Understanding ACA Penalty Enforcement Roadmap for Employers
This material provides insights on ACA penalty enforcement for Applicable Large Employers (ALEs) under the Affordable Care Act (ACA). It covers ALE obligations, employer mandates, health coverage reporting, penalties for non-compliance, and potential changes in reporting requirements. Emphasis is placed on the importance of compliance to avoid penalties and the need to stay updated on regulations. Employers are advised to consult legal counsel for specific queries as laws may evolve.
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ACA PENALTY ENFORCEMENT ROADMAP ACA PENALTY ENFORCEMENT ROADMAP Course Number 114373 Presented by: Heather Garcia
The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel. Finally, this presentation is current as of August 30, 2022 and the information contained herein is subject to change. Disclaimer
ALE Compliance Obligations Let s Start At the Very Beginning
What is an ALE and What does ACA Require of ALEs? Applicable Large Employer (ALE): Single employer or group of related employers who employed an average of at least 50 full-time employees (including FT equivalent employees) in the prior calendar year. Employer Mandate: Offer health coverage to at least 95% of full-time employees & dependents and offer minimum value/affordable coverage to full-time employees. ALEs who fail to comply risk exposure to employer shared responsibility penalties (Section 4980H). Employers who experienced workforce changes in 2021 due to COVID-19 should revisit this calculation! Health Coverage Reporting: Report compliance (or lack thereof) with the employer mandate by completing Forms 1094-C/1095-C filing and distribution requirements each tax year. ALEs who fail to comply risk exposure to reporting penalties (Sections 6721 & 6722).
Failure to File or Furnish Penalty Refresher Example for 2022 Tax Year Forms: If an ALE failed to file 1 Form 1094-C and 100 Forms 1095-C with the IRS and distribute 100 Forms 1095-C to employees, the total penalty exposure is $56,280. $580 if acted with intentional disregard $290 if no corrections are made $110 if corrected after 30 days but before Aug. 1 $50 if corrected within 30 days Watch out for double penalties they apply per form filed with the IRS and furnished to individuals.
Where are we now? Draft Forms and electronic filing guidance (AIR schema and business rules) have been posted no indication of any major changes from 2021 reporting Waiting for draft instructions & guidance on whether Jan 31 furnishing deadline will be permanently extended Good faith relief first expired with 2021 reporting and continues to be unavailable Current State of 2022 Reporting Where could we be going? Commonsense Reporting Act of 2022 introduced in the House and Senate and would significantly alter the current reporting system by allowing employers to prospectively certify compliance with ALE coverage requirements 45 days before the first day of annual open enrollment on the Exchange (Nov. 1) Potential challenges: Employers must determine affordability compliance in September for coverage they will offer in the following year Employers must timely report cancellations of coverage or significant changes in coverage on an ad hoc basis Requires agencies to develop a new system with new compliance metrics while also maintaining the current reporting system Per govtrack.us, several versions of this bill have failed to pass, and it projects a 3% chance of the current bill passing.
What Does Form 1095-C Communicate to the IRS? Filing Form 1095-C for Employee Employee had FT status for at least one month in 2021* Series 1 Codes Type of offer (or lack thereof) received in every month Why the ALE should not be exposed to 4980H(b) penalty risk Series 2 Codes Whether self-only coverage affordable for this employee Employee Required Contribution
Addressing Affordability in the 226J Response If Form 14765 shows XF, XG, or XH, it means the IRS has determined that coverage offered did not meet the affordability safe harbor reported. Employers contesting this determination, must show their work!
Current Status of IRS Enforcement Where have we been and where are we going?
IRS Letter 5699 New letters now being issued for 2020 tax year 5005-A letters now being issued for 2019 tax year 4980H closing out no responses faster and issuing penalty assessments IRS Notice 972CG Reporting Penalty Enforcement IRS only issued for 2017 & 2018 tax years Unclear when/if notices will be issued for additional years Unknowns Number of letters issued each year Whether the IRS plans to propose late filing penalties for forms submitted in response to IRS Letter 5699 Whether the IRS will reconcile late filings submitted in response to IRS Letter 5699 and issue IRS Letter 226J proposing ESRPs
Employer Shared Responsibility Penalty (ESRP) Enforcement IRS reviewing responses for 2019 tax year and expected to issue letters for 2020 tax year soon June 2020 Treasury Inspector General of Tax Administration (TIGTA) audit report findings: Recommended that ALEs disputing proposed ESRPs be required to submit supporting documentation Raised concerns about reporting penalty relief continuing for ALEs submitting incorrect forms https://www.treasury.gov/tigta/au ditreports/2020reports/20204302 8fr.pdf 320,000-370,000 ALEs Identified per TY 50,000 60,000 ALEs Identified for ESRP per TY 30,000+ Letters 226J per TY
Inflation Reduction Act Impact on IRS Enforcement Against ALEs Enhanced Premium Tax Credit through 2025 Means More ALE Exposure in Short Term CBO June 2022 report: 10.7 million received subsidized Exchange coverage in 2021 1 million more than previously projected due to enhanced PTC subsidies under the American Rescue Plan Act and other policies that encouraged enrollment. Kaiser Family Foundation: Marketplace enrollment continues to increase & reached record enrollment of 14.5 million in 2022. Increased Funding for IRS Enforcement Means More ALE Exposure in Long Term $80 billion in increased IRS funding over 10 years with $45.6 billion designated for enforcement CBO projects increase in revenue of $204 billion over 10 years Treasury Secretary internal memo directs IRS to provide detailed plan in six months that specifies how funds will be spent keeping in mind 4 priorities resolve agency backlog, improve customer service, overhaul technology, hire employees to replace retiring workers
This presentation is considered information only and should not be construed as legal or tax advice; please contact ACA professionals at takecommand@etctracking.com Property of Eligibility Tracking Calculators, LLC do not reproduce or distribute without the express written consent of ETC.
