On December 12, the IRS issued final regulations confirming the end of good-faith transition relief. The good news is that the regulations also include a permanent, automatic 30-day extension for Applicable Large Employers (ALEs) to furnish ACA forms 1095-C to individuals.
These changes directly impact ALEs’ reporting and furnishing obligations under the ACA’s Employer Mandate.
Under the ACA’s Employer Mandate, ALEs, or employers with 50 or more full-time and full-time equivalent employees must:
- Offer Minimum Essential Coverage to at least 95% of their full-time employees and their dependents whereby such coverage meets Minimum Value, and
- Ensure that the coverage for the full-time employee is affordable based on one of the IRS-approved methods for calculating affordability
Failing to comply with the requirements can result in significant penalty assessments from the IRS.
Below we cover the details of the new IRS final regulations and explain how they impact employers.
Final regulations confirm end of good-faith transition relief
First and foremost, in the final regulations, the tax agency makes clear that good-faith transition relief is indeed no longer available for ALEs. Good-faith relief was intended as a transitional grace period for employers that report incomplete or incorrect information on their ACA filings.
Between 2015 and 2020, employers could receive relief from penalties under IRC 6721/6722 for failing to file or furnish on time, if they could, with reason, explain why. Then in 2020, the IRS issued guidance stating that it would be the last year for good-faith transition relief.
Since then, a number of advocates have requested that the tax agency reconsider its stance on good-faith transition relief and extend it through 2024. The final regulations shut this down and confirm that good-faith transitional relief will not apply for any tax year following 2020.
As such, employers may be at risk of receiving steep penalties for failing to file and furnish accurate ACA filings for the 2022 tax year.
What are IRC 6721 penalties?
The IRS issues penalties under IRC 6721 when an employer fails to timely file ACA information or files an incorrect or incomplete ACA return.
For the 2022 tax year, the penalties for organizations with gross receipts exceeding $5 million and government entities can be as high as $570 for every late or inaccurate ACA filing.
What are IRC 6722 penalties?
Penalties under IRC 6722 are issued when an employer fails to furnish correct 1095-C forms to employees by the mandated deadline.
For the 2022 tax year, the penalty for organizations with gross receipts exceeding $5 million and government entities could also be as high as $570.
What is the automatic 30-day furnishing extension?
Also included in the final regulations is a permanent, automatic 30-day furnishing extension. This essentially moves the annual furnishing deadline from January 31 to March 2, or thereabouts, each year. For 2022 and beyond, ALEs will now have additional time to meet the annual requirement to furnish 1095-C forms (and 1095-B information for insurers) to healthcare recipients.
The automatic extension was first introduced via last year’s proposed regulations, and the draft 2022 ACA reporting instructions alluded to the extension applying, but nothing was certain, until now.
It’s important to remember that the automatic extension only applies to furnishing obligations and does not impact ALEs’ responsibility to report ACA information to the IRS by February 28, if paper filing and March 31 if filing electronically.
Additional ACA furnishing options
As a final comment in the new IRS correspondence, the new regulations offer special permissions regarding alternative methods for furnishing the required 1095-C/1095-B information. Essentially, select ALEs can choose to make a clear notice on their corporate website through October 15 of the following plan year, explaining the healthcare options available.
The notice must be in large print, in plain English, and include an email address, physical address, and phone number so that individuals can request more information as well as a copy of their 1095-C details.
It’s important to note that the additional furnishing methods are only available to:
- ALE self-funded insurance providers, and specifically for plan participants who are either part-time or a non-employees, such as a dependent, spouse, or COBRA recipient
- Non-ALE insurance providers and health insurance that furnish 1095-B forms to plan enrollees
In addition, the IRS regulations specify that the alternative method cannot be leveraged for issuing 1095-C and 1095-B forms to full-time employees.
The end of the 2022 tax year is here and employers must begin preparing for 2023 ACA reporting. While the news of an automatic 30-day furnishing extension is good for employers, the end of good-faith transition relief is not. Organizations will need to move swiftly and ensure their processes for validating ACA filings are accurate or face penalty assessments from the IRS.
The tax agency recently received $80 billion in additional funding for tax enforcement and an influx of staff to assist in carrying out audits. Currently, the IRS is issuing Letter 226J penalty notices for the 2020 tax year as well as previous years. These penalties are in addition to penalties under IRC 6721/6722, which the IRS assesses via Letter 5005-A and Letter 972CG.
If you need assistance meeting the 2023 ACA reporting deadlines or with an ACA penalty assessment, contact Trusaic. We’ve helped prevent over $1 billion in penalties for our clients and can most certainly help you.
For guidance on how to accurately code your ACA 1095-C forms, download the Employer’s Guide to Coding Form 1095-C below.
Missing an ACA filing or furnishing deadline could land your organization a significant penalty from the IRS. To ensure you never miss one, download the ACA 101 Toolkit, which documents the various federal and state reporting deadlines.