New IRS Guidance on ACA Reporting

Earlier this week, Medcom hosted a webinar with our Senior Legal Counsel, Michelle Barki. During the presentation, Michelle discussed a couple of things that signal major potential changes ahead for Affordable Care Act reporting. If you'd like to view the recording, register using this link. But we are also here to share a summary of Michelle's main points.

Safe Harbors - Little Faith in ALE Coding

As some of us know, Applicable Large Employers (companies with 50 or more team members) have two tax obligations under the IRS rules for the ACA. If ALEs fail to meet either of these obligations, they can face stiff penalties. 

  1. ALEs must offer 95% of full-time employees, including equivalent employees, affordable healthcare coverage that meets minimum actuarial value - §4098H(a) & (b)
  2. ALEs must report coverage to the IRS and provide employees documentation - §6055 & 6056

ALEs can use three Safe Harbor codes to show how they determine affordability:

  1. Rate of Pay: Hourly rate at the beginning of plan year x 130 hours per month. Employee contribution should not exceed the yearly indexed percentage. For those who waived coverage, coding is 1E/2H (or 1C/2H).
  2. Federal Poverty Guideline: Employee contribution cannot exceed yearly indexed percentage of the Federal Poverty Guideline for single coverage only. Employers should use code 1E/2G (or 1A).
  3. W-2 Method: What appears in Box 1 of the W-2. Employee contribution cannot exceed the yearly indexed percentage. There are special rules for employees who do not work a full year. This Safe Harbor coding is 1E/2F (or 1C/2F).

Now, the IRS is saying they do not fully trust ALEs to code the Safe Harbors properly and are sending many more 226J letters as a result. If you need a brush up on your IRS letterWoman with glasses looking concerned at laptop knowledge, read our 226J blog from 2019, not much has changed. The indication of a loss of trust began with the appeals commencing in 2018. Also, Form 14765, that's attached to the 226J letter and indicates who went to the Marketplace and how the coding appears on the 1095-C form, has recently changed.

Formerly, the IRS showed codes 1E/2F, 1E/2H, or 1E/2G for individuals. Now, new codes are in place: 

  • 1E/XF
  • 1E/XH
  • 1E/XG

If an employer receives a 226J letter with Form 14765, they must show their calculations for their Safe Harbors. The IRS is clearly not messing around.

No More "Good Faith Effort"

For each of the seven years of ACA employer reporting, the IRS granted an automatic extension and provided a "Good Faith" understanding. This means that as long as employers could show they were acting in the best interest of their employees, the IRS would acknowledge that any errors represented in reporting were made in good faith, reducing penalties and fines. However, in 2019 the IRS asked for feedback about the necessity of the "Good Faith Effort.". With very little response to explain why this relief is necessary, it is possible for the IRS to no longer issue such help.

Actual numbers for the comments received by the IRS as of Friday, August 6, are:

  • Last 15 days = three
  • Last 30 days = five
  • Last 90 days - seven

View these numbers on the website.

What Now?

We are all anxiously waiting for an announcement from the IRS based on the few comments received. It is still possible that we have another automatic extension, but "Good Faith" is in jeopardy. As reporting continues in 2021 and 2022, we must all make an effort to stay on top of our game and be 100% accurate with IRS filing and reporting. With so much change in coding and the loss of trust from the IRS, that is a heavy task to bear.

Medcom is certainly here to help. Whether you are a current partner or a new client looking for someone to help with the burden of your ACA reporting, our expert team is ready to take steps now to make certain you, your company, and your team members are protected. We highly encourage folks to reach out to Tom Neal, our dedicated ACA sales team member. Tom has a thorough knowledge of the IRS and its requirements and can go over all the steps Medcom takes to ensure full and accurate ACA compliance.