The ACA Times


  Show menu
  • Home
  • Articles
  • Get to Know the ACA
  • ACA – Frequently Asked Questions
  • Resources
  • Meet the Editors
  • Trusaic
  • Contact Us
  • Terms of Service
  • Privacy Notice
  
  • Home
  • Affordable Care Act
  • Avoid These Compliance Triggers to Minimize ACA Penalty Risk

Articles

Avoid These Compliance Triggers to Minimize ACA Penalty Risk

September 1, 2021 Joanna Kim-Brunetti Affordable Care Act
Avoid These Compliance Triggers to Minimize ACA Penalty Risk

It’s become abundantly clear that the IRS is ramping its enforcement of tax compliance. With Biden requesting additional funding for the agency, employers should note that as part of increased enforcement efforts, IRS penalties under the ACA’s Employer Mandate will be ramping up.

Under the ACA’s Employer Mandate, employers with 50 or more full-time employees and full-time equivalent employees, known as Applicable Large Employers (ALEs) must:

  • Offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees (and their dependents) whereby such coverage meets Minimum Value (MV); and
  • Ensure that the coverage for the full-time employee is affordable based on one of the IRS-approved methods for calculating affordability

Failure to adhere to these two requirements could subject ALEs to Internal Revenue Code (IRC) Section 4980H penalties.

With Biden requesting an additional nearly $1 billion more in funding for the IRS, organizations should understand the implications of the additional monetary resources. With more financial support, the IRS will be able to employ more agents and examiners, which will likely lead to more audits, as there will be more physical bodies reviewing triggers for tax non-compliance.

Employers should proceed with caution and ensure their ACA compliance processes are in order. Below we’ve identified the various triggers that prompt an ACA penalty notice for ACA non-compliance. Keep reading to learn more about them or check your processes in real-time by getting your ACA Vitals below.

Take ACA Vitals

Letter 226J: The IRS issues Letter 226J ACA penalty notice to employers that it believes did not comply with the ACA’s Employer Mandate for a specific tax year.  Notably, as part of the increased enforcement activity, the IRS may begin issuing these types of penalties to employers that did comply but failed to report the information accurately.

The current trigger for Letter 226J involves Premium Tax Credits (PTCs). If any full-time employee from your workforce receives a PTC from a state or federal health exchange, it will prompt the IRS to issue a Letter 226J penalty notice.  The ACA’s Employer Mandate dictates that ACA full-time employees must receive timely, sufficient health coverage from their employer. 

Sometimes the IRS penalty notices are preceded by warning notices. Letter 226J for example may sometimes follow a Letter 5699 warning notice. Letter 5699 communicates to an employer that the IRS believes they failed to comply with the ACA’s Employer Mandate for a specific tax year. The tax agency is currently issuing Letter 5699s and Letter 226J penalty notices for the 2019 tax year. Since there is no statute of limitations on ACA penalties, however, previous years are fair game as well.

It’s worth noting that a non-full-time employee could also receive a PTC and that too could trigger the IRS to issue a Letter 226J to your organization. The issuance of the penalty notice would be erroneous because the employer was not required to offer coverage to the employee.

In both scenarios, the onus falls on employers to prove whether the employee received the subsidy erroneously and subsequently if the Letter 226J was issued in error. 

Letter 5005-A: The  IRS issues Letter 5005-A ACA penalty notice to employers that fail to file the applicable ACA Forms 1094-C and 1095-C with the IRS or fail to furnish the 1095-Cs to applicable ACA full-time employees, as required under IRC Sections 6721 and 6722.

To avoid this penalty notice, employers need to ensure they adhere to the appropriate ACA reporting and furnishing deadlines for the applicable tax year. Generally speaking, the furnishing deadline is January 31 annually. The general filing deadline for paper ACA submissions is February 28 (if under 250 forms), and the filing deadline for electronic filing ACA submissions is March 31. 

Employers may need to also comply with individual state reporting deadlines in addition to the federal IRS ones. States such as California, Vermont, New Jersey, Rhode Island, and the District of Columbia all have additional reporting deadlines.

Letter 972CG: The 972CG ACA penalty letter is similar in nature to Letter 5005-A, with the main difference being whether an employer fails to file/furnish altogether. The IRS issues Letter 972CG to employers that file and furnish the applicable ACA Forms 1094-C and 1095-C after mandated deadlines. 

Letter 972CG is essentially a late penalty notice whereas Letter 5005-A is a penalty letter issued for failing to meet the ACA reporting requirements altogether. 

Again, to avoid the 972CG penalty notice, employers must submit their ACA filings to the IRS by the mandate deadlines. Many employers elect to file with the IRS electronically as it reduces the risk regarding late filings.

If you’ve received any one of these penalty notices, time is of the essence. Contact us to learn about your options for responding. We’ve helped our clients avoid over $1 billion in ACA penalties.

ACA compliance is growing in complexity and the IRS has demonstrated it’s not letting up with its enforcement. Avoid the aforementioned triggers and your organization shouldn’t receive any subsequent penalty notices. If you need assistance meeting deadlines and or improving your ACA compliance process, contact us to learn about our full-service ACA Complete solution.

Discover Trusaic ACA Compliance

If your organization has received IRS Letter 226J, download our white paper on Letter 226J to learn best practices for responding to the penalty notice.

Short URL of this page: https://acatimes.com/pky
Joanna Kim-Brunetti

Joanna Kim-Brunetti

Joanna Kim-Brunetti, Esq., is Chief Legal Officer for Trusaic.

View more by Joanna Kim-Brunetti
Related Articles New York Pay Transparency Law Delayed to November New York Pay Transparency Law Delayed to November
Related Articles Takeaways From the 2021 UK Gender Pay Gap Reporting Results Takeaways From the 2021 UK Gender Pay Gap Reporting Results
Related Articles LinkedIn Settlement Demonstrates Need For Accurate Pay Equity Audits LinkedIn Settlement Demonstrates Need For Accurate Pay Equity Audits
Subscribe
How to Respond to IRS Letter 226J

Popular Posts

  • IRS Proposed Ruling Could Change ACA Affordability
  • ACA Penalty Letter 226J on The Rise
  • New PTC Data is Cause For Concern For Employers
  • ACA Enrollment Reaches 35 Million Signups

Trending Topics

  • Regulations
    (91)
  • Legislation
    (47)
  • Editorials
    (19)
  • ACA Compliance
    (167)
  • Tax Filings
    (19)
  • Applicable Large Employer (ALE)
    (13)
  • Penalties
    (18)
  • IRS
    (87)
  • Health Insurance Marketplace
    (28)
  • Polls/Surveys
    (18)
  • Health Care Reform
    (22)
  • Reporting
    (22)
  • IRS 226J/226-J
    (28)

Categories


Brought to you by Trusaic

 

Twitter Facebook

Downloads

The ACA 101 Toolkit

The Essential Guide to the ACA

Letter 226J Infographic

5 Common ACA Compliance Mistakes

Triangle of Trust

Articles

IRS Affordability Safe Harbors Help Avoid ACA Penalties

Calculating FT and FTE Employees

The ACA Monthly Measurement Method: A Few Examples

The IRS’s 1095 Forms for ACA Explained

Incorrect ITINs Will Cause Havoc With ACA Compliance

Knowledge Center

Get to know the ACA

Get to know Letter 226J

Webinar: What triggers an ACA penalty

Trusaic News

Our Story


FEATURED IN

Human Resources Today
Connected Health Pulse

© 2021 Copyright Trusaic - All Rights reserved.

Close Window

Loading, Please Wait!

This may take a second or two. Loading, Please Wait!