ACA Officially "The Law of the Land": Non-filing Penalties Grow As Time Goes By
Obamacare has been officially declared the “law of the land” by Paul Ryan, Speaker of the House. Employers must comply with the employer mandate for the 2015, 2016, and 2017 calendar years (and perhaps beyond). Employer mandate requirements include:
- Offering health insurance to at least 95% of ACA-eligible employees
- Producing 1095-C forms for ACA-eligible employees
- Filing the 1094-C with the IRS
Applicable large employers (ALEs) that file after August 1, 2017, will incur the maximum penalty of $520 for each missed recipient ($260 for each 1095-C form and $260 for each missed employee on the 1094-C filing). For an employer with 100 ACA-eligible employees this nondeductible penalty translates to $52,000.
An additional penalty of $2,160 for each qualifying employee (minus the first 30) will be imposed if an employer fails to offer health insurance to at least 95% of ACA-eligible employees (this is known as Penalty A). For an employer with 100 ACA-eligible employees, this translates to an additional penalty of $151,200. Here’s the “sledgehammer” math
(100 – 30) * $2,160 = $151,200
For a business operating on a 5% profit margin, Penalty A translates to over $3,000,000 in revenue equivalents. Please refer to our previous article to learn more about other Employer Mandate requirements.
My Client Didn’t File! Now What?
In the event any of your clients still haven’t complied, it’s imperative that they produce the forms and file the transmittal sooner rather than later as the penalties increase over time. Prior to the March 31, 2017, deadline, automatic 30-day extensions were available. Hardship cases could also possibly qualify for an additional 30-day extension. IRS form 8809 is used for extension requests.
Tardy filers may take comfort knowing that filings that are corrected on or before 30 days after March 31st incur a reduced penalty of $50 per recipient (maximum annual penalty is $529,500). Penalties pertaining to filings that are corrected 30 days after March 31st and before August 1, 2017, increase to $100 (maximum annual penalty is $1,059,000). The penalties are lower for employers with receipts below $5,000,000.
If the “failure” to comply was due to reasonable cause and not willful neglect, penalties may be waived. Entities with mitigating factors — beyond the filer’s control — and behaving in a responsible manner as outlined in Section 6274, Regulations section 301.6724-1, and Proposed Regulations section 1.6055-1(h) may get protection. Publication 1586 also has good information on this subject.
Action Plan
Step 1 - First and foremost, file an extension with the IRS. To file an extension, you will need to complete and submit form 8809. If granted, this will provide a 30-day extension. This form should be filed immediately since technically the extension request should be made once you know an extension will be required and must be made by the actual deadline (we’re not really sure if the IRS will accept the request at this time, but it’s worth trying).
Step 2 – Find a 1095-C/1094-C vendor. A handful of ACA IRS Reporting vendors are still accepting new clients. Smart1095, a standalone and easy-to-use solution can process new clients in just a few days.
Step 3 – Help your client prepare its data. Preparing data doesn’t have to be as challenging as it has been in the past. Smart1095, for example, only requires 18 data elements for insured plans. Most of the required data resides in your client’s payroll system. Benefits data, including benefits start date and benefits end date, is available in most benefits systems or carrier enrollment files.
Step 4 – Get ready for marketplace subsidy notice appeals. Now that Obamacare is here to stay it is likely that considerably more Exchange Subsidy Notices will be sent to your clients. These letters pertain to employees that erroneously purchased health insurance on www.Healthcare.gov even though they were not eligible to do so.
In the event an employee was not in fact eligible for a subsidy because he or she was offered employer-based insurance, the IRS will use this to claw back the subsidy from the employee. Incidentally, hundreds of thousands of notices were sent to employers in June of 2016 by the Department of Health and Human Services.
It is important to note that these notices are sent to the employee’s work location, which may be different than location of your client’s CFO. Hence, each worksite location should be notified to be on the lookout for these notices as the employer only has 90 days to appeal. To appeal, your client will need copies of all documentation showing offers of coverage and other pertinent information. Employees are also given the opportunity to appeal your client’s appeal. Once a determination is made it is final. If decided in the employee’s favor, this could trigger a 1095 audit for your client.
Step 5 – Prepare for a 1095 Audit.
The likelihood of a 1095 audit increases for tardy filers. Given the wide variety of content that is contained on a 1095-C form an audit will likely include a review of the supporting insourced and outsourced processes and technologies used in the payroll, HR, benefits, and health insurance areas. As a result, a 1095 audit can cost even more than the IRS penalties because the outcome could also include business process improvements and technology upgrades.
More specifically, the scope of a 1095/1094 audit could include:
- Related business entities
- ACA-eligible employees
- 1095-C recipients
- Dependent SSNs (for self-insured plans)
- 1095-C offer-of-coverage accuracy
- 1095-C safe harbor/status accuracy
- Affordability
- 1094-C IRS filing
We will provide additional details about each of these areas in future articles.
Step 6 – Document your Clients’ Efforts
Like other important financial reporting areas, it is very important to document all steps. This will provide an audit trail in the event of an audit. Even though the industry is speculating that 1095 audits are months away, as time passes and memories fade, audits will be even more painful if steps are not properly documented.
Summary
Obamacare remains the law of the land. To that end, employers must continue to comply with the employer mandate. Tardy ALEs continue to have the opportunity to comply throughout April and only incur a minimal penalty. The longer your client waits, the bigger the penalty.