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Embedded in the Trade Preferences Act of 2015 is a tiny provision that raises penalties for IRS filing errors, including those for Affordable Care Act (ACA) returns.
You’ve been generous all along in providing health insurance to every one of your employees. Sure, you’ve heard about the Affordable Care Act’s employer mandate. And you’ve got the gist: Do right by a new law to offer a certain standard of coverage – or pay the IRS.
Figure that you’re already compliant, so why sweat, right? All this fuss about some new IRS forms for ACA compliance – that’s what less generous employers have to pay close attention to, right?
The letter of the ACA vs. the spirit of the ACA
Complying with the spirit of the Affordable Care Act isn’t enough. You’ve got to comply with the letter of the new health law, too. This added responsibility means that even when you’re doing right by your employees, you’ve got to document (through new IRS forms to be submitted annually) that you are also compliant in this respect – in order to be fully ACA-compliant.
So let’s say that in calendar year 2014, you had 50 or more full-time employees, including full-time equivalents. According to ACA regulations, you are an Applicable Large Employer, aka an ALE (acronym pronounced letter by letter). As an ALE, you have to do Affordable Care Act information reporting for 2015. That reporting includes documenting for the IRS that you offered health insurance to employees who met the ACA definition of full-time, and the attributes of that coverage.
The reporting is done on two new IRS forms: 1095-C and 1094-C. So for every month of 2015, you need to be keeping records that, at year end, you’ll use to fill out one Form 1095-C for every full-time employee. Employees must get this form by February 1, 2016. Then, by February 29, 2016, you have to file all these 1095-C forms along with their transmittal, IRS Form 1094-C, to the IRS (by March 31, 2016, if you’re e-filing).
Or pay a fine per required return.
For decades, the penalty for failure to report correct information to the IRS was $100 per required return, with a cap of $1.5 million. Failure to report any information was $250 per required form, with a cap of $1.5 million.
ACA impact of the Trade Preferences Act of 2015
But in the fine print of a global trade law that President Barack Obama signed June 29, 2015, came an unexpected wake-up call for all employers not dotting their i’s and crossing their t’s in any kind of IRS information reporting.
Under Section 806 of the Trade Preferences Act of 2015 (Public Law No. 114-27), legislation that provides job training and aid to U.S. workers displaced by globalization and foreign trade, there’s a provision that significantly increases penalties set forth in the Internal Revenue Code for filing errors:
- The fine for filing incomplete or inaccurate information on submissions after December 31, 2015, increases to $260* per required return, with a maximum of $3 million a year.
- The fine for not filing any mandated forms increases after December 31, 2015, from $260* per required return to $520* per required return.
“If you look at the title of the bill, it wouldn’t tip you off at all that there was this provision in there regarding information reporting penalties,” Michael Chittenden, a senior associate at the law firm of Miller & Chevalier, is quoted as telling CFO.com. According to Chittenden, the provision was included to provide revenue for offsetting costs incurred by other aspects of the trade law.
ACA fine now $520* per required 1095-C
The section in the trade law that lays out the penalty increases for non-compliant IRS filings applies to all IRS submissions, from W-2s to 1099s, and includes the new ACA-mandated forms due Q1 of 2016. The hikes go across the board and affect nearly every disconnect in IRS submissions – from not providing corrected returns in a timely manner to intentionally disregarding the mandated submission.
For the mandated ACA submissions, there’s no cap on the $520* penalty per required return. An ACA return – in the form of IRS Form 1095-C – is required for:
- Every employee whose hours of service (not hours of work) total 130 in any one month of a calendar year (if you’re using the monthly measurement method to determine employee eligibility for health insurance)
- Employees in a stability period – those employees who, during a look-back period, were found to be full-time (if you’re using the look-back measurement method to determine employee eligibility for health insurance)
- Any employee who is on an employer-provided health insurance plan – even if that employee was not full-time in any month of the calendar year
And just as a W-3 is the transmittal for W-2s, there’s IRS Form 1094-C that’s the transmittal for Form 1095-Cs to the IRS.
There’s no IRS grace for not filing the new ACA forms:
- If you’ve been offering coverage all along that now also has the ACA stamp of approval, you’ve still got to produce Form 1095-C for employees and file Form 1094-C for the IRS.
- If your ACA strategy is to “pay” – accept what’s called the IRS sledgehammer penalty for choosing not to offered the required health coverage – you’ve still got to produce Form 1095-C for employees and file Form 1094-C for the IRS.
With respect to the new ACA forms, there’s IRS grace only for calendar year 2015 if you follow through with the mandated submissions (“a good faith effort”) and happen to have filing errors. With this relief, you’re spared the $260* per required return penalty.
If the references above to measurement periods have you confused, or other IRS rules for ACA compliance give you pause:
By Helen Karakoudas | ACA Education Director, Integrity Data
*subject to change for filing year 2017