With the New Year just a few short weeks out, employers should remember that 2020 was the final year for Good Faith Transition Relief. That means filing late or inaccurate ACA information this year could cost you an IRS penalty — no exceptions.
IRS Notice 2020-76 issued roughly this time last year extended Good Faith Transition Relief one last time. What does that mean for employers? It means failing to get your ACA reporting in on time and accurately could earn you steep IRS penalties under IRC Sections 6721/6722.
Before diving into the specific penalties, it’s important to understand what Good Faith Transition Relief is and how it protects employers.
b>What is Good Faith Transition Relief?
Good Faith Transition Relief is an IRS condition where the agency waives employer ACA penalty assessments so long as the employer can provide legitimate reasons for missing a reporting requirement by the mandated deadlines.
The IRS protection was intended as “transitional” relief for employers that report incomplete or incorrect information on their 1094-C and 1095-Cinformation returns, including missing and inaccurate taxpayer identification numbers (TINs).
In determining whether Good Faith Relief applies, the IRS takes into account a number of factors, including whether an employer made reasonable efforts to prepare IRS Forms 1094-C and 1095-C for filing with the IRS and furnishing Forms 1095-C to employees and covered individuals, including the reasonable efforts to gather and transmit the necessary data and to test its ability to transmit the forms to the IRS.
What are the penalties under IRC 6721?
IRC 6721 is the failure to timely file an information return or for filing an incorrect or incomplete return. If your annual ACA filings of Forms 1094-C and 1095-C are inaccurate and/or late, you can be subject to penalties under IRC 6721. For the 2021tax year, the penalties for large businesses with gross receipts of more than $5 million and government entities range as high as $570 per late/inaccurate return.
What are the penalties under IRC 6722?
In an ACA context, IRS penalties under IRC 6722 refer to an employer’s failure to furnish correct 1095-C forms to applicable employees by the mandated deadlines. If the health insurance information statement is not provided to employees by established deadlines, penalties can be assessed via IRC 6722. For the 2021 tax year, the penalties for large businesses with gross receipts of more than $5 million and government entities range as high as $570 per return not issued to an applicable employee.
Steps to take to limit IRS penalty exposure
Now that Good Faith Transition Relief has expired, employers that fail to timely file and furnish accurate 1094-C and 1095-Cs will be subject to the aforementioned penalties. The IRS is currently issuing these penalties via Letter 5005-A and Letter 972CG.
Since there is also no statute of limitations on ACA penalties, you could be penalized years down the road for filing inaccurate or late ACA filings for the 2021 tax year. If you receive one of these penalties, contact us for assistance in reducing or eliminating it.
Best practices suggest incorporating an ACA solution that ensures your reporting is accurate. We can verify your returns are correct, file them on time, and minimize any IRS penalty risk with our comprehensive software solution, ACA Complete.
As a reminder, filing and furnishing Forms 1094-C and 1095-C are requirements under the ACA’s Employer Mandate.
Under the ACA’s Employer Mandate, ALEs, or employers with 50 or more full-time employees and full-time equivalent employees must:
- Offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees (and their dependents) whereby such coverage meets Minimum Value (MV); and
- Ensure that the coverage for the full-time employee is affordable based on one of the IRS-approved methods for calculating affordability.
If you are not ready to partner with an expert in ACA compliance and would prefer to file and report on your own, we recommend downloading the Employer’s Guide to Coding ACA Form 1095-C to ensure that you’re, at a minimum, coding your forms accurately.
We’re committed to helping companies reduce risk, avoid penalties, and achieve 100% ACA compliance. For questions about the ACA contact us here.