By: HUB’s EB Compliance Team

The Affordable Care Act (“ACA”) employer mandate provisions IRC 4980H(a)(b) became effective in 2015. As HUB previously wrote about, the IRS began its enforcement of the employer mandate in 2017. The ACA employer mandate requires Applicable Large Employers (“ALEs”), which are generally those employers with 50 full-time and full-time equivalent employees or more, to pay a shared responsibility payment if they fail to offer coverage that meet certain minimum requirements.

As discussed here and here, an IRS determination of whether an employer may be liable for a penalty and the amount of the potential payment are based on information reported to the IRS on Forms 1094-C and 1095-C and the IRS’s records of who received a premium tax credit. In many cases, IRS penalty letters are triggered by simple reporting errors. One common error is a failure to check “Yes” in column (a) of Part III of the Form 1094-C to confirm that the employer offered coverage to at least 95% of full-time employees and their dependents. Another common error is the employer failing to enter the appropriate code on Line 16 of the Form 1095-C.

Good Faith Relief Ended

For several years, the IRS said it would not assess penalties due to incorrectly completed forms, as long as the employer could show that it made “good faith” efforts to comply, identified and corrected the errors. However, as HUB reported here, the IRS has confirmed that that “good faith” relief ended after the 2020 ACA reporting year.

This means that even minor errors in reporting could trigger reporting penalties. Both late reporting and reporting errors can trigger penalties for each affected form provided to an employee and another to the IRS, adjusted annually for cost-of-living increases, as reflected in the table below.

Year Due

Up to 30 Days Late

31 Days Late Through August 1

After August 1 or Not Filed

Intentional Disregard

2024

$60

$120

$310

$630

2023

$50

$110

$290

$580

2022

$50

$110

$280

$570

2021

$50

$110

$280

$560

The maximum penalty is different for small businesses and large businesses including government entities. There is no maximum penalty for intentionally disregarding the filing obligations. For details, see General Instructions for Certain Information Returns.

While it is possible to get penalties waived on a showing of “reasonable cause”, this is a high standard to overcome. It’s also a more difficult argument to make to the IRS after the penalty is assessed. As a result, it is worth taking the time to make sure the forms are correct in the first place.

The IRS also charges interest on penalties. The date they begin to charge interest varies by the penalty type and amount. Interest increases the amount owed until the balance is paid in full. For more information about the interest the IRS charges on penalties, see Interest. Interest generally cannot be waived by the IRS.

What Do I Do?

The IRS is going to focus its attention on the coding accuracy for the already filed 2021 1094-C and 1095-C Forms. Therefore, employers should consider going back and double-checking forms filed for the 2021 and 2022 reporting years for accuracy, before the IRS start auditing theses reports.

In reviewing the Form 1094-C, here are a few items to consider:

  • Reviewing 1094-C Forms to make sure the boxes at lines 19 and 21 are appropriately checked, if applicable, informing the IRS whether the report represents the authoritative transmittal for this ALE Member and whether the ALE Member is a member of a larger Aggregated ALE Group;
  • Checking to be sure Part III, Column A reflects the correct answer (“Yes” of “No”) regarding whether 95% of FT employees were offered MEC coverage; and
  • Ensuring Part IV contains all controlled group tax ID numbers (if applicable). See IRS Instructions 1094-C and 1095-C.

Employers could also choose to review samples of 1095-C Forms for coding errors. In doing so, employers could consider the following:

  • Focus on the unique cases, such as: rehires, change in status (full-time to part-time or part-time to full-time), employees that transitioned to COBRA, or employees that took a leave of absence;
  • Review affordability safe harbor codes is reflected on the applicable forms. For employers not using a safe harbor for affordability, check a sample of forms to ensure the monthly premium amount is correct;
  • Ensure every “1” code has a corresponding and applicable “2” code;
  • Check that Part III is completed for both level-funded and self-funded plans – including all employee and covered dependent information;
  • Check to see if a Form 1095-C was filed for any individual who is not an employee (it should not be); and
  • Check out HUB’s Decoding the Codes for more tips and tricks on unique scenarios.

When and How to Correct

Employers that discover 2021 reporting errors, and the source of the error, should consider filing corrective forms. However, they also need to fix it in their systems now for future reporting. Otherwise, the same errors will recur each year. Work closely with your ACA reporting vendor and follow the Instructions 1094-C and 1095-C to the applicable form to correct as soon as you reasonably can, preferably before the IRS starts to audit the 2021 reports, otherwise it may be too late to avoid the coding error penalties discussed above. If the errors are significant, consider working with experienced employee benefits counsel or accountant.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.