IRS Steps Up ACA Compliance Enforcement

The current administration doesn’t have a glowing opinion about the Affordable Care Act (ACA) mandate, but that doesn’t mean it won’t pursue revenue where it can. The IRS is stepping up enforcement of ACA provisions for large employers, and the penalties can reach millions of dollars.

Applicable large employers (ALEs) are subject to the employer shared responsibility (ESR) and the employer information reporting provisions of the Affordable Care Act. ALEs are those who had at least 50 full-time employees, including full-time equivalent employees, on average during the prior calendar year. In this instance, full-time employees are those who average at least 30 hours of service per week during the calendar month or at least 130 hours of service during the calendar month. Not sure your business qualifies as an ALE? Follow these calculations and tips offered by the IRS.

As SHRM points out, small employers with fewer than 50 full-time employees are exempt from most ACA reporting requirements, but not all. They still need to submit the correct forms. Self-insured small employers must complete and file Forms 1095-B and 1094-B and provide full-time employees with a copy of Form 1095-B. They’re also required to file Forms 1095-C and 1094-C if they’re members of a controlled or affiliated service group with at least 50 full-time employees total.

According to John Sobraske, senior product manager for insurance services at Paychex, the IRS has been following up with non-filers and inaccurate/incomplete filers who began receiving notifications at the end of 2017. These notifications are coming in the form of IRS Letter 226-J. Many of the letters come as a result of simple typos or errors. The biggest mistake of all, though, is to ignore the warning. The letter fully explains the steps to take if you agree or disagree with what the IRS lays out. It’s important to respond by submitting Form 14764 whether you agree with the assessment or not.

According to the IRS:

  • If you disagree with the proposed ESRP liability, you must provide a full explanation of your disagreement and/or indicate changes needed on Form 14765 (PTC Listing). Return all documents as instructed in the letter by the response date.
  • If you agree with the proposed ESRP liability, follow the instructions to sign the response form and return with full payment in the envelope provided.

Once you respond, the IRS may follow up with one of five different versions of its Letter 227. Take a look at ACA Times’ tongue-in-cheek look at each of these responses, which they list in order of what they consider best-to-worst-case scenarios.

If you’re worried about compliance during the recent 2019 tax year, there’s good news. The IRS has extended the due date for furnishing employees with required ACA information to March 2, 2020, and offers another year of relief for employers who show that they made good-faith efforts to comply with ACA rules. SHRM provides an overview of these extensions. Once again, though, ignoring deadlines and IRS letters can sabotage any chance you have to take advantage of these opportunities. Also, note that ACA filing requirements can be even stricter if you employ workers in certain states and jurisdictions like California with separate mandates in place.

Feel free to contact us with questions.

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January 28, 2020

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