IRS Penalties Create A Hurricane for Businesses Failing to Comply with the ACA
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It’s a hurricane of IRS penalty notices. And it’s no laughing matter for businesses that have failed to comply with the Affordable Care Act.
The IRS is issuing an assortment of penalty notices totaling billions of dollars as it becomes more assertive in its enforcement of the Affordable Care Act.
Under 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.
The IRS also is issuing penalties under IRC Section 6721/6722, which dictates how ALEs file 1094-C and 1095-C forms annually with the IRS and how 1095-C forms are distributed annually to employees.
Here’s a rundown of the penalty notices currently being issued by the IRS:
Letter 226J: This ACA penalty notice is sent by the IRS to employers identified as having failed to comply with the ACA Employer Mandate, which requires employers with 50 or more full-time employees and full-time equivalent employees to offer Minimum Essential Coverage to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value and is Affordable for the employee.
The IRS is currently issuing Letter 226J for the 2017 tax year. IRS staff appears to have completed issuing Letter 226J penalty notices for the 2015 and 2016 tax years and are preparing for future audits. For information on how to respond to Letter 226J, click here.
Letter 5005A: This penalty notice is sent to employers who did not file their ACA forms 1094-C and 1095-C with the federal tax agency under IRC Section 6721 and/or failed to distribute Form 1095-C to employees under IRC Section 6722. IRS staff believes that many employers have not made ACA filings for the 2015, 2016 and 2017 tax years. If you are an employer that should be filing ACA-related information returns with the IRS and have not complied, you should immediately seek assistance to submit filings for the 2015, 2016 and 2017 tax years to mitigate your organization’s potential financial penalty exposure before you receive a Letter 5005A.
Letter 972CG: This penalty notice is being sent to employers who filed their annual ACA information, but did so after the IRS deadlines established in IRC Section 6721. To learn how to reduce penalty assessments in this notice, click here.
Letter 5699: This IRS notice is sent as a precursor to issuing ACA penalty assessments. Employers are sent Letter 5699 to determine if they have failed to file or distribute their ACA information returns as required. In this notice, the IRS asks employers to confirm the name they used when filing ACA information returns, provide the Employer Identification Number (EIN) submitted, and the date the filing was made. It appears that the agency is determining if penalty assessments are warranted for certain employers by cross referencing the number of W-2s filed with the IRS with their 1094-C and 1095-C forms. If this information is not consistent, it will lead to the IRS issuing the employer a penalty notice. Responding to Letter 5699 is crucial if you have already filed ACA information returns with the IRS because the information provided should have prevented your organization from receiving an ACA penalty notice.
With so much at stake, consider undertaking a free ACA Penalty Risk Assessment to learn if your organization is subject to the ACA. If you haven’t received a penalty notice from the IRS, you may still get one if you haven’t complied with the requirements of the ACA’s Employer Mandate. Undertaking a free ACA Penalty Risk Assessment can tell you if your organization is at risk.
Such a review can reap dividends by helping organizations avoid significant ACA penalties being issued by the IRS.
The IRS is showing every intention of holding all parties involved with the ACA accountable. If thought the ACA was going away, the signs stating otherwise are all around.
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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