A recently released report from the Treasury Inspector General for Tax Administration (TIGTA) on IRS notifications in regards to the ACA’s individual mandate has potential implications for employers.
TIGTA, at the end of July, issued a report focused on the IRS implementation of the notification requirement for individual filers not enrolled in health insurance. TIGTA initiated the audit to assess the IRS’s processes for identifying and notifying individuals who file an income tax return and do not have the required Minimum Essential Coverage (MEC) under the Affordable Care Act (ACA) that contains essential benefits, including emergency services, maternity, and preventive and wellness services. Under the ACA’s Individual Shared Responsibility Provision, taxpayers who did not have MEC or an exemption from this requirement must make a Shared Responsibility Payment (SRP) when filing their Federal income tax return. The IRS notification, per the ACA, is supposed to be sent by June 30 each year and should contain information on the insurance coverage available through the Health Insurance Marketplace operating in the state in which the taxpayer resides.
Here are some of the audit findings:
· The IRS did not issue the required notification letters for the 2014 tax year. Instead, the IRS focused its efforts on providing public outreach and education. This included updating tax form instructions and publications, coordinating with tax return preparers and tax preparation software developers to distribute similar information through their tax preparation software products, and updating SRP-related correspondence sent to taxpayers to include references to the services available from the Health Insurance Marketplace.
· The IRS was late in sending notification letters for the 2015 tax year. Eventually, the IRS issued more than 7 million notification letters from November 2016 to January 2017 to individuals who reported an exemption from MEC or a SRP for the 2015 tax year.
· TIGTA’s review also found that the IRS did not send notifications to approximately 3.3 million taxpayers who did not report full-year coverage, an exemption from MEC or a SRP, and are not claimed as an exemption on someone else’s tax return. In addition, the IRS did not send letters to 1.9 million individuals who reported an exemption from MEC or a SRP because they were selected to be part of a control group used to measure the effectiveness of the letters.
Here are two reasons why employers with 50 or more full-time employees should care:
Most of your full-time employees, if you have provided them with insurance per the ACA, will have identified that they had full-year health insurance coverage on their individual tax forms. However, companies need to be prepared to address any issues that may arise from those full-time employees who opt out of your health insurance, but either obtain insurance through the health insurance marketplace with or without premium tax credits to help pay for the coverage or do not obtain health insurance at all. Both situations could expose companies to IRS penalties and a potential audit situation. Now is a good time to make sure your ACA employee information reporting is correct with the supporting documentation centrally located and easily accessible. You want to be ready if your company is approached by the IRS about certain employee situations.
You need to keep in mind that the IRS is almost always behind schedule. If you have not filed employee information for the 2015 or 2016 tax years to the IRS, don’t be fooled because your company has not yet received a notice of penalty. The IRS has said it could start sending penalty notices for companies out of ACA compliance for the 2015 tax year around the end of 2017. If you have not filed your ACA-mandated information with the IRS for either the 2015 or 2016 tax years, now would be a good time to do so.
Wishful thinking set in for some companies when President Trump issued his January executive order directing federal agencies to minimize economic burdens caused by the ACA pending its repeal, and the IRS response that it would process individual taxpayer electronic and paper returns for the 2016 tax year even if taxpayers did not indicate whether they had obtained health insurance as required by the ACA’s individual mandate. Surely, these companies reasoned, that flexibility will apply eventually to potential IRS penalties for companies that do not comply with the ACA.
However, the IRS decision to accept taxpayer returns for the 2016 tax year without taxpayers indicating whether they had health insurance had an explicit caveat. The IRS noted that individual tax filers who did not indicate their health insurance status could still be responsible for any ACA penalties. That possibility became even more real with the failure of ACA repeal and replace efforts in Congress.
For employers with 50 or more full-time or full-time equivalent employees, the threat of IRS penalties has no caveat. These companies will face potential penalties if they either failed to offer minimum essential coverage to 95% of their full-time employees or in the 2015 or 2016 tax years or, even if those companies offered such coverage, they had some full-time employees obtain a tax subsidy because the coverage failed to meet “minimum value” and/or such coverage was not “affordable.”
Do not wait any longer. If you believe your company is at risk for potential IRS penalties, it’s time to take action to minimize your risk.
