HR.com: The Ins and Outs of ACA Compliance and Reporting
As the new year approaches, HR departments are shifting their focus to the Affordable Care Act’s (ACA) required reporting. This year, HR is hit with a double whammy—completing reports for the 2017 year AND, for many, responding to proposed penalty letters from the IRS.
Add that to the uncertainty swirling around the future of the individual and employer mandates and it’s no wonder 25 percent of employers cite compliance as their number one benefits-related concern. Unfortunately, less than one-third feel that they’re prepared to address it.
The Current Challenge
With the 2017 filing deadlines looming—1095s are due to employees by January 31 and to the Internal Revenue Service (IRS) no later than March 31 for employers who e-file—employers are working to verify their data, line up resources and ensure that they understand the latest filing rules and instructions. Despite having a couple of years of filing under their belts, many employers are still dealing with vendors who slowed down the filing process, inconsistent or inaccurate data and, in the case of employers who opt to prepare forms in house, lining up the right resources.
For the past two years the IRS has provided a longer time for employers to mail 1095 statements to employees (past the January 31 statutory deadline); an extension seems unlikely this year, giving employers less time to wrap-up year-end payroll and benefits data to prepare accurate 1095 forms.
Just last month, the IRS provided guidance on how it will propose and assess employer shared responsibility payments under the ACA. More recently, the IRS issued sample Forms 14764, 14765 and Letter 226J, which provides a clue as to the employer shared responsibility information it has collected and will be notifying employers about.
The first of these notices are being sent as we speak—and they give employers just 30 days to respond. Savvy employers will be mining those notices to identify areas they’ll need to address as they prepare the current batch of 1095s.
And even the best-prepared employers could still be confused by President Trump’s promises to not enforce the ACA’s employer mandate, which remains in effect, the IRS’s apparent intention to continue enforcing the employer mandate, and the potential repeal of the individual mandate.
The Penalties of Non-Compliance
As employers on the receiving end of the IRS notices are reminded, non-compliance comes with a hefty price tag. Fines (for 2017; these amounts were lower in 2015) include:
- $2,260 per employee (after the first 30 employees; 80 in 2015) for failure to offer minimum essential coverage;
- The lesser of $3,390 per employee receiving a subsidy or $2,260 per employee, excepting the first 30 employees for failure to provide affordable coverage or coverage that does not meet the minimum value standard;
- $260 per individual return (double that for willful failure) to accurately and completely file returns with the IRS and/or to accurately and completely furnish statements to employees.
In fact, the Congressional Budget office estimates that ACA penalty payments will add $207 billion to the government’s coffers over the next 10 years.
Strategies to Ensure Successful Reporting and Compliance
Organizations most often face reporting penalties when their data is inaccurate or out of date, or exists in disparate sources in differing formats. To stay on stop of the reporting processes and keep compliance measurements in check, information should ideally be gathered and verified throughout the year during regularly scheduled review meetings.
The higher penalties, however, are for not offering affordable coverage to 95% of full-time employees. Employers who wait until the end of the year to gather data and prepare calculations may get an unpleasant surprise regarding either the number of employees not offered coverage, or the affordability of the coverage.
The best practice to avoiding penalties is to monitor the affordability and offer of coverage standards throughout the year and make adjustments, as needed, to ensure compliance. This requires ongoing data gathering, analysis and reporting throughout the year.
As ACA compliance becomes increasingly complex, HR executives may find that relying on ACA compliance experts and brokers for guidance, data tracking, affordability calculations, form preparation and audit support will reduce their stress and the likelihood of error, while freeing up internal resources to focus on more strategic issues.
What to Do If you Do Find Yourself with a Notice from the IRS?
If despite their best efforts, an employer receives a penalty notice, there are immediate action steps to take:
- Contact an Attorney. Having legal counsel on board is critical in crafting a response to any penalty assessment filed against the organization. Ignoring the notice in the hopes that enforcement will be dropped is not an option – employers must respond to the assessment notice within 30 days of the date of the letter
- Go Through Previous Filings to Identify Any Errors. This is the first year that the IRS has the time, money and resources to send out penalty notices, and these notices relate to filings for 2015. It would behoove employers to review filings from subsequent years to identify inadvertent coding or data errors that may be more obvious now. Identifying errors before the IRS comes calling will better prepare you for those conversations – and increase the likelihood that your current year filings will be accurate.
- Prep for Discussions, and Know your Rights. It’s worth noting that there is this question – due to the government’s failure to provide certain notices – as to whether penalties can legally be assessed for 2015. So, having an attorney by your side – who understands the Forms 1094-C and 1095-C as well as the rules related to the eligibility for a premium tax credit – will be critical. Remember that an employer has 30 days to contact the IRS to register their intent to dispute any penalties or to make payment, and to authorize a representative to act on their behalf with the IRS.
- Get Ready to be ACA-Compliant for the Time Being. Going forward, it looks like the IRS will enforce the ACA provisions unless and until the law is changed. As such, all employers should be prepared to complete the required filings for 2017 and beyond
Read the article here.
(By Denise Kappler and Kim Buckey)