The inevitable has finally come... No more Good Faith. 2021 was the last year of Good Faith Transition Relief, so this year, employers should be aware that when completing ACA reporting, it needs to be done so accurately.
Since ACA employer reporting started in 2015, the IRS has continued to grant a 30-day extension for furnishing Form 1095-C and extended Good Faith Relief from penalties. This means that as long as employers made reasonable efforts and 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, “good faith” was always intended as a transitional relief until employers became familiar with the codes and the rules of reporting. Good Faith is typically offered for no more than five years, and we met that mark in the 2020 tax year.
The Affordable Care Act (ACA) requires Applicable Large Employers (ALEs) to report whether they offered minimum essential coverage (MEC) that is affordable and provided minimum value (MV) to full-time employees. Self-insured employers must also report months of coverage for all enrolled individuals. ACA reporting for an ALE is completed using IRS Forms 1094-C and 1095-C. These forms determine whether or not the Affordable Care Act mandates were satisfied. Codes on lines 14 and 16 of Form 1095-C have proved to be challenging. Form 1094-C requires, among other things, detailed employee counts.
The IRS has tried to assess many penalties when, based on the forms 1095-C and form 1094-C, it appeared that the employer mandate had not been satisfied. The dreaded 226J letters have been delivered to ALEs since 2017. Penalties have been reduced or nullified when the employer could show they offered coverage that met the Affordable Care Act mandates, but the forms were incorrect. Opportunities were given to correct the forms with no penalty to the employer. This is where the “good faith effort” came into play.
No more. The IRS needs money! Now for every correction made and every form that has errors and is furnished to the employee or filed with the IRS will result in a penalty. In 2022, the penalty is $280.00. This can add up fast. Let’s say you incorrectly reported the wrong premium for 100 employees. Assuming the amount was not de minimis, the cost would be $28,000 for furnishing the incorrect form to your employee and $28,000 for filing an incorrect form with the IRS. These penalties will be easy to assess and considered low-hanging fruit for the IRS. Ask yourself; can you afford these penalties? With no more “good faith,” we expect the IRS will be busy. Every 226J letter issued after the 2020 tax year will be accompanied by the risk of penalties for incomplete or inaccurate forms.
Luckily, all of these penalties are easily avoidable with Medcom’s help! We offer a range of solutions from annual ACA Employer Reporting to late filings and penalty appeal support. Our dedicated account managers and data analysts are equipped to understand each employer’s complexities and ensure their success.
If you have any questions regarding Medcom’s ACA services, feel free to reach out to our ACA sales expert, Tom Neal! Also, don’t miss our six-part ACA series every other Thursday at 2 p.m. E.T. through June 30, hosted by Tom Neal and our senior legal counsel, Michelle Barki.