Government Employers Are Not Exempt from the ACA
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No organization is immune to the responsibilities of the Affordable Care Act, as a Texas County recently discovered.
Galveston County, Texas, received an IRS Letter 972CG penalty notice for $76,550 for failing to meet the filing deadline for submitting ACA information for the 2018 tax year as required by the ACA’s Employer Mandate. The penalty was issued under IRC Section 6721 for filing forms 1094-C and 1095-C after the deadline to file electronically.
According to a post by the Houston Chronicle, “County information technology officials explained that the error stemmed from an issue with a vendor that facilitates electronic submission.”
This is a somewhat common occurrence. Over the past few years, many employers relied on do-it-yourself software and payroll companies to submit ACA information to the IRS on their behalf. In some cases, the software and payroll companies submitted the information electronically to the IRS and, not checking on submission status, didn’t realize the submissions were rejected. Now, many employers are realizing that the IRS never received their submissions and, as a result, are being issued ACA late filing penalty notices. Expect IRS staff to insist that employers obtain submission acceptance notices to prove they filed with the IRS as part of their defense to have ACA penalty assessments dismissed.
In this case, the County’s vendor allegedly submitted the forms electronically but had them “Rejected.” Filing the forms a second time four days later, the IRS issued an “Accepted with Errors” status regarding the filing. The errors in the filing submission could also have factored into the penalty assessment.
Receiving the status of “Accepted with Errors” is a common status to receive for Applicable Large Employers (ALEs) (organizations with 50 or more full-time employees and full-time equivalent employees) who 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 IRC Section 4980H penalties.
It’s important to note that ACA penalties can be assessed on employers for a number of reasons and employers should take the filing process seriously. Below is a breakdown of the two filing statuses Galveston County received from the IRS:
The status of “Rejected” occurs when the submission was not sent in the correct format, there was an error in the 1094-C transmittal, such as a wrong EIN, or a combination of the two. If you receive a status of “Rejected,” the entire submission needs to be replaced.
“Accepted with Errors” means the IRS has identified a mismatch in all or a handful of 1095-C forms submitted. The most common errors involve Taxpayer Identification Numbers (TINs). TIN errors can occur for a number of reasons, but usually can be resolved rather quickly. Learn more about TIN errors and correcting them by clicking here.
A full list of the transmission responses following ACA electronic submissions to the IRS can be found by clicking here.
In Galveston County’s case, the status of “Rejected” and “Accepted with Errors” had a part to play in their reception of Letter 972CG. It led to the organization filing at a much later time, and when the submission was accepted it contained errors.
Organizations need to be sure they not only meet the requirements of the ACA’s Employer Mandate, but also make sure they meet the deadline for accurately filing and furnishing their ACA forms 1904-C and 1095-C under IRC 6721 and 6722. If you’re going to use an outside vendor for satisfying this requirement, make sure it’s one that you can trust.
Currently the IRS is issuing Letter 226J penalty notices for the 2017 tax year to employers identified as having failed to comply with the ACA’s Employer Mandate.
The case of Galveston County Texas shows us the IRS is adamant about enforcing all aspects of the ACA’s Employer Mandate for all employers, including the government.
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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