February 8, 2023
It is time for the eighth year of ACA reporting. Employers should already be working through the data collection portion of the process. We wanted to refresh everyone’s recollections on some basic things that can reduce headaches down the line. Additionally, we wanted to provide an exciting update regarding appealing potential ACA penalties.
Check the Correct Box in Column (a) in Part III of the Form 1094-C
Assuming the employer offered minimum essential coverage to at least 95% of its full-time employees and their dependents for the entire calendar year, check the “Yes” box on line 23. This is such a simple thing to do but repeatedly we have heard of employers leaving this line blank or for whatever reason checking the “No” box. By checking the “Yes” box, an employer will move any penalty that is assessed to the less severe IRC section 4980H(b) penalty.
Make Sure the Forms 1095-C are Accurate
Additionally, employers need to make sure that the Forms that are submitted to the IRS are accurate. The good faith efforts standards no longer apply and the IRS can penalize up to $290 per incorrect return filed. While we don’t know how stringent the IRS will be with its enforcement position, there has been a steady trend of stricter enforcement with each passing year. Therefore, we would highly recommend paying closer attention to the accuracy of the Forms compared to previous years.
Employers using the Form W2 affordability safe harbor should make sure the employee in question qualifies for the safe harbor. The IRS has been consistently denying this safe harbor if the line 15 amount inserted on the Form 1095-C is greater than the employee’s box 1 Form W2 wages expressed in a monthly amount multiplied by the affordability percentage, 9.61 percent in 2022. Therefore, an employer should be checking the line 15 amount prior to submitting the Form to the IRS to avoid future headaches. It is possible employers may get penalized for submitting an incorrect Form 1095-C in the future and owe $290 per return for this mistake.
State Reporting Requirement
Four States, California, Massachusetts, New Jersey, and Rhode Island, plus the District of Columbia currently have separate ACA reporting aside from the federal Form 1095-C. In general, these obligations are fulfilled by the insurer, but if an employer sponsors a self-insured plan, the onus will be on the employer to satisfy the State’s reporting obligations.
The timing of the State reporting obligations also vary compared to the current ACA deadlines. Unfortunately, California and Massachusetts require the State information to be provided to the necessary individuals by January 31, 2023. If an employer has not satisfied those obligations, we would recommend furnishing the proper statement to the requisite individuals then promptly filing with the State in a timely fashion. Fortunately, all four States, California, Massachusetts, New Jersey, and Rhode Island, have a filing deadline with the State of March 31, 2023 which is in line with the ACA filing deadline with the IRS. The District of Columbia deadline of May 1, 2023 (as a result of April 30, 2023 being a Sunday), is actually more generous than the ACA deadline.
Finally, employers in the following States, Connecticut, Hawaii, Maryland, Minnesota, and Washington, should anticipate more responsibilities with regard to State reporting as legislation has already passed. Hopefully, the deadlines and Forms required by those States will mirror the ACA deadlines and Forms.
Tips on How to Handle IRS ACA Penalty Letters
The most important thing is to reply timely. In private practice, I have had way too many people get in touch regarding an IRS letter after the fact. A timely response always gets any appeal off on the correct foot. I would highly recommend appealing all ACA penalties as there is usually a way to get the penalties reduced. While we still have a few larger cases pending, I recently had a client's penalty reduced to $0 using the argument that the client never received a section 1411 notice which is required for a penalty under section 4980H(a) and section 4980H(b). Almost no employer has received the required section 1411 notice since the ACA’s inception despite the clear statutory language! While we are cautiously optimistic, we are still waiting to hear back from a few separate appeals with similar arguments to the one we successfully made. If you are interested in my assistance in any ACA appeal, please contact me directly.
Employers should closely review the Forms 1094-C and 1095-C before submitting the Forms to the IRS. Critically, all employers should make sure the “Yes” box is checked on line 23 of the Form 1094-C assuming the employer offered minimum essential coverage to at least 95% of its full-time employees and their dependents. The codes entered on lines 14, 15, and 16 should also be verified for accuracy. We have an automated tool that can do this for employers! If you are interested in learning about our tool to ensure accurate Forms are submitted to the IRS or you need assistance filing the Forms 1094-C and 1095-C, 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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