The IRS is enforcing additional ACA penalties: Are you at risk?

What’s worse than one penalty? Mounting penalties.

The IRS is sending out Letter 226-J penalty notices to applicable large employers (ALEs) that didn’t provide affordable health care with minimum essential coverage (MEC) for the 2015 and 2016 tax years.

You’re likely familiar with these penalties; they’re meant for employers who failed to comply with the Affordable Care Act’s (ACA) employer mandate. Turns out, these are not the only penalties you should be worrying about. 

Failure to file and furnish 1094-C and 1095-C forms

For the first time, the IRS has begun the process of distributing new penalties to employers that failed to issue 1095-C forms to their employees on time or that failed to meet the filing deadline for the 1094-C and 1095-C forms.

The penalties being issued this year are for the 2016 reporting season under Internal Revenue Code (IRC) 6721/6722.

Although the failure to furnish 1095-C forms and file forms 1094-C and 1095-C constitute separate penalties, they do go hand in hand, as the fines for each violation are the same.

Unfortunately, if you failed to meet the deadlines for 2016 – for both furnishing forms to employees and not filing on time – you will likely be hit with the maximum fine of $520 per return not filed. The same goes for 2017, except the fine will be higher. In fact, fines are increasing each year.

While you can’t make up for 2016 or 2017, there’s still time to ensure you don’t get hit with penalties for the 2018 tax year.

What are the fines for failing to file and furnish 2018 ACA forms?

To avoid fines for the 2018 reporting year, these forms must be filed with the IRS no later than April 1, 2019. If you file after the deadline, the fines will be exacted as follows:

  • After April 1, but within 30 days: Subject to $50 fine per return not filed. Cannot exceed an annual maximum of $556,500.
  • After 30 days through Aug. 1: Subject to $110 fine per return not filed. Cannot exceed an annual maximum of $1,669,500.
  • After Aug. 1: Subject to $270 fine per return not filed. Cannot exceed annual maximum of $3,339,000.
  • “Intentional disregard” after Aug. 1: If the IRS believes you “willfully” missed the deadline, you’re subject to $540 fine per return, and there is no annual maximum cap.

How should employers proceed moving forward?

This year, there’s a good faith effort standard, which says as long as you tried to accurately report, and you filed by the deadline, you won’t get penalized if what you reported is incorrect. The key takeaway is that you must deliver forms to employees and file them by their respective deadlines.

While these additional penalties aren’t a high priority for the IRS – they’re hard to enforce if the forms aren’t electronically filed – that doesn’t mean the agency is going to let them slide. After all, if there were no penalties, employers wouldn’t complete the filing.

The deadline for sending out 1095-C forms to your employees is March 4, 2019, and the deadline for electronically filing 1094-C and 1095-C forms is April 1, 2019. Failing to do so will result in potentially costly fines.

If you didn’t file in 2016 or 2017, you’re going to get hit with penalties. There’s nothing you can do about that now. However, it’s not too late to avoid additional fines for the 2018 tax year. All you have to do is stick to the deadlines. The choice is yours.