ACA Information Return – Penalties Doubled for Non-Compliance

The Trade Preferences Extension Act (TPEA) became law on June 29, 2015 and included a provision having absolutely nothing to do with extending trade preferences. Though this law came in quietly and didn’t gain the attention of many, yet the law has doubled per-employee penalties on applicable large employers for neglecting to file Affordable Care Act (ACA) information returns with the IRS starting in 2016, or failing to furnish employees with payee statements, as required by the ACA, regarding their health care coverage.

Some reporting requirements apply to all employers that provide self-insured health coverage to their employees, regardless of size.

In the act, Congress amended Internal Revenue Code sections 6721 and 6722 to increase the penalties associated with a failure to properly file information returns or provide payee statements. “Among other things, these increased penalties will apply to Forms W-2 and the 1099-series, as well as ACA-required employer shared responsibility and minimum essential coverage reporting forms,” reports a July 13 Benefits Brief from Groom Law Group.

Among other adjustments, as a result of the amendments:

  •  The basic penalty for failure to file or furnish a correct information return or payee statement will more than double from $100 to $250.

  •  The standard annual penalty cap will double from $1.5 million to $3 million.

  •  If the failure relates to both an information return and a payee statement, the penalties are doubled to $500 per statement with a $6 million cap.

The new penalties are effective with respect to returns and statements required to be filed after Dec. 31, 2015, which would include 2015 informational forms that must be filed with the IRS by Feb. 28, 2016 (or by March 31, 2016, if filed electronically), and payee statements due annually to covered employees by Jan. 31.

In preparation for reporting in early 2016, applicable large employers should have steps and infrastructure in place to gather information reflecting coverage being offered in plan year 2015, which can include monthly tracking of hours worked by employees.

Good-Faith Efforts

Despite the increase in penalty amounts, it appears that the current one-year transition rule is still available. The one-year transition rule provides that employers and insurers will not be subject to penalties for the first year of reporting if they made a good-faith effort to comply but filed incorrect or incomplete information. However, there is no relief for failure to timely file the required information returns with the IRS, or relief for failing to provide required statements to employees.

As a result, if an [applicable large employer] with 100 full-time employees makes no effort to comply with the regulation and reporting requirements, it will experience a minimum $50,000 fine. As for the good-faith exception, the IRS has not provided any guidance of what establishes a “good faith effort.” It’s safe to assume that when the day of reckoning arrives, they’ll be judge and jury.