By: HUB’s EB Compliance Team

Affordable Care Act (“ACA”) employer reporting is complex. As a result, ACA reporting errors can occur (like the ones we wrote about here) and, if they are not corrected promptly, can result in significant penalties. But what do you do when you discover a reporting error?

How Errors Are Discovered

ACA reporting errors come to light in a variety of ways. Unfortunately, they are often discovered when the IRS sends a notice that an ACA employer mandate penalty may be due. Other times, an employer switches payroll or reporting vendors, and the new vendor notices mistakes made by the old vendor. Occasionally, an astute employee recognizes a mistake on his or her own form.

First Things First

Before rushing off to fix an apparent error, first be sure you actually have one. Consider assembling some or all of the following data and documents:

  1. Payroll records
  2. Evidence of offers of coverage/waivers of coverage (whether paper or electronic)
  3. The IRS instructions for the particular form that applied to the form for the year it was filed (i.e., the 2018 instructions for forms filed in 2018). These can be obtained from the IRS website (see About Form 1094-C and About Form 1095-C).
  4. Contract with the payroll and/or reporting vendor.

Review these documents against the forms filed with the IRS to determine where the error lies. The error may be in the underlying data sent to the payroll/reporting vendor or an error in their system. In other cases, it may not be a true error, but may be a difference of interpretation in how the IRS codes should be applied on the forms. Differences in interpretations may be more likely in the first years of reporting, or when switching vendors. Depending on the error, you may want to review forms filed in earlier and/or later years to see if there are similar errors in those forms.

Once you discover the source of the error, be sure to fix it in your systems now for future reporting. Otherwise, you will just be correcting the same errors down the road.

When and How to Correct

Once you’ve identified that you have a true ACA reporting error, be sure to follow the information from the most recent instructions to the applicable form to correct as soon as you reasonably can. Below is a summary of the current instructions (and some errors that do not need to be corrected):

  • Form 1094-C:
    • Is the error on the Authoritative Transmittal? Each entity that is part of an applicable large employer subject to the ACA employer mandate (more detail here) has to file a single “Authoritative Transmittal.” It is identified on Part I, line 19, of the Form 1094-C. Only the Authoritative Transmittal needs to be corrected. The IRS instructions say “Do not file a return correcting information on a Form 1094-C that is not the Authoritative Transmittal.”
    • How do I correct it? File a standalone, fully completed Form 1094-C including the correct information and enter an “X” in the “CORRECTED” checkbox.
    • Do I need to file all the Forms 1095-C too? No. No other documents need to be filed (unless they also contain errors that you are correcting).
  • Form 1095-C:
    • Do I have to correct? If the error is solely due to an incorrect dollar amount on Line 15, you may not have to. Those errors may fall under a safe harbor for certain de minimis (i.e. small) errors, which means there is no penalty, even if you don’t correct. The safe harbor generally applies if no single amount in error differs from the correct amount by more than $100. However, an employee can elect not to have this safe harbor apply to him or her. If the employee has made that election, you will need to correct. More information on this safe harbor is available here.
      • You may be wondering how an error in the amount reported on Line 15 could occur. Common examples may include reporting a lower wellness participation rate rather than the higher non-wellness rate, or reporting the lowest cost offer of coverage for the plan generally, not specific to the employee receiving the form (such as where an employer charges higher rates for those with higher incomes)
    • How do I complete a corrected Form 1095-C? File a fully completed Form 1095-C including the correct information and enter an “X” in the “CORRECTED” checkbox.
      • If you happen to catch an error after you have sent the form to the employee, but before it is filed with the IRS, then you do not enter an “X” in the “CORRECTED” checkbox. The reason is that the IRS has not previously received the original, incorrect form. If you mark the box as corrected, the IRS system will look for the original form and not be able to find it.
      • Instead, the IRS advises that you write, type, or print “CORRECTED” on the new Form 1095-C furnished to the recipient.
    • Do I need to file a Form 1094-C with it? Yes. However, do not mark the “CORRECTED” checkbox on Form 1094-C (unless it also contains an error).
    • Do I need to send the corrected Form to the employee? Generally, yes. If you sent an original Form 1095-C to the employee, you will need to send the employee a copy of the corrected one. There is a limited exception for employers that used an alternative method of reporting if they made a “qualifying offer” for all 12 months under a self-funded plan. If you used this limited exception for your initial reporting, then you may not need to furnish an updated form to the employee. Refer to the most recent IRS instructions for more information.
  • Electronic Filing: Currently, electronic filing is required if you file more than 250 of an information return. This applies separately to original and corrected returns, so even if you were required to file your original returns electronically, you may not have to file your corrected ones electronically. For example, if you are filing 150 corrected Forms 1095-C, you may file on paper. However, if you are correcting 300 Forms 1095-C, they must be filed electronically (along with the 1094-C). The IRS does have a hardship waiver process described in the instructions. Regardless, however, the IRS encourages filing electronically even if you do not have to.

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

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.