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ACA in Action: Part three: Pay to the order of … oh my!

Authored by Eric Pochas

When the Affordable Care Act (ACA) was enacted, it drew massive amounts of attention because everything about it was big. At roughly 2,300 pages of law on the day it passed, the ACA has given way to an additional 20,000 pages of regulation in the 10 years since. Also big is the ACA’s price tag. Subsidizing healthcare alone carries with it an annual cost of roughly $685 billion. Who will foot this bill? Here’s a hint: Think about the ABCs of Form 1095-C.

ACA revenues tie back to multiple sources. One source is the employer shared responsibility provision, also known as the employer mandate to provide health insurance. The Congressional Budget Office projects that fees collected due to noncompliance with this mandate will exceed $200 billion by the second half of this decade. As previously outlined, the issuance and filing of Forms 1094-C and 1095-C are the mechanisms by which the Internal Revenue Service (IRS) holds applicable large employers (ALEs) accountable for compliance with the employer mandate.

The IRS is making good on both its promise and responsibility to collect the fees that support the revenue needed to offset ACA costs. Would you like to see proof? Below is a list of proposed assessments issued by the IRS over the past 18 months to employers who asked Baker Tilly for advisement:

Those are big numbers!

To understand why these proposed assessments are so big, it is worth revisiting when and how the IRS arrives at its propositions:

  • When the IRS suspects an ALE did not offer coverage to full-time employees for the year, it multiplies $2,500 by the number of full-time employees (reported on Form 1094-C) minus 30.
  • When the IRS suspects an ALE did not offer adequate coverage for the year to employees who ultimately received a premium assistance tax credit (a subsidy for purchasing individual coverage), it multiplies $3,750 by the number of full-time employees who received these subsidies.
  • When the IRS suspects an employer is large enough to have to comply with the employer mandate, yet cannot find a Form 1094-C on file for that employer, it charges $520 per filed W-2. Relative fees also apply when forms filed by ALEs are not filed in accordance with annual IRS filing deadlines.

Proposed assessments that go unpaid or unacted upon ultimately become real penalties which the IRS will impose interest and look to collect by way of its federal tax lien process.

The hidden costs

With the proposed penalties and fees for potential noncompliance with ACA coverage and reporting mandates come downstream cost considerations. Companies often must mobilize and dedicate resources with urgency to the cause of unwinding past actions and formally preparing to explain them. Third-party reviews may be in order to review corporate structure in consideration of controlled group rules. Legal counsel may need to be retained to interact with the IRS’ 4980H Response Unit and assist in constructing well-composed response arguments.

Goodbye “silver lining”

The good news in dealing with early-year penalty notices issued by the IRS had been their willingness to accept very general response arguments. For the 2015 and 2016 tax years, the IRS often accepted simply outlining basic actions taken – “we tried but it didn’t work.” With the impending release of 2017 notices last year, the IRS made clear its intent to intensify its scrutiny of response arguments.

We are seeing proof of this tolerance change. An employer who issued Forms 1095-C to employees argued that a proposed 2017 late filing penalty was unjustified because the late filing was beyond its control. The vendor hired to complete this second reporting deliverable could not due to technical issues. The employer attempted to secure its own access to the IRS’ Affordable Care Act Information Returns system so it could perform the transmittal on time. Ultimately, it took until November of that year to complete the filing. The IRS rejected the position that a vendor issue supported a reasonable cause argument. It stated the following:

“You can delegate the (reporting) duty to a third party, but you cannot delegate the responsibility to a third party. It is your responsibility to timely file information returns on an annual basis and this responsibility cannot be delegated.”  

The case is now at appeal.

Pulse check: 2019 ACA reporting

ALEs who manually file less than 250 Forms 1095-C must mail their 2019 form submissions to the IRS by the end of this month. Inevitably, we will find employers who will miscalculate the 2019 form total and, for various reasons, will surpass the 250-form threshold. These employers must scurry to find an outlet capable of recomposing their forms data and transmitting it before the March 31, 2019, deadline for electronic filers. Forms filed manually that exceed the 250-form threshold are subject to a penalty, one that we saw the IRS begin to impose for the 2017 tax year.

As long as the ACA remains the “law of the land,” and as long as insurance premiums are being subsidized as a result of it, the IRS will play an active role in holding employers accountable for their shared responsibility. As demonstrated here, the penalties add up fast and stress organizations in often unanticipated and untimely ways.

True to form, the best defense here is a good offense. The practice of sound ACA compliance is thoughtful, purposeful, formal and strategic. As the ACA approaches its 10th year, it is a practice and responsibility that should be considered with permanence.

For more information on this topic, or to learn how Baker Tilly Vantagen specialists can help, contact our team.

About the ACA in Action series and Baker Tilly Vantagen

ACA in Action is a series of informative articles that provide practical perspectives on current matters of Affordable Care Act (ACA) compliance. Offering these perspectives are certified ACA specialists from Baker Tilly Vantagen who are well versed in how evolving ACA concepts are uniquely affecting everyday operations within impacted organizations.

Baker Tilly Vantagen is the employee benefits administration and human resources consulting arm of Baker Tilly. We have been providing ACA compliance support since 2010 and preparing, issuing and transmitting Forms 1094/1095 on behalf of employers since 2015.

Stay tuned for our last article in the ACA in Action series!

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

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