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When Congress passed the Trade Preferences Extension Act of 2015 this summer, it rewrote the rules of U.S. trade policy in ways that ranged from defining the kinds of trade deals the President can negotiate to extending and revising economic benefits and opportunities to sub-Saharan Africa. The law also included a tiny provision that had little to do with international trade and had everything to do with employers who offer health care benefits. 

It raised penalties for IRS filing errors for Affordable Care Act (ACA) returns that must be filed starting in Q1 of 2016.

To be fair, the section of the law we’re talking about increased the penalties for non-compliance with all IRS submissions, from W-2s to 1099s. The changes affect nearly every disconnect in IRS submissions, from not providing corrected returns in a timely manner to intentionally disregarding the mandated submission, according to the Journal of Accountancy. That includes the new ACA-mandated form 1095-C for employees and Form 1094-C to the IRS.

  • The fine for filing incomplete or inaccurate information on submissions after December 31, 2015, increases to $250 per required return, with a maximum of $3 million a year.
  • The fine for not filing any mandated forms after December 31, 2015, increases from $250 per required return to $500.

“If you look at the title of the bill, it wouldn’t tip you off at all that there was this provision in there regarding information reporting penalties,” Michael Chittenden, a senior associate at the law firm of Miller & Chevalier, told CFO.com. According to Chittenden, the provision was included to provide revenue for offsetting costs incurred by other aspects of the trade law.

For the mandated ACA submissions, there is now no cap on the $500 penalty per required return. An ACA return – specifically, IRS Form 1095-C for employees – is required for:

  • Every employee who performs 130 or more hours of “service” (this may be different from of “work”) in any one month of a calendar year (if you’re using the monthly measurement method to determine employee eligibility for health insurance)
  • Employees who, during a look-back period, were found to be full-time (if you’re using the look-back measurement method to determine employee eligibility for health insurance)
  • Any employee who is on an employer-provided health insurance plan  even if that employee was not full-time in any month of the calendar year

And there’s no grace period for not filing. The payroll processing firm Data Integrity put it this way:

  • If all along you’ve been offering coverage that now has the ACA stamp of approval, you’ve still got to produce Form 1095-C for employees and file Form 1094-C for the IRS.
  • If your ACA strategy is to “pay” — accept what’s called the IRS sledgehammer penalty for choosing not to offered the required health coverage — you’ve still got to produce Form 1095-C for employees and file Form 1094-C for the IRS.

The only grace period the law allows is for calendar year 2015 — and that’s allowed only if you have made a “good faith effort” to comply: you submit the mandated forms but have filing errors. This relief can spare you the $250-per-required-return penalty.

The best way to ensure you comply with the ACA and avoid IRS fines and penalties is to understand what’s expected from companies with 50 or more employees and work with a partner that has the insight and technology to ensure compliance. That includes being able to:

  • Accurately track the status of employees
  • Meet complex 6055/6056 reporting requirements
  • Ensure accurate and timely exchange notices

For more information, download our e-book “ACA Danger Zone: Can You Assure the C-suite You’re in Compliance?or check out our ACA Compliance SuiteSM. It’s flexible ACA compliance software that lets you choose the pieces you need to help you maintain compliance now and into the future.

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