First Five Years of ACA Penalty Collections Disappoint: Treasury Auditors Advise More Aggressive ACA Penalty Enforcement

The Treasury Inspector General for Tax Administration (TIGTA) recently released a heavily redacted audit report – Improvements Are Needed to Ensure That Employer Shared Responsibility Payments Are Properly Assessed – in which it faults the IRS for being too lenient on Affordable Care Act (ACA) employer shared responsibility mandate reporting and compliance.

The ACA shared responsibility mandate requires that employers with at least 50 or more full-time employees offer affordable, minimum essential health coverage to at least 95% of their full-time employees and their dependents. Employers must report their compliance annually to the IRS via Forms 1094-C and 1095-C. Once the IRS has reviewed the forms, it will calculate any owed shared responsibility payments and send inquiry letters (Letter 226-J) to employers.

Penalties for employers that fail to meet the 95% test are steep: over $2,500 annually for almost every ACA full-time employee. Employers that meet the 95% test but fail to offer affordable coverage to one or more ACA full-time employees face a potential fine of more than $3,800 annually for each employee not enrolled in group coverage who obtains federally subsidized coverage in the ACA marketplace.

Citing a Congressional Budget Office (CBO) Joint Committee on Taxation report that forecast revenues of $167 billion from employer mandate penalties for a 10-year period beginning in 2016, the TIGTA report revised that estimate based on current employer mandate assessment rates and predicted the IRS would only collect $8 billion during the 10-year period, or less than five percent of what the CBO originally forecast.

The TIGTA report ascribed that wide disparity to the IRS’ leniency in enforcing the ACA employer mandate reporting and compliance. While the IRS has sent penalty letters to employers for alleged ACA mandate violations, most employers have been able to convince the IRS that they are compliant but simply failed to accurately report that fact. Once an employer corrected its report, the IRS typically did not impose a penalty and did not pursue any penalty for filing an incorrect report.

The TIGTA report recommends that the IRS be more aggressive in collecting penalties from employers, even those that follow the ACA mandate but file an inaccurate report. More specific recommendations to the IRS were redacted in the audit report.

Although the IRS disagreed with many of the TIGTA report’s findings, it is facing increased pressure to collect penalties. Employers need to pay close attention to correctly filling out annual ACA compliance forms before submission to the IRS. Employers that receive an inquiry letter should consult with legal counsel on submitting a timely and accurate response that will help reduce or eliminate potential shared responsibility payment obligations.

Hall Benefits Law’s vision is to provide every client with the peace of mind that comes from the confidence that HBL has addressed all possible compliance vulnerabilities. To learn more, call our team of responsive, experienced ERISA and employment counsel at 678-439-6236.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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