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Good Faith Relief for ACA Compliance Reporting is Over

By Nina Terenzi, May 17, 2022
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From tax years 2015 through 2020, the Internal Revenue Service (IRS) opted not to assess penalties on Affordable Care Act (ACA) forms filed with mistakes so long as employers demonstrated “good faith” compliance efforts. That practice has ended and human error may now become costly as organizations face heavy monetary fines for filing ACA-related compliance forms that contain incorrect or incomplete information.

The potential consequences are not trivial. One instance of providing inaccurate forms can result in nearly six hundred dollars in damages—$280 for the wrongly filed IRS form and $280 for the inaccurate employee form. Scaled over even a small workforce, the financial consequences of these penalties, especially for small and mid-sized businesses, may be dire. And, while employers will still have access to a “reasonable cause” appeal process if they believe their filing mistakes were unavoidable, they may have to pay the penalty up front while the process unfolds. Winning these cases will take time, require a significant burden of proof, and may not result in clawing back the money paid. 

The 2021 tax year called for more than sharpened pencils. Many benefits risk managers found themselves less than fully prepared to face the financial consequences for incorrect ACA compliance reporting. The IRS’s history of waiving penalties—while helpful during the initial ACA compliance transition period—did little to help employers understand where mistakes on the forms were likely to occur or how to avoid them. Below, Eastern Insurance offers insights to help organizations avoid pitfalls and establish systems to ensure the accurate preparation and filing of Forms 1094-C and 1095-C.

General Best Practices:

  • Save all documentation related to ACA coverage
  • Obtain advance copies of tax forms from all 3rd party vendors
  • Establish protocols for reviewing forms
  • Work with vendors on the timely correction of forms
  • Annually review vendor contracts

1094-C Form Tips

  • Aggregate ALE Group Box
    • Check this if the tax ID number for which you are filing is the aggregated filer in the controlled group.
  • Part III, Column A
    • Make sure to submit the correct answer regarding the 95% MEC offer of coverage.
  • Part IV
    • If applicable, ensure this section contains all controlled group tax ID numbers.

Form 1095-C Form Tips

  • Proofread across employee types
    • Review a sampling of forms that represent various employee types including, but not limited to:
      • General category employees
      • People on sabbatical
      • Individuals who moved to COBRA
      • Rehires
      • FTE or PT status changers
  • Affordability Safe Harbor
    • If applicable, make sure the form reflects the correct affordability safe harbor.
    • If inapplicable, ensure the monthly premium amount is accurate.
  • Code numbers—review carefully!
    • For every1” code there must be a corresponding2” code.
  • Part III
    • Both level-funded and self-funded plans require the completion of Part III.
    • Remember to include all employee and covered dependent information.
  • Employees only!
    • Be sure not to file 1095-C forms for consultants or contractors.

Review your risk with a trusted partner

The end of the IRS’s transitional good faith relief practices exposed many organizations to financial penalties that resulted from filing ACA compliance forms that contained inaccurate or incomplete information. Careful planning today may help reduce risk and avoid future financial penalties. Your partners at Eastern Insurance will work with you to make sure you’re fully in compliance with IRS codes, ERISA, and any other law or regulation that may affect your business or your employees. Contact us today at c[email protected] to review and modernize your strategy for managing liability risk.

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