Looking for ways your company can potentially save hundreds of thousands of dollars? The IRS has recently handed it to you with their recently released IRS Letter 5699, also known as the “Missing Information Return Form 1094/1095-C.”
It’s your wake-up call to either get your information filed, or explain why you haven’t.
New Resources Spurs Increased Employer Scrutiny
The IRS has recently received significant resources, including $80 billion in funding and 87,000 new tax agents. This influx of resources has led to increased attention to tax compliance, particularly in relation to the Affordable Care Act (ACA) Employer Mandate.
The ACA employer mandate requires employers with 50 or more full-time equivalent employees (FTEs) to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce and dependents that meets the Minimum Value (MV) required and that is affordable to employees.
Not all employers required to do so, have. The IRS is poised to clamp down on them in significant ways and IRS Letter 5699 offers them the opportunity. This notice serves as a warning to organizations that are believed to be Applicable Large Employers but have failed to file the required ACA filings.
The Significance of IRS Letter 5699
Before sending employers a penalty notice, the IRS will issue Letter 5699. This is a precursor letter asking employers to confirm their filing details for a specific tax year. It could be considered a “heads up” that something might be amiss that will require additional documentation—or, potentially, result in a fine.
Fines can be significant.
It’s a “gentle nudge” asking employers to respond indicating whether:
- They may have filed the form under a different EIN.
- They failed to file the forms.
- They were not an Applicable Large Employer (ALE) so, therefore, were not required to file.
- They had some other reason for not filing.
Depending on your response (or if you fail to respond), the IRS will follow up with another letter or form to help determine if you are, indeed, non-compliant.
If you are, penalties may apply.
Potential ACA Penalties for Non-Compliance
Employers may face penalties if their coverage is determined to be either unaffordable or does not provide minimum value, or if one or more FTE received coverage through an exchange (when they should have been eligible through their employer). Additional penalties apply if employers fail to file a report indicating their level of responsibility for employee coverage if they are considered to be an ALE.
Right now, the IRS is issuing Letter 5699 for the 2020 tax year. Each year is considered independently, so penalties may multiply and employers may also be on the hook for earlier years. In addition, when responding employers are being asked to include how they did their calculations related to full-time and full-time equivalent employees.
These calculations and related requirements can be both confusing and burdensome and penalties can be steep. In 2023 the 4980H(a) penalty is $240—or $2,880 annually—per employee. If you’re not an ALE and can convince the IRS of that within the required timeframe after receiving IRS Letter 5699 you have nothing to worry about. If you are an ALE and fail to submit your reports or file late, you may be subject to fines. Timely ACA compliance is important.
Recommended Next Step for Employers
ACA penalties can be avoided.
With the IRS becoming increasingly more aggressive in its ACA enforcement efforts, timing is of the essence when responding to a penalty notice. Whether you anticipate receiving a letter, or already have, we can help.
To understand your organization’s current level of ACA penalty risk, get your ACA Vitals score. The eight-question quiz can you help identify areas within your business that can complicate the ACA compliance process.