ACA Compliance for Employers: Avoiding an IRS Audit

Updated December 18, 2020

The IRS has proven over the last several months that they are actively enforcing the ACA by issuing letters to Applicable Large Employers (ALEs) who may have failed to comply with Affordable Care Act. Since the IRS is fully engaged in the Affordable Care Act audit process, it is more important than ever for US employers to mitigate their risk of being audited.

There are numerous factors that could potentially trigger an IRS audit. Complying with the ACA is perhaps the simplest way to avoid your chances of being audited. However, we all know ACA compliance can be a complex task. Here’s a few things that employers can do to avoid or minimize their chances of being audited:

Identify Employees that are Full-Time and Benefit Eligible

By now, most ALEs understand that employees who work 30 or more hours per week or average more than 130 hours per month are considered full-time and eligible for coverage. In order to identify these employees, it is important that you are actively managing employee eligibility for the entire calendar year.

Offer Quality Coverage to Full-Time Employees

Once an ALE has identified all of its full-time, eligible employees, it is important to extend offers of coverage at the correct time. Also, in order for employers to be in compliance with the ACA’s employer coverage mandate, employers must offer quality coverage. This means that employers must ensure that they are offering all full-time, eligible employees health coverage that meets minimum essential coverage, minimum value, and affordability guidelines.

Generate and Audit 1095-C Forms for Accuracy

ALEs must provide 1095-C forms to all full-time eligible employees at the end of each year. This form requires information such as whether each employee was offered health insurance, at what cost, and of what quality. One of the main triggers of an IRS audit is filing inaccurate data. Therefore, it is equally important for employers to review the 1095-C forms for accuracy before they are distributed. There are many different 1095-C code combinations for various coverage scenarios. You may want to use this blog as a resource to assist in reviewing your 1095-C forms.

Meet the IRS 1095-C Mailing Deadline

Employers must be sure to furnish accurate 1095-C forms to their employees by the IRS deadline. Failure to comply with the IRS deadline cannot only make you vulnerable to auditing, but it can also subject you to potential IRS penalties for non-filing. The IRS mailing deadline for sending out 1095-Cs to employees is January 31. (This date may change each year, check our ACA Deadlines at right for current year dates).

Audit Form 1094-C

The key to avoiding an IRS audit is being pro-active about auditing and reviewing your information before it is sent to the IRS. Here are a few key items to review when auditing your 1094-C form:

  • Ensure company name and EIN are correct.
    • Also be sure that your affiliated ALE members are listed in Part III (if applicable).
  • Ensure that the authoritative transmittal box is checked (Line 19) for each EIN for which you are reporting.
  • Ensure that the “Minimum Essential Coverage Offer Indicator” (Part III, Column a) is accurately checked for all 12 months or appropriate months.
    • Generally, if you offer an MEC plan, this should be marked “Yes” for All 12 Months – Individual months are then left blank.
  • Ensure that the month full-time employee counts are correct (Part III, Column b), *unless you have selected the 98% Offer Method.