These Common Mistakes Can Result in ACA Penalties
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Affordable Care Act compliance can be time-consuming and complex. There are a myriad of issues that can arise during the course of the year that can make employers annual filings to the IRS more difficult than necessary.
Here are the five errors we see most frequently that cause problems for employers in their efforts to comply with the ACA:
Failure to perform an Aggregated Employer Group Analysis: Failure to accurately group related entities under the ACA can result in significant IRS penalty assessments. In many instances, organizations may not be an ALE in their individual capacity, but when they are grouped together at the conclusion of an Aggregated Employer Group Analysis, they form one and thus the responsibilities of the ACA’s Employer Mandate may apply.
Failure to Apply the Appropriate IRS Approved Measurement Methodology: There are two different IRS approved measurement methods and certain workforces will benefit dramatically from one or the other. Failure to apply the measurement method correctly for your organization could result in inaccurate full-time counts and significant ACA penalty assessments from the IRS.
Misclassification of Employees: Organizations need to ensure that they are classifying their employees with the appropriate classifications. Full-time, part-time, variable-hour, and seasonal classifications all have different meanings in an ACA context. Classify them correctly!
Health Benefits not Considered: Perhaps one of the most obvious things to be mindful when complying with the ACA are the details about the health plans your organization is administering to your employees. Ensure documentation is available substantiating the quality of the health plan, the cost, who it was offered to and for what time frames, and who elected to enroll. Also account for special plan arrangements such as flex credits, opt-out payments, and HRAs.
Inaccurate Tracking of Employment Periods: The time frames in which your employees provide hours of services are incredibly important when determining ACA full-time status. Hire, rehire, and termination dates in addition to any breaks in service, are critical for calculating ACA full-time status. Track this information accurately.
Any or all of these mistakes can lead to receiving ACA penalties from the IRS. Here are the notices currently being issued:
Letter 226J penalty notices are being sent to employers the agency believes failed to comply with the ACA, probably the most discussed penalty notice.
Letter 5005A penalty notices are being sent to employers that have failed to distribute 1095-C forms to employees and to file 1094-C and 1095-C forms with the federal tax agency by required deadlines, in violation of IRC Section 6721/6722.
Letter 972CG is being issued to employers who filed their ACA information, but did so after the IRS deadlines established in IRC Section 6721.
Letter 5699 is being sent to employers with specific information requests that could lead to employers being issued ACA penalties.
ACA penalties are ranging from thousands to millions of dollars.
If your organization employs 50 or more full-time employees and full-time equivalent employees, you are considered by the IRS to be an Applicable Large Employers (ALEs) under the ACA’s Employer Mandate. This requires you, as an employer, 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 ACA penalties.
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 an ACA Penalty Risk Assessment can tell you if your organization is at risk of receiving ACA penalties from the IRS. Some third-party vendors will undertake this assessment at no cost to your organization.
This assessment also can tell you if your ACA process is avoiding the most common problems with ACA compliance.
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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