All good things must end eventually—summertime, the Harry Potter series, the delightful stage when your infant is adorable and alert but also immobile…the list is endless. And now friends, we’ve got another item to add—good faith compliance when it comes to the Affordable Care Act (ACA) employer reporting process.
The Internal Revenue Service recently published a proposed rule that will significantly change employer reporting, both for the year ahead and likely forevermore. It’s kind of a good news/bad news sort of proposition. On one hand, the measure automatically extends the date by which health insurance issuers and employers need to give people their Form 1095-B and/or Form 1095-C information reporting statements by 30 days. So, for the 2021 calendar year, statements will not be considered late if they are distributed on or before Wednesday, March 2, 2022. If the Biden Administration finalizes this rule without change (which seems quite likely), then the automatic 30-day extension will be permanent.
On the other hand, the proposed rule also permanently ends the “good faith” compliance standard the IRS has been extending to applicable large employers (ALEs) since 2015. Moving forward, it will be much harder for ALEs to avoid significant employer shared responsibility payment (ESRP) penalties and information return penalties for completing their Forms 1094/1095-C incorrectly.
Up until this reporting year, employers just had to “try their best” when it came to filling out reporting forms. From coding Lines 14 and 16, to affordability calculations, to pesky details like the spelling of names and correct social security numbers, if an employer or their reporting firm made a mistake, it wasn’t that big of a deal. Yes, mistakes like these could trigger a dreaded 226-J penalty letter, which is what the IRS sends when they believe that the ALE may have failed to meet the employer shared responsibility requirement for a given tax year. And yes, this meant employers needed to respond to those penalty letters in a complete and timely way. However, under the old regime, the IRS was forgiving of minor and unintentional reporting errors. In many cases, it used to be that, to get an ESRP penalty waived or substantially reduced, all you needed to do was provide the IRS with a simple correction.
Now, though, employers do not only need to file their Forms 1094/1095-C with the IRS, but they also need to get them right. Otherwise, employers may be penalized for inaccurate/incomplete information returns, which comes with a fine of up to $280 per form for 2021. But really, $280 is more like $560, because the fines are generally doubled for reporting errors that typically appear twice—once on the 1095-C statement that was furnished to the employee and again on the 1095-C that was e-Filed with the IRS. Not to mention these penalties are in addition to, not in lieu of, any employer mandate penalties triggered by the erroneous filing.
Plus, not to pile on, but the proposed 30-day automatic extension to the Form 1095-B/C delivery deadline comes with its own increased penalty risks. If an employer or issuer distributes its 2021 Forms-1095-B or C after March 2, 2022, then they will be considered late and subject to penalties. Employers will not be able to request additional time past the 30 days to furnish forms to employees, and the IRS has made it clear that they don’t want to hear excuses any longer.
So, from our perspective, it is more important than ever that employers and advisors take a long hard look at how they’ve been handling ACA information reporting over the past five years. If you’ve ever had any trouble, dealt with the IRS at all, or even have doubts when you assign codes to employees’ forms, then you might want to think about your ACA reporting solution, and if you are with the “right” service.
We generally do not like to toot our own horns, but we are in this business to help people, particularly our friends. So, we want you to know the team at MZQ Consulting has been in the business of “getting ACA reporting right” since 2014. Our team does all the work for you, from sifting out your data and coding everything, to providing white-glove service. For more information about how MZQ can help, please e-mail us, leave a comment, call, or send the bat signal, and we will be available to cross “employer reporting problems” off your 2022 to-do list!