 1st. However, if forms are not filed correctly or timely, the penalty is a steep $280/form. This fee may increase for 2021, but we have not heard from the IRS yet.
One other key thing for employers and brokers to remember: There is no statute of limitations imposing these penalties. The Chief Counsel's office for the IRS declared that payroll information, insurance offerings, and other supporting documentation must be kept for each year, with no limitation on the number of years. See the declaration at: https://www.irs.gov/pub/irs-lafa/20200801f.pdf
What if Employers Don't File?
Employers who did not file in 2020 or previous years will receive a 226J letter, also known as a "love letter", from the IRS. You can learn more about 226J letters and ACA terms from our "What is a 226J Letter" blog.
Penalties from failure to file or furnish are based on an employer's W-2s, which, as we know, may not represent the correct number of FTEs by including variable hour employees, as well. The first line of defense is determining your FTEs. Nevertheless, do not sit on the letter. If an employer receives a 226J, they must reach out to their broker or attorney for further guidance on addressing the letter and best response to the IRS.
Here's How Medcom Helps
Brokers and employers can reach out to Medcom's ACA team of experts to help navigate the waters of ACA filing, furnishing, tracking, and penalty appeal. We offer simple, stress-free solutions for clients that include ACA back filing and consulting, and strategic evaluations. We guarantee accuracy and timely filings for all our clients and have a team well-versed in reducing employer penalties. To date, Medcom has saved employers more than $50 MILLION in projected penalties.
The best step forward for any employer is always to file and furnish timely and accurately, but we understand that it is not easy and takes a lot of time and attention. So, we are here to help ensure your ACA compliance. And, if in the past there has been a failure to file, we can help you complete the back filings and reduce your proposed IRS penalties. We are indeed a one-stop-shop for ACA Solutions.