With the new year off to a fresh start, this also means it’s time to prepare for the looming deadlines of regulatory compliance. Mandatory under the Affordable Care Act (ACA) is the filing of Forms 1094-C and 1095-C.
In the past two years, the IRS has given applicable large employers (ALEs) a one-month reprieve — from January 31 to March 4 — on top of the original deadline to furnish their employees with the 1095-C “Employer-Provided Health Insurance Offer and Coverage” form. The original deadline for ALEs to file forms 1094-C and 1095-C with the IRS remains February 28. However, if an organization chooses to file the forms electronically, the deadline for submission is April 1.
While most ALEs have racked up experience with these filings by now, errors are still a possibility. If your organization is required to file these forms, you’ll need to work closely with your advisors to minimize any potential mistakes.
Similar to previous years, the IRS will continue to extend its “good faith transition relief” for ACA-imposed penalties for certain categories of errors. “This relief [applies] only to furnishing and filing incorrect or incomplete information reported on a statement or return, and not to a failure to timely furnish or file a statement or return,” according to IRS Notice 2018-94.
Another potential source of penalties that many organizations face is failing to meet the IRS deadlines. Notice 2018-94 states the IRS may excuse an organization’s late filings only if there was “reasonable cause” to file late. “To establish reasonable cause,” the IRS adds, “the reporting entity must demonstrate that it acted in a responsible manner and that the failure was due to significant mitigating factors and events beyond the entity’s control.”
Through an audit of the data used on reporting forms, there has been a discovery of other ACA compliance challenges that many organizations face. A common challenge is the misclassification of new employees. Say an employer classifies someone as a part-time or variable-hour worker (his or her hours are monitored and tabulated during the “initial measurement period). Should the employer not offer coverage and it later turns out that the employee in question meets full-time status requirements, a penalty may follow.
Employers are required to offer health care coverage to their full-time employees by the first day of the fourth calendar month following their start date. In contrast, employers don’t need to offer coverage to eligible part-time, seasonal, and variable-pay employees until the first day of the 14th month following an employee’s start date. If a full-time employee that has been improperly classified isn’t offered coverage before the later date, the IRS may assess a penalty for more than a year’s worth of non-coverage.
In its ACA regulations, the IRS suggests several factors that an employer can use to make the initial determination of an employee’s status. When an Employer establishes and follows a formal process for determining new employee status using the IRS-recommended criteria, there is a reduction in the chances of employee classification errors. If an error occurs regardless of proper procedures being followed, the agency may be more forgiving when assessing potential penalties.
Another ACA compliance pitfall for organizations is not properly documenting health care coverage offerings to employees. A proper offer of coverage must describe the plan, its costs, and whether it meets the minimum essential coverage requirements.
An employee may opt not to accept an offer of coverage and choose to not respond to the offer. However, not receiving an acceptance of a coverage offer from an employee doesn’t necessarily mean the offer has been declined. This could mean that the employee didn’t receive, or accidentally threw out the offer letter.
To avoid this, it is recommended to require all eligible employees to sign and return acknowledgments that they have received their offers. It is important to ensure that all employees who haven’t accepted the offers get these confirmation receipts back to you.
Another challenge for ALEs when completing these IRS forms is the arduous task of using the proper codes in Section II (employee offer of coverage) on the 1095-C form. There are a number of possible code combinations for lines 14 (offer of coverage), 15 (employee required contribution) and 16 (safe harbor relief assertion) that can put employers in a Catch-22 situation, potentially resulting in fines. Consider asking your tax or benefits advisor to double-check your coding before submitting.
What May Lie Ahead
Even if you manage to do everything correctly in this reporting cycle, next year may come with a whole new set of challenges. Effective this year, the 2017 Tax Cuts and Jobs Act (TCJA) changes some reporting requirements and eliminates the individual mandate.
Individuals will no longer need to verify that, one way or another, they have obtained minimum essential coverage. Therefore, the IRS and U.S. Treasury Department are attempting to determine whether, and how, the reporting requirements should change in future years.
CRI is Here to Offer Advice
No one said that navigating the ACA would be easy — even nearly a decade after its enactment. However, with tactical and technical assistance from your trusted advisors, following compliance and meeting proper filing deadlines can be a lot easier.