The penalties for noncompliant ACA information reporting sharply increased due to the Trade Preferences Extension Act of 2015. The Act increased the IRS general information reporting penalty provisions under Internal Revenue Code Section 6721 (failure to file correct information returns) and Section 6722 (failure to furnish correct employee statement) effective for returns and employee statements required to be filed after December 31, 2015. This includes ACA reporting on Forms 1094-B, 1095-B, 1094-C and 1095-C for 2015 calendar year coverage due in the first quarter of 2016.
Furnishing Employee Statements
Under Section 6055, information reporting by health coverage providers, reporting entities furnish the statement to a responsible individual. Generally, that’s the person who enrolls one or more individuals, such as the primary insured employee or parent named on the insurance coverage application.
Under Section 6056, reporting of offers of health coverage by employers, applicable large employer (ALE) members furnish the statement to full-time employees.
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Penalties Imposed for Incorrect, Incomplete or Untimely Information Returns
The penalty for failure to file a correct information return or correct employee statement increased from $100 to $250 per return/statement with a cap of $3 million, up from $1.5 million. The penalties are per return or statement. It’s striking that there are two possible penalties for a single employee. Groom Law Group illustrates, “If the failure relates to both an information return and a payee statement, the penalties are doubled (i.e., to $500 per statement and a $6 million cap).” Attorneys at Miller Chevalier caution that even with very low error rates, large filers can easily reach the penalty cap. Considering the perreturn penalty calculation, “it may be advisable, where possible, to take advantage of the combined form reporting where authorized,” according to McDermott Will & Emery.
The intentional disregard penalty increased to $500 per return, and there is no cap. In McDermott Will & Emery’s example, “intentionally incorrect information with respect to one employee could result in a penalty of $500 for both the Form 1095-C filed with the IRS and the Form 1095-C provided to the employee, for a total of $1,000 for that one employee.” A noncompliant employer with 100 full-time employees could face a fine between $50,000 and $100,000.
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Good Faith Compliance Relief
Section 6721 and Section 6722 penalty relief is available for incomplete or incorrect returns filed or statements furnished to employees in 2016. The IRS is looking for a good faith compliance effort from reporting entities and ALE members. The IRS is not expected to apply the now-increased fines for inaccuracies, provided the employer tried its best to comply with the information reporting requirements. You can expect to be penalized for failing to timely file a return or furnish a statement. The reasonable cause exemption under Section 6724 remains available.
For 2015 calendar year coverage:
- File information returns with the IRS by February 28, 2016 (or by March 31, 2016, if filed electronically).
- Furnish statements to full-time employees/responsible individuals by February 1, 2016 (January 31, 2016 being a Sunday).
- If you are unable to meet these deadlines, request extensions of time to file information returns or furnish statements. See further details in the 2015 draft instructions for Forms 1094-B and 1095-B and Forms 1094-C and 1095-C.
- Continue following your procedure to collect 2015 calendar year coverage data.
- Work closely with your reporting vendor or in-house team.
- Confirm vendor software is tested with the IRS.
- Timely submit returns to the IRS and furnish statements to employees.
- Try your best to be complete and accurate.
ACA Central web page on reporting and disclosure
Q&As about Information Reporting by Employers on Form 1094-C-and Form 1095-C (See questions 2 through 4 regarding full-time employees)
Information Reporting by Applicable Large Employers (See section titled “Information Reporting Penalties”)
Jenny Lucey, CEBS
Information/Research Specialist at the International Foundation