Incorrect ITINs Will Cause Havoc With ACA Compliance
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Earlier this year the IRS announced that roughly 2 million ITINs are set to expire December 31. This could pose a significant risk to your organization’s Affordable Care Act compliance process that could lead to penalties.
An ITIN, or An Individual Taxpayer Identification Number, is a tax processing number issued by the IRS. The IRS issues ITINs to process and account for tax returns and payments from individuals who are not eligible for Social Security numbers. ITINs may be issued to non-resident or resident immigrants required to file federal tax returns, as well as to their dependents or spouses.
Under the Protecting Americans from Tax Hikes (PATH) Act, enacted in 2015, ITINs that are unused in the last three consecutive years will expire on December 31, 2019. Further, ITINs with middle digits 83, 84, 85, 86 or 87 will expire if not renewed.
Organizations with workers who fail to renew their ITINs with the IRS may find themselves out of compliance with the ACA’s Employer Mandate.
Here’s how:
The ACA’s Employer Mandate requires organizations with 50 or more employees and full-time equivalent employees 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 employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties. The IRS classifies these organizations as Applicable Large Employers (ALEs).
Every year, employers are required to submit forms 1094-C and 1095-C to the IRS to verify they have met their obligations under the ACA Employer Mandate. Form 1095-C is required to be provided by the employer to each employee. This form contains individual employee information, such as the employee’s social security number or other Taxpayer Identification Numbers (TIN). TIN is an umbrella term used by the IRS to refer to a Social Security Number (SSN), Employer Identification Number (EIN), ITIN, or an Adoption Taxpayer Identification Number (ATIN).
If your employees fail to renew their ITINs, your organization may use incorrect information in the 1095-C forms that could result in TIN validation errors being identified by the IRS in your ACA annual filing. Failure to correct or resolve this type of error may result in an employer receiving a Notice 972CG proposing penalties under Internal Revenue Code section 6721/6722. Penalties can also be imposed upon employers for failing to provide the correct information.
If your organization does receive TIN validation errors for employees as a result of expiring ITINs, the following steps should be taken:
- Consult with each employee to verify there were no lapses in communicating the employee’s correct ITIN information.
- Make sure each employee’s personnel documents are up-to-date and in order.
- If an employee no longer works for your organization, you must try to obtain the correct information. You will need it to correct the information submitted to the IRS.
- Document all efforts made to solicit the correct information so that a good faith effort can be proved in the event of an IRS audit.
Employers can take a proactive approach to this by reaching out to employees now to confirm their sensitive information, such as ITIN, is current. Failing to have the right information could result in significant IRS penalty assessments.
To learn more about ACA compliance for the 2019 tax year, click here.
For ACA reporting deadlines in 2020 for the 2019 tax year, organizations should review this link for important dates and requirements.
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