What to do if the IRS notifies you of Affordable Care Act (ACA) penalty fees

HR Question:

I just received a notice from the IRS claiming I owe significant penalty fees based on Affordable Care Act (ACA) regulations. What do I do now that I’ve received this notice?

HR Answer:

You are not alone. In the last few months, many employers have begun to receive notices from the IRS alerting them to missing files, inaccurate filings, and growing ACA penalty fees.

Employers have reported receiving two different types of notices:

The first assesses penalty fees for employers who filed in an audited year, but based on the information provided, the IRS does not believe that the employer offered the minimum essential coverage with minimum value to all full-time employees. This could mean that the smallest benefit plan offered to employees was too expensive when compared to their pay. If employers fail to meet this threshold of minimum essential coverage, they could be assessed penalty fees.

The second type of notice that employers have received is a notification that they should have filed as an Applicable Large Employer (ALE), based on their W2s of that year. This means that the company reached the threshold of fifty (or the equivalent of) full-time employees, which triggers a new level of required filings and regulations. This most likely means they should have filed specific forms (the 1094-C and 1095-C), and if they failed to do so, they are being assessed large penalties.

So, what can employers do to potentially reduce the assessed penalties and stop further ACA penalty fees from piling up?

Respond Immediately

The first step – respond without delay! As soon as any notices are received, immediately reach out to the operations manager listed on the notice to let them know that you are actively researching the issue. It is imperative that you do not set this concern to the side. There is nothing more important to take care of in that given moment in terms of cost to your company.

The reason for the urgency in your response time is because the fees will increase exponentially the longer you wait, and they can increase day by day, incurring an astronomical fee. Some employers have seen fees up to $20,000 for missing one form for three years. These fees are typically estimated in these letters, which can be alarming for small employers.

Gather Your Team & Take Action

The second step is to connect with your tax department, tax attorney, and your HR team to begin to gather the information necessary to file any 1094-C and 1095-C forms. If you do believe you should have filed and did not, ask for an extension as soon as possible. This will reduce the ongoing daily penalties. If you don’t respond and ask for an extension, it’s possible that a levy may be filed against your organization after thirty days.

If you did not have an HRIS provider filing for you at the time, it can be convoluted to pull the information necessary. These forms often require enrollment data, benefit waivers, and historical work hours, which is why it’s best to include your HR department while tackling this process.

It’s worth noting that if your organization crossed over the fifty employee threshold mid-year and filed appropriately in the years following, we would encourage you to work with your tax department or attorney to determine if you qualify for transition relief. It is possible to reduce fees if you qualify and file for the missed year.

As organizations continue to implement and interpret the Affordable Care Act, there may be bumps in the road. Be sure to partner with your HR department and attorney to ensure your organization is following guidelines, filing appropriately, and quickly addressing any notices from the IRS.

Special thanks to our valued partner, Mary Mitchell, SPHR, Certified Healthcare Reform Specialist, for sharing her ACA expertise and contributing to this HR Question of the Week.

 

Keeping up with ever-changing regulations can feel like an insurmountable task when you have so many other things on your HR plate. strategic HR can help you to stay on top of regulations relevant to your company, assist with your recordkeeping, and advise you on when to seek legal counsel. Learn more about our Legal Compliance & Recordkeeping Services or contact us today!

 

This article does not, and is not intended to, constitute legal advice. Information and content presented herein is for general informational purposes only and readers are strongly encouraged to contact their attorney to obtain advice with respect to any legal matter. Only your individual attorney can provide assurances that the information contained herein is applicable or appropriate to your particular situation or legal jurisdiction.