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If you are not yet filing Affordable Care Act information electronically with the IRS, you may want to reconsider. There are some considerable benefits to doing so, including increasing your chances of avoiding IRS penalties.
As a reminder to employers in conjunction with the Employer Shared Responsibility Payment (ESRP), the ACA ’s Employer Mandate, Applicable Large Employers (ALEs) (organizations with 50 or more full-time employees and full-time equivalent employees) 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 employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.
ALEs who do not provide this level of health insurance coverage may be subject to IRS Section 4980H penalties, which are issued by the IRS in a Letter 226J penalty notice. Organizations who do not file accurate ACA information or file late or fail to file information with the IRS or distribute 1094-C or 1095-C forms to employees can also be subject to IRS penalties under IRC 6721/6722, which can be issued by the IRS in Letter 5005-A/Form 886-A. Both types of penalty assessments can be in the millions of dollars, even for smaller ALEs.
The IRS requires ALEs with more than 250 returns to file their ACA information electronically. Employers planning on filing their ACA information with the IRS electronically must do so through the ACA Information Returns (AIRs) program. You can read more about the AIRs submission process and filing electronically here.
If ALEs have fewer than 250 returns, they have the option to file their ACA information either electronically or on paper.
When faced with the option, your organization should file electronically. Here’s why:
Quick and Clean
Filing electronically completely eliminates the possibility of transmitting information to the IRS in the wrong format. It also eliminates the possibility of the physical documents being miscopied, lost, shuffled, or mixed up. We have seen the IRS do this with some of our clients annual ACA submissions to their detriment.
Full-Proof Method with Immediate Acknowledgement
When ALEs elect to file electronically through the IRS’s Affordable Care Act Information Returns (AIRs) portal, they are almost immediately provided with an E-Filing Submission status, or confirmation that the submission was “Accepted,” “Accepted with Errors,” or “Rejected.” Receiving this confirmation tells you that your ACA filing was received by the IRS. It also provides your organization with the chance to correct errors in your filing or to contact the IRS or your vendor to understand why your ACA filing was rejected. Regardless, as a result of filing electronically, you have a Receipt ID to prove that you filed your information and can track your E-Filing Submission status.
Provides Evidence of ACA Submissions
If your organization receives IRS Letter 5699, which states that the agency believes that a particular organization was an ALE and failed to file information returns for a specific reporting year, you can now 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.
Corrects Data Errors
As mentioned earlier, your organization will receive an immediate response after electronically filing your ACA information with the IRS. If you receive a status of “Accepted with Errors,” there is likely a discrepancy in the information you provided and the data that is in the U.S. Social Security Administration’s (SSA) internal database. This provides an opportunity to review your HR data to ensure accuracy. For example, Sandra Doe recently got married. Her last name changed to Deer and the SSA was informed of the change. However, your payroll data was not updated, resulting in a discrepancy between your organization’s records and the SSAs. This will result in flagging that particular 1095-C with a TIN validation error. Filing electronically identifies these kinds of discrepancies sooner than later, allowing you to correct the information with the IRS to avoid receiving a penalty assessment and to optimize the quality of your data.
A Later Filing Deadline
The obvious benefit to filing electronically is that you have more time to prepare your filings with the IRS. The annual electronic filing deadline is March 31, a full month after the paper filing deadline of February 28. If you have been paper filing in the past, you could spend that extra time preparing, reviewing, and correcting data for your organization’s 1094-C/1095-C schedules.
With IRS penalties potentially being in the millions of dollars, even for employers with less than 250 full-time employees, having the extra convenience and confirmations provided by filing ACA information electronically with the IRS makes sense. It also can help organizations avoid receiving IRS penalty assessments, and the hassle and cost of proving those penalty assessments are unwarranted.
