Avoiding ACA Reporting Pitfalls: How to Stay in Compliance
February 6, 2018
Reporting of Offers of Health Insurance Coverage by Employers (Forms 1094/1095) is well under way. As such, employers are no doubt scrambling to complete the forms in a timely and accurate way in order to avoid costly IRS penalties.
To help get through the reporting season, the following are a few things to keep in mind as you proceed through the often daunting and confusing reporting process.
It is important to remember that, in the eyes of the IRS, reporting is ultimately the responsibility of the employer. Employers working with reporting vendors still bear the responsibility and liability for their submissions to be timely and accurate. Thus, if an employer is deemed to owe penalties under the reporting rules, it is the employer, and not the vendor, who will be responsible for those payments.
Under the Affordable Care Act, applicable large employers (ALEs)—generally those with at least 50 full-time employees, including full-time equivalent employees, in the preceding calendar year—must report certain information to their full-time employees and the IRS about the health care coverage they have offered (if any).
With deadlines for 2017 reporting just a couple of months away, ALEs should begin thinking about the following reporting facts:
- ALEs are required to furnish Form 1095-C to each of its full-time employees by March 2, 2018 (new extended deadline).
- ALEs must file Forms 1095-C, accompanied by the transmittal Form 1094-C, with the IRS no later than February 28, 2018 (or April 2, 2018, if filing electronically).
- Self-insured ALEs must also report via Forms 1094-C and 1095-C.
- ALEs that file 250 or more Forms 1095-C must file them electronically.
ALEs can find a complete list of resources and the latest news at the IRS’s Applicable Large Employer Information Center.
Lessons Learned from the 2015 Reporting Filings
After having reviewed the IRS 226J letters (https://www.irs.gov/individuals/understanding-your-letter-226-j) that were sent to employers who were assessed a penalty under the Employer Shared Responsibility provisions for reporting year 2015, and having discussed such reasons with reporting industry experts, here are some of the reasons for the penalties:
- Employers who have utilized reporting companies who do not interact with the accounting or data management personnel of the employer, have seen a greater instance of errors due to incorrect or incomplete data being submitted.
- Reporting vendors who do work closely with their clients to assess and determine information being submitted for 1094/1095 forms are less likely to have inaccuracies on their forms and indicator codes. This greatly decreases the likelihood of penalties being levied against the employer.
- Line 21 and 22 of form 1094-C was often checked incorrectly or simply left blank. This occurred due to missteps by both employers and vendors alike. These mistakes often triggered the (A) tax penalty for employers.
- Another common error related to line 22 (A) was whether or not an employer could utilize the “Qualifying Offer Method”(QOM). In order to be eligible for the less burdensome reporting reserved for the QOM, the below criteria is needed. https://www.irs.gov/affordable-care-act/employers/questions-and-answers-about-information-reporting-by-employers-on-form-1094-c-and-form-1095-c
- A “Qualifying Offer” is an offer that satisfies all of the following criteria:
- It is an offer of minimum essential coverage that provides minimum value;
- The employee cost for employee-only coverage for each month does not exceed 9.5% (as adjusted) of the mainland single federal poverty line divided by 12; and
- An offer of minimum essential coverage is also made to the employee’s spouse and dependents (if any).
- A “Qualifying Offer” is an offer that satisfies all of the following criteria:
- Line 22 (D) was also a frequent mistake, incorrectly indicated by employers or vendors. Line 22 (D) deals with the 98% Offer Method, which allows an employer to forego tracking or counting employees full or part-time status, as long as they offered qualified coverage to at least 98% of their employees.
- Part III of the 1094-C form had reporting problems related to whether minimum essential coverage was offered or not, and what months the offers were made. Many employers used the wrong indicator codes and were penalized, even when they had made correct offers of coverage.
- Not all penalties that were incurred by employers were the fault of the employer, but by the IRS themselves. The IRS sent many employers 226J letters with penalties for not offering Minimum Essential Coverage (MEC), when in fact the employer had properly offered MEC.
What to Watch for in Reporting Filings for 2017 and Beyond
If utilizing a reporting vendor it is important for employers to work closely with their vendors to ensure that the data the vendor has is accurate and that the boxes on the forms are being marked correctly. If an employer is doing their own reporting, it is highly recommended that they seek the assistance of a tax professional or other reputable reporting vendor.
We also highly recommend that employers maintain all the documentation from previous years used in their reporting, including all forms and transmission reports, so in the event of an Appeal with the IRS, they can offset incorrect penalties in a timely manner.
ESC is committed to helping its clients remain in compliance with all of their responsibilities and duties under the ACA and other regulatory obligations. If you would like assistance on your reporting, we suggest that you contact a reporting specialist. If you decide that you need an outside reporting resource, we recommend our integrated partner, StaffACA https://staffaca.com/.
ESC and its affiliates do not provide reporting, tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for reporting, tax, legal or accounting advice. You should consult your own reporting, tax, legal and accounting advisors to ensure you are in compliance with all the regulatory and legal issues that govern your business.
