1094-C/1095-C Audit Can Prevent IRS ACA Penalties
3 minute read:
If your organization has met the deadline to file and furnish schedules 1094-C and 1095-C to the IRS for Affordable Care Act reporting for the 2017 tax year, give yourself a pat on the back. Admittedly, the responsibilities under the employer mandate to file information annually with the IRS have not been the easiest to undertake.
Now that the filing deadline is behind your organization as an Applicable Large Employer (ALE), an employer with 50 or more full-time or full-time equivalent employees, it may be in your organization’s best interests to perform a 1094-C and 1095-C audit.
There is a great deal of information contained in the IRS filings that needs to be checked for accuracy. Filing incorrectly or with incorrect information could result in millions of dollars of employer shared responsibility payments (ESRPs), like those included in IRS Letter 226J. (Click here for information on how to respond to Letter 226J.)
Stay ahead of the curve by checking these critical items that are part of your ACA filing with the IRS:
Ensure the Company Name and EIN Are Correct
This may seem like common sense, but truth is, the IRS’s database for cross-checking employer details is highly sensitive to slight naming errors. Employers must go by their registered ALE name. You may want to double check to make sure the correct name has been put down in the event the employer goes by an acronym. Be sure to also verify that your affiliated ALE members of the aggregate group are listed in the appropriate sections on Part III of the 1094-C Form.
All 12 Months Indicator Used Accurately
If the data indicate that for all 12 months a particular statement regarding the type of offer (Line 14), the reason a penalty cannot be assessed (Line 16), or the contribution amount (Line 15) is the same – be sure to indicate so in the “All 12 Months” box. You don’t need to mark this “All 12 Months” box and the boxes for each individual month.
Code Combinations Are Logical
The codes on lines 14 and 16 of the 1095-C schedule communicate a particular employee’s employment period and health benefits eligibility for a given year. There a lot of different code combinations that all mean vastly different things. You may want an expert to review this information to ensure the codes are communicating an accurate portrayal of your organization’s offer practices.
Self-Funded? List All Covered Members
If your organization operates a self-funded health plan, you are required to list all of the enrollees on the health plan on the 1095-C schedules in Part III, including part-time employees, dependents and spouse of an employee, if enrolled. Employees who terminate and continue their coverage through COBRA will also need to be identified. This does not apply for organizations with only fully-insured plans.
Appropriate Safe Harbors Are Claimed
Certain codes on line 16 of the 1095-C schedules support the affordability component under the ESRP. These safe harbors have rules around their usage. For instance, the W-2 Safe Harbor cannot be combined with the Rate of Pay Safe Harbor for a particular employee for a reporting year. Make sure you haven’t combined these two!
Penalty notices for previous reporting years have just started arriving at employers’ doors. The last thing your organization needs is a penalty notice that could have been easily avoided had you caught these obvious errors. Performing a 1094-C and 1095-C audit of your past and current IRS ACA filings will allow your organization to correct any issues and keep them from being repeated in future IRS filings. It also can help your organization either avoid receiving a Letter 226J notice from the IRS or provide a solid basis for responding to a Letter 226J.
To learn more about ACA compliance in 2021, click here.
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