How to Avoid IRS Penalties
Some Applicable Employers have learned the hard way that the smallest mistakes in ACA reporting can result in costly IRS tax penalties. Here are 4 common mistakes and how to avoid them:
1. On form 1094-C, checking ‘No’ for any month in Part III column (a) could lead to huge tax penalties if you had any full time employees for that month. If an employee claims a premium tax credit on the healthcare marketplace during this time period, you could be liable to pay a penalty for each full time employee for this month (not just the employees that claim a PTC). For example:
If you had 100 full time employees for a month, but accidentally checked ‘No’ on Part III (a) AND an employee claimed a PTC, you could be liable for (100 x $177.73) = $17,773 in penalties for this month alone!
2. On form 1095-C, if you specify any code but 1A in box #14, AND fail to provide a safe harbor code in box #16 of the corresponding month, you could be responsible for paying a penalty of $260 per instance where an employee claims a PTC. While it is technically optional to provide a safe harbor code in #16, we always recommend providing this when possible as this reduces your tax liability.
3. On form 1094-C, if you provide a list of your aggregate ALEs in Part IV, BUT don’t create separate filings for each of these entities, you may receive an IRS letter accessing a penalty for not filing information returns. The penalty for not filing ACA returns can reach up to $540 per 1095-C. Please note that multiple EINs cannot be filed using a single 1094-C. Many filers misinterpret the ‘Authoritative transmittal’ checkbox on the 1094-C as a shortcut for submitting one 1094-C for multiple companies, but the IRS won’t allow this. See what the IRS has to say about this here. For example:
If Company A and Company B together make up an Aggregated ALE Group, Company A must file one Form 1094-C Authoritative Transmittal, reporting its name, address and EIN on lines 1-8, and reporting on line 19 that it is the Authoritative Transmittal.
Company A would then complete Parts II, III and IV, as applicable, reporting information ONLY about Company A and its employees. Company A would also complete Forms 1095-C for full-time employees of Company A. In addition, if Company A sponsors a self-insured health plan, it would also complete Form 1095-C, including Part III for any employees, whether or not they are full-time employees, and family members enrolled in the coverage.
Company B must file a separate Form 1094-C, Authoritative Transmittal, reporting its name, address, and EIN on lines 1-8, reporting on line 19 that it is the Authoritative Transmittal, and completing the remainder of the Form, as applicable. Company B would also complete Forms 1095-C for full-time employees of Company B. In addition, if Company B sponsors a self-insured health plan, it would also complete Form 1095-C, including Part III for any employees, whether or not they are full-time employees, and family members enrolled in the coverage.
The authoritative transmittal box on the 1094-C was designed for large entities where different divisions within a company may be filing independently. One of the divisions would be responsible for filing an authoritative transmittal with a complete head count for all divisions within the organization while other divisions could simply check a box to indicate that their filing is a non-authoritative transmittal and only complete Part I of the 1094-C. In short, you’ll want to ensure that you have a completed/authoritative 1094-C for each aggregate ALE in your organization.
4. It’s also important to note that if you are just now getting into the swing of ACA reporting, and you create a filing for the most recent tax year, there is a high likelihood that the IRS will investigate prior years to ensure that you did not skip a year of reporting. ACA reporting is required from TY2015 onward for employers and aggregate ALEs with more than 50 full time equivalent employees or for organizations that are on a self-funded insurance plan. If you meet these criteria and didn’t file your ACA forms you may be liable for prior year reporting.
Take active measures to avoid ACA reporting mistakes, and paying costly penalties. Doing your taxes should be simple, and BoomTax is here to help. We created BoomTax from the ground up to be the easiest to use tax reporting solution on the market, and we think you’ll agree. Click below to learn more.
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BoomTax, The Boom Post, and its affiliates do not provide 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, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.