Proving that your organization made a good faith effort to comply with ACA Reporting is crucial to avoiding IRS penalties.
*Excerpted from the eBook ACA Reporting & Verification Audits in 2016
Organizations have known for nearly two years that they would need to meet the reporting mandates for the Affordable Care Act (ACA), but many still remain unprepared. And with the $900 million the Internal Revenue Service invested in its new ACA Information Retrieval System (AIRS), which is designed to ensure that the agency can scrutinize employers’ Form 1095-C filings for accuracy as well as for demonstrating they meet the letter of the law, it isn’t likely that noncompliance will be missed or ignored.
So, as we get closer to the reporting deadlines of May 31 for employers with 250 employees or less and June 30 for all others, what can you do to help your organization minimize or eliminate its chances of receiving penalties for noncompliance or inaccurate reporting?
This tax season, the IRS wants organizations to show that they’ve made a good faith effort to comply with all ACA mandates. High priority areas for them will likely include:
- Eligibility determinations: Documentation that shows how your company determined its Applicable Large Employer (ALE) status. Companies that meet this status have 50 or more full-time or full-time equivalent employees.
- Proof of coverage offers: Documentation that shows you have provided information about your health benefits plan to all eligible employees. Not only will the IRS be interested in proof of coverage notifications, but they will also want to review your enrollment materials, formal benefits plan documentation and summary of benefits, especially as they reflect ACA compliance updates.
- Up-to-date waivers of coverage and/or Waiver Notifications: Having waivers for employees who declined your company’s health coverage is crucial to proving that you made a good faith effort to offer it to everyone eligible. If waiver forms haven’t been secured, an alternative is for the employer to rely on a waiver notification found in their enrollment materials (e.g. the employee’s inaction is deemed a declination of coverage) to meet this good faith litmus test.
- Proof of contribution: Companies must accurately report how much they paid for plan coverage. This relates to affordability, and the IRS will use it to see how much an organization contributed for the lowest cost plan offered for single coverage.
- Employee classification: Any employee who works 30 hours or more per week is considered a full time employee, and companies of a certain size are required to offer them coverage.
- Documentation of hours tracking: The IRS will be looking for consistent and accurate tracking of employee hours. The ability to show accurate tracking procedures is especially crucial for organizations that have part-time, seasonal and variable-hour employees.
- Proof of plan affordability: Employers must address whether their plan was made affordable according to calculations using one of three safe harbor gauges – the W2 wage form, the rate of pay, or the federal poverty level. Coverage under an employer-sponsored plan is considered affordable if the employee’s required contribution for self-only coverage does not exceed 9.5 percent using one of those benchmarks.
Again, the IRS will be looking to determine if organizations have made a good faith effort to comply with ACA mandates. Companies will not get away with ignoring the law, but there will likely be some leniency shown for those who did their best to meet reporting and compliance requirements. The IRS is also expected to give companies not in compliance a chance to correct their errors.
For more on ACA reporting and verification audits, download our eBook to find out what your business needs to know to execute and show a good faith effort.