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The COVID-19 pandemic created hardships for everyone and everything, including the IRS. On numerous occasions, the agency announced a significant backlog in processing paper returns.
As of late March, the agency had a backlog of over 12 million returns. IRS Commissioner Charles Rettig recently said, “We would hope to be through this backlog by the summer.” The backlog could be due in part to the agency’s lack of available resources. Rettig says, “I shut down 511 facilities in less than two weeks” and “sent 80,000 employees home” because of COVID-19. The Biden administration is seeking additional funding for the agency for FY22.
Included in the IRS backlog could be employers’ paper filed ACA returns for the 2020 tax year. This could cause potential challenges for employers looking to minimize their IRS penalty exposure in reference to the ACA’s Employer Mandate because of the returns being processed long after the deadline. This is especially true if the ACA returns contain errors.
Employers can help themselves out and the IRS, by instead electing to e-file their ACA returns. Unlike paper filing, which only employers with less than 250 returns can opt for, electronically filing your ACA returns can be done by organizations of all sizes.
When faced with the option, your organization should e-file ACA returns, and here’s why:
You can feel confident about your ACA filings
Applicable Large Employers (ALEs) that elect to file e-file through the IRS’s Affordable Care Act Information Returns (AIRs) portal, immediately avoid the possibility of submitting ACAs returns in the wrong format, and submitting ACA filings in the wrong format could warrant penalty assessments. E-filing also removes the element of the physical documents being miscopied, lost, shuffled, or mixed up.
In addition, e-filing provides you with peace of mind, due in large part to the e-filing submission status being shared after filing. Being able to confirm that your ACA filings submission was “Accepted,” “Accepted with Errors,” or “Rejected” can enable your organization to mobilize quickly and correct errors early. After e-filing, you will also immediately receive a receipt ID, which confirms that your returns were received by the IRS.
Documentation becomes readily available
After your business e-files, you can save a copy of the ACA returns for the specific tax year. In the event your organization receives IRS Letter 5699, which states that the agency believes you failed to file ACA information returns for a specific reporting year, you can easily prove that the notice was sent in error if you electronically filed your ACA submissions.
The e-filing submission status and receipt ID you received both confirm that your organization submitted their ACA filings for a particular reporting year. It also confirms the date you filed your ACA information, which can be important when defending your organization against IRS penalty assessments.
Your business has more time to file
The obvious benefit to filing electronically is that you have more time to prepare your returns with the IRS. The annual electronic filing deadline is March 31, a full month after the paper filing deadline of February 28. Organizations that paper file could spend the extra time preparing, reviewing, and correcting data for your Forms 1094-C and 1095-C if they decide to switch to e-filing.
During that extra time, your business could review your HR data to ensure accuracy. For example, imagine an employee named Jessica Down recently got married. Her last name changed to Deer and the SSA was informed of the change. However, the payroll data was not updated, resulting in a discrepancy between the annual ACA filings records and the SSA records. This will result in flagging that particular 1095-C with a TIN validation error. Filing electronically identifies these kinds of discrepancies sooner rather than later, allowing you to correct the information with the IRS to avoid receiving a penalty assessment.
There’s no telling what the future holds and even with increased resources, an IRS backlog could present itself again. Employers not currently electing to e-file their ACA returns should reconsider.
As a reminder, ALEs are organizations with 50 or more full-time employees and full-time equivalent employees that are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce and their dependents, whereby such coverage meets Minimum Value (MV) and is affordable for the employe or be subject to internal revenue code (IRC) Section 4980H penalties. This information must be submitted annually via paper or e-file specific deadlines or be subject to additional ACA penalties under IRC 6721/6722.
If your business needs help e-filing ACA returns, read the 2021 Essential ACA Guide for Employers to learn best practices for meeting federal and state filing requirements.
