Understanding Penalties for ACA Non-Compliance

Under the Affordable Care Act (ACA), applicable large employers (ALEs) across the United States must offer affordable health insurance options to their full-time employees. An ALE is any company that employs an average of at least 50 full-time workers. To enforce the legislation, the federal government fines companies that fail to provide affordable health plans or meet reporting requirements. These penalties can become quite costly, so it's important to do everything you can to achieve IRS ACA compliance.

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Types of ACA Non-Compliance Penalties

Although the cost varies depending on the number of employees affected, penalties for ACA non-compliance can total thousands or even hundreds of thousands of dollars. Learn about some of the most common ACA compliance penalties below.

Failure to File an Information Return

The IRS requires ALEs to file Forms 1094-C and 1095-C to maintain ACA compliance. If you forget to file these forms by the deadline, you could face a penalty of $100 per missing return, with fines increasing by $270 with each failure. Fines for failing to file cannot exceed $3,275,500 in a year, but penalties for multiple missing returns can add up fast. You need to file on time for all your full-time employees if you hope to avoid this fine.

Failure to Provide Correct Payee Statements

Under the ACA, employers must provide specific health insurance information to their employees by deadlines established by the IRS. Employees need this information to find out if they qualify for the premium tax credit when filing their individual tax returns. Failure to provide correct payee statements to your employees can result in the same penalty as failure to file.

Employer Shared Responsibility Payments

The IRS also penalizes employers that fail to provide affordable coverage to their employees. You may face this kind of ACA compliance penalty if:

  • You don't offer minimum essential coverage to your full-time employees
  • You only offer insurance that is unaffordable
  • At least one of your employees received or qualified for a premium tax credit
  • Your company did not qualify for an affordability safe harbor

The IRS sends letter 226J to notify employers that need to make employer shared responsibility payments. 

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How to Stay ACA Compliant

To protect your organization from costly fines, you need to meet the requirements outlined in the ACA. Here are a few tips to help you stay in compliance.

Offer Affordable Health Insurance

To stay in compliance, ALEs must offer affordable health insurance to at least 95% of their full-time employees. A full-time employee is someone who works 30 hours per week or more on average, or 130 hours per month. To avoid penalties, make sure you offer insurance to the required number of full-time employees. An affordable plan is one that even your lowest-earning employee can afford.

Fill Out 1094 and 1095 Forms Accurately

The IRS will reject incomplete and incorrect 1094 and 1095 forms. To avoid penalties, ensure the information you enter is correct and up to date. If you're not sure whether you have accurate employee demographic information, ask workers to confirm.

File Your Returns on Time

You may face penalties if you fail to file your returns on time — even if you've met all other ACA requirements. Check the deadlines for the year you're filing and remember that paper filing and e-filing deadlines may differ.

Preparing for an IRS Audit

If the IRS finds ACA reporting mistakes, irregularities or other "red flags" when reviewing your business's tax returns, it could decide to conduct a comprehensive audit. Factors that might trigger an audit include vague, nonspecific information and a workforce with unpredictable work hours, especially if there are multiple employees who don't meet the 130-hour-per-month threshold required for ACA coverage eligibility.

Should you receive an audit letter from the IRS, it will likely request documentation. You can ensure readiness for an audit by implementing sound record-keeping practices that include maintaining the following documents:

  • Records of the steps you've taken to meet ACA requirements
  • Contracts with your health services provider
  • Copies of notices such as those related to grandfathered status or the enrollment of children until they reach age 26

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How to Handle ACA Reporting Penalties

What happens if the IRS audit findings conclude you're not in compliance and must pay the shared responsibility penalties? It will notify you by sending Letter 226J. If you don't reply within 30 days, the IRS will assume you agree with its findings and you will need to pay the penalty. 

Your options when receiving Letter 226J include:

  • Pay what you owe: If you agree with the IRS's determination, your only recourse is to pay the requested amount. You can either notify the IRS of your intention to do so or wait for it to send another letter outlining your payment options.
  • Dispute the findings: If you believe that the IRS made an error and penalties should not apply, you must respond with acceptable proof, such as copies of Form 1094-C and 1095-C. You should also request assistance from your health plan provider.   

Avoid Penalties With SyncStream's Solutions

At SyncStream, we have developed an easy-to-use, cloud-based solution to help companies avoid ACA reporting penalties. Our solution organizes the data you need and automatically populates 1094 and 1095 forms to prevent errors and make meeting deadlines easier. With our full-service option, you can receive support throughout the filing process. Our ACA Audit solution assists companies with their IRS penalties. Our ACA Audit determines your business's compliance by analyzing filing data and assessing liabilities and expected penalties. Find out how SyncStream's solutions could help you achieve ACA compliance by contacting us online today.

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