More Signs Pointing to Continued IRS Enforcement of the ACA [UPDATE]
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As we look forward to the start of spring, all signs are pointing to the IRS continuing its efforts to enforce the Affordable Care Act (ACA).
A new wave of Letter 226J notices were sent by the IRS in February to employers the agency says failed to comply with the requirements of the ACA’s employer mandate for the 2015 tax year. And expectations are that the IRS may start issuing Letter 226J notices related to the 2016 tax year before the end of the year.
Requests for increased funding for the IRS to implement the new tax reform legislation passed by Congress won’t deter the IRS’s effort to enforce the ACA. The increase in IRS staffing to implement the new tax law will likely bolster the IRS’s ability to continue its enforcement of the ACA.
In mid-January, Treasury Secretary Steven Mnuchin said that he anticipated the IRS will be increasing its staff in light of newly passed tax reform legislation.
“This touches every single aspect of the IRS, from technology to processes to forms, and we are speaking with Congress about getting additional funding for the implementation,” Secretary Mnuchin said at an event hosted by the Economic Club of Washington, as reported by The Hill. “We would expect that we would hire a significant number of people to help with the implementation.”
Secretary Mnuchin made that same case last week when testifying before the U.S. House of Representatives Committee on Appropriations Subcommittee on Financial Services & General Government. “The Tax Cuts & Jobs Act included hundreds of provisions that will provide tax cuts for middle-income families and make American businesses more competitive,” he said in a prepared statement. “Implementing the law will require a great deal of work in 2018 and 2019. Accordingly, the IRS will need $397 million in order to carry out this critical mandate.”
Many industry groups, such as the America Bar Association (ABA), the American Institute of Certified Public Accountants (AICPA), and the National Society of Accountants (NSA), have all urged that the agency be provided more funding to meet the demands that will come with implementing the new tax laws.
The IRS began sending its Letter 226J notice in November 2017 to employers the IRS says failed to comply with the requirements of the ACA’s employer mandate for the 2015 tax year. The IRS has assessed some employers ESRPs in the millions of dollars. This happened while there was an employment deficit at the IRS. An increase in staff should allow the IRS to continue this enforcement effort even as it addresses the new tax law.
Employers that have been ignoring ACA compliance in hopes that the ACA’s employer mandate will be repealed under the Trump administration need to rethink that strategy.
In his State of the Union address, the president trumpeted the repeal of the ACA’s individual mandate by 2019 as proof that the White House and Congressional Republicans had successfully addressed the campaign pledge to repeal and replace the ACA. However, the speech made no further mention of the ACA, which continues to have most of its provisions intact. This includes the ACA’s employer mandate. Under this mandate, employers with 50 or more full-time or full-time equivalent employees must offer 95% of their full-time employees and their dependents minimum essential healthcare coverage or be subject to an IRS assessment of an employer shared responsibility payment (ESRP). Also, such employers must offer coverage that is affordable and meets minimum value for the full-time employees or face an ESRP.
Employers that have not received a Letter 226J notice should not assume they are off the hook. Such a letter may be on its way. Employers should take proper measures to review their 2015 IRS information filing for any possible errors that might trigger a Letter 226J. To learn more about the two errors that are triggering ESRPs, click here.
Employers also should consider conducting audits of their 1094-C and 1095-C filings with the IRS to ensure they will not be penalized later for the 2016 and 2017 tax years. This includes routine check-ups on the processes used to ensure ACA compliance for their organizations. With the stakes so high, employers may want to seek the assistance of a third-party expert to review ACA compliance processes.
To learn more about responding to Letter 226J, click here.
To access the ACA Resource Center, click here.
To learn more about ACA compliance in 2021, click here.
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