March 17, 2021
Lately, we have had an influx of inquiries regarding our State reporting services. The 2020 reporting season was the inaugural year in which certain employers with California residents were required to report to the State. To our surprise many large vendors who offer federal ACA reporting services failed to setup systems that could report to the State of California. The rest of the article examines an egregious error we saw repeatedly when exclusively filing State returns on behalf of certain clients. Regardless of whether an employer needed to file with the State of California, the items discussed in this article apply to all employers with ACA filing obligations.
The most troubling mistake we discovered was a major player in the benefits space was leaving line 16 blank for all employees who declined coverage. In many instances our software audited situations where line 16 was blank despite 1E being placed on line 14 and the amount being entered on line 15 being well below the federal poverty line threshold. In situations with these parameters code 2G, the federal poverty line safe harbor code, should have been entered on line 16 to protect the employer from a potential section 4980H penalty. Unfortunately, none of the affordability safe harbor codes were used for any of the months for the employees we reviewed. For any month in which the employer leaves line 16 blank instead of utilizing one of the affordability safe harbor codes it is leaving itself exposed to a potential section 4980H penalty. This is unnecessary, unacceptable, and easily correctable with the proper software.
Outside of the rare situation where 1A or 1G are placed on line 14 (in which case line 16 does not need to be completed) an employer should always try to find a code to put on line 16. Aside from the scenario discussed above regarding the affordability safe harbor codes, we have noticed the following codes being significantly under utilized when reviewing data for California only clients. Code 2A should be placed on line 16 for any month in which the individual was not employed for any day of the month. Code 2B is another viable code that protects employers from section 4980H exposure. Code 2B is unique as it applies to two separate scenarios. First, code 2B can be entered on line 16 if the employee was not a full-time employee for the month and did not enroll in minimum essential coverage for the month. Code 2B is also the appropriate code when coverage ends mid-month as a result of an employee’s termination. Finally, many employers are not using the limited non-assessment period code properly. The limited non-assessment period code can be used in a variety of situations and is always preferable to leaving line 16 blank.
The codes mentioned above are not being used correctly or as frequently as allowed by the Form 1095-C instructions by many vendors and employers. This is extremely problematic and will continue to lead to unnecessary proposed penalty letters and notices from the IRS. Therefore, all employers should be using a code on line 16 as much as it is allowed by the final instructions. Additionally, employers should be reviewing the line 14, 15, and 16 codes for every month on each Form 1095-C submitted to the federal government.
To ensure meticulous compliance Accord Systems audits each and every one of the line 14, 15, and 16 monthly code combinations its clients submit to the IRS through its automated audit tool, Form Patrol. Form Patrol allows us to review and correct potentially problematic scenarios with our clients before the data is submitted to the IRS. Form Patrol not only looks at each month’s line 14, 15, and 16 code combinations, but also audits the line 14, 15, and 16 code combinations in three month increments to flag any odd or potentially problematic coding scenarios. Tools like Form Patrol have led to Accord’s flawless record of keeping its clients clear from letters and notices from the IRS related to the ACA.
We have already successfully submitted the necessary Forms 1095-C to the State of California on behalf of many of our clients. Employers or their vendors must diligently review the line 14, 15, and 16 codes for every month of each Form 1095-C submitted to the federal government. Doing this properly will save employers from paying unnecessary legal fees associated with IRS letters and notices. Furthermore, employers must make sure they file the necessary information with the growing number of States that have reporting requirements. If you have any questions regarding federal or State ACA reporting, please don’t hesitate to contact us.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorneys P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
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