The IRS is experiencing a massive mail backlog of unprocessed documents first caused by COVID-19. Included in that backlog of notices are ACA penalty assessments.
To help the situation, the agency said it would be reassigning 1,200 employees to assist with the 2021 tax season distribution, which at the onset only compounded the backlog, making a bad situation worse.
IRS Commissioner Chuck Rettig said in an internal email to employees, “This is an all-hands-on-deck situation to help people as quickly as possible and reduce the stress on employees who have been and continue to face unprecedented levels of inventory to be worked.”
IRS paper mail backlogs are something of a norm since COVID-19 and are largely due to various facilities closing across the country. When said facilities close, IRS workers telecommute and therefore can not physically deal with the paper mail.
As the tax agency continues to make departmental changes to address the ongoing backlog, employers should be prepared for how it could impact their business processes. From an ACA perspective, the current backlog could impact employers in two ways.
ACA penalties are coming
With increased resources working to clear the IRS backlog, we can anticipate a flurry of ACA penalties in the near term. As of December 2021, the agency identified 5 million letters of taxpayer correspondence in its current backlog. And because the IRS personnel reassignment is slated to run through fall 2022, employers should keep an eye out for notices for the rest of the year.
These penalties could be due to non-compliance with the ACA’s Employer Mandate such as Letter 5699, Letter 226J, Letter 5005-A, and Letter 972CG. Since there is no statute of limitations on ACA penalties, the assessments could be for any of the previous reporting years.
The aforementioned penalties indicate different violations relating to the ACA’s Employer Mandate and can pose a significant financial risk for employers. There are various triggers that prompt these individual penalty notices, including employees receiving Premium Tax Credits, which we have recently seen record-high numbers for.
If you receive one, regardless of the reporting year identified in the violation, contact us to learn about our ACA penalty reduction services. We’ve helped our clients prevent over $1 billion in ACA penalty assessments.
Significant risk in paper-filing ACA returns
The pertinent issue relating to the IRS backlog involves the upcoming paper filing deadline of February 28 for ACAreturns. With the IRS shifting priorities to address the backlog, the mailrooms in many facilities are likely hindered in their ability to process information timely and correctly.
When you consider that the main mail routes are already facing increased volume due to the pandemic, paper filing your 2021 ACA returns becomes a risky option for employers. The possibility of your information getting lost or showing up late is real.
Best practices for avoiding this potential hangup suggest electronically filing your ACA information with the tax agency. This not only grants you more time to prepare your reporting submissions but also completely eliminates the possibility of filing ACA returns in the wrong format – an error that can result in IRS penalties.
In addition, electronically filing creates an immediate record of your activity. In the event, you receive an IRS penalty where the agency believes you failed to file accurately or on time, you can retrieve the filing status and receipt ID that you received promptly after completing electronic filing. The list of reasons why you should electronically file your ACA information goes on.
And with an IRS-proposed rule reducing the size of returns eligible for paper filing ACA returns possibly coming into play, now is the time to switch to an electronic filing process.
Organizations have until March 31, 2022, to complete electronic ACA reporting requirements on a federal level. If the IRS backlog has you in a tough spot for completing your filing and furnishing requirements on time, contact us to learn about our ACA Complete solution.
Need help coding the actual 1095-C forms? Download The Employer’s Guide to Coding ACA Form 1095-C below.
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.