Organizations that rely on paper filing for completing their reporting obligations under the ACA’s Employer Mandate may need to revisit their process going forward, thanks to new IRS regulations.
The tax agency released final regulations late last week amending the threshold for ACA paper filing returns annually. Specifically, the new cap for paper filing ACA information, as well as other important tax documents, such as W-2s and 1099s, is 10, down from 250.
As a result, beginning January 1, 2024, employers will no longer be able to paper file if they have 10 or more 1095-C forms and instead will need to file their ACA information electronically.
The reduction in acceptable filings indicates the IRS’s intention to phase out paper filing, leaving it available for only the smallest subset of employers. In fact, for the vast majority of Applicable Large Employers (ALEs), paper filing will no longer be an option as a means of satisfying their ACA reporting requirements.
The decision to reduce the paper filing cap should not come as a surprise, as the tax agency first proposed the change in 2021. Originally, the rule included a phase-out period, reducing the threshold from 250 to 100 to 10 over a three-year time frame. The final regulations have left the phasing out portion.
This is a significant development for the way the IRS accepts annual filings from employers. The move to reduce the threshold will drive more electronic submissions, which will ultimately help the agency more efficiently and effectively identify tax compliance.
The tax agency has previously communicated this as a strategic goal. In fact, last year after it received $80 billion in additional funding and 87,000 new tax agents, the IRS said enhancing tax compliance would be a top priority going forward.
The benefits of filing electronically
While the move to a predominately electronic ACA filing requirement each year helps the IRS identify instances of ACA non-compliance with greater ease, it also provides many considerable benefits for employers.
Below we cover the most significant benefits of filing ACA information electronically.
The first is that it’s significantly faster. Instead of waiting weeks and having to document that you physically mailed your filings to the correct IRS address, uploading your information online is almost instant.
Following the completion of the electronic 1094-C and 1095-C upload, employers will receive an immediate acknowledgment that their filings were submitted and if they were subsequently accepted.
The next benefit is that filing electronically can help your organization build an audit defense in the event of an IRS inquiry. Because electronic submissions are time and date stamped, your organization will be prepared to dispute a Letter 5699 notice from the IRS, which the agency issues if it believes an organization failed to file its ACA information for a particular tax year.
Higher data quality
Filing electronically provides employers with an opportunity to review and correct ACA filings identified during the submission. For example, your filings may include an outdated last name for an employee who was recently married. Upon submitting the relevant 1095-C electronically, the IRS portal will indicate a disconnect between what was provided in the form and that of the Social Security Administration’s internal database.
Having the opportunity to identify and correct this information not only improves data quality but ensures greater accuracy in reporting information.
Another significant benefit to filing electronically is that it provides employers with more time for completing their ACA reporting obligations each year. The paper filing deadline has historically fallen on February 28 each year. The electronic filing deadline is an entire month later, typically falling on March 31.
Employers can leverage this extra time to double-check their 1094-C and 1095-C information before filing with the IRS.
As a reminder, 1094-C and 1095-C filing with the IRS are requirements of the ACA’s Employer Mandate.
Under the ACA’s Employer Mandate, employers with 50 or more full-time employees and full-time equivalent employees or ALEs 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 aforementioned requirements can lead to penalty assessments via IRS Letter 226J.
For assistance with electronic filing, ACA compliance efforts, and minimizing IRS penalty risk, contact Trusaic. Our suite of ACA solutions completely lifts the burden of tracking offers of coverage, implementing measurement methods, ensuring data quality, and adhering to IRS and state ACA reporting deadlines.
To learn more about the ACA’s Employer Mandate, check out our interactive guide below.
For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.