The IRS wants you! Well actually they want to make sure you are taxed (not penalized according to the Supreme Court) if you did not comply with the affordable care act.
There are some scary statistics floating around lately such as…
- The IRS has identified close to 50,000 ALE (applicable large employers) as non-compliant for the tax year 2015
- Over $4 billion in taxes accessed to date for the same year, 2015
- Simple math with the first two items comes to an average $80,000 penalty per ALE assessed in 2015.
- It has been seen that some assessments have been for over $1MM (I have seen some)
Bottom line is that it took a while and some employers may have even thought it would all blow over, but the IRS has become more sophisticated and efficient in identifying ALE businesses and sending out assessment letters.
If you have done the right thing, but simply made some mistakes, the IRS has been very good about easily reconciling and correcting these assessments. The key is to make your responses timely and answer the letters truthfully.
My employer, Cimplx, has been able to assist clients with this for the past year and we have seen almost all penalties adjusted to zero or reduced to a fraction of what was originally assessed. Some were very scary, but in all cases we encouraged calm and clear responses and we have seen very good results. Not because we have some magical IRS wand, but because we worked with our clients well before the letters began. We work with them access their own risk, make smart decisions and to properly report & file each year.
The reality is that if you did the right things, you will not owe a penalty, excuse me, be assessed a tax. Here are 10 things you can do to stay in good graces with the ACA tax man.
- Make sure you file your 1094/1095 each tax year.
- Don’t file forms for every employee, only the ones who were full time for at least one month of the year and/or who were enrolled in self insured coverage. Every form you file is a liability that may come back to haunt you. The IRS does not need to know you enrolled a part time employee in a fully insured plan. They specifically state in the instructions that they dont want to know about it.
- Make sure you include retirees and cobra recipients who did not work for you this tax year, but were enrolled in a self insured plans. This is often overlooked by payroll companies as the employee was not on payroll this year and they dont have a record of non-employees.
- Make sure you send each of the employees reported a 1095-C form before the end of January. This is the most difficult task of the whole process. Employers who have not done this before will be surprised how much data they need to accumulate to complete this process by the end of January. The problem is the data is not complete until December 31st or usually by the first pay period that ends in January and then you have to complete the forms, print the forms, stuff the envelopes and have them in the mail in just a few weeks or less.
- Make sure you dont forget to e-file your forms before the end of March each year. This is a little easier given you have a few months to get it done and it is the same data you mailed to the employees. The difficult part here is registering as a transmitter with the IRS and getting your test scenarios done and your xml file created before this deadline. Cimplx Reporting and Reporting Plus will make this a snap and no need to go through the transmitter registration process, they do it for you as part of the deal.
- Make sure you know how to determine who is full time. Seems simple enough given the law basically says, that in general a person who works on average 30 hours per week is full time. And in most cases it is simple. Everyone who works at Cimplx is full time because they are salaried and no one works less than 30 hours per week. Not much math involved here. But for some employers this is much more difficult. Notably schools, light industrial, restaurants, hotels and other businesses with variable hour work forces or a large seasonal staff will have a need to keep a close eye on things each month, not just at years end. Again, Cimplx’s Compliance Action Center will make short work of this problem.
- Make sure you offer to 95% of your full time employees. This is the biggest mistake an employer can make. Some employers have missed this mark by only one employee. It is painful, but this is a major mistake and the industry refers to this as the “sledgehammer penalty”.
- Make sure your plan is qualified as Minimum Value. This should really fall on your insurance broker to come through on this qualification. They will be your trusted adviser and they will know what is what when it comes to this criteria.
- Make sure your employee contribution falls into one of the three affordability safe harbors offered to employers. The value this is based on is adjusted for inflation each year, so dont let this get buy you because it was OK last year. Your broker can help with this calculation or if your a customer of Cimplx, give us a call we will help if needed.
- Pay attention. The IRS regulations state that the ultimate responsibility is with the employer. You can fire your vendors or your employees for making a mistake on this, but you will pay the assessed tax when it is found by the IRS. Nothing will get you free of that burden if it is truly due. Be careful to wholeheartedly trust that your payroll or HCM system is fully understanding your unique situation. If your getting ACA compliance free with your payroll or through your insurance broker, you will usually get what you pay for. So, Trust But Verify! Or Inspect what you expect! or any other euphemism that fits, but the buck will stop with you. Your vendors and employees will pay closer attention if they know you are paying attention, so be sure to question what is going on regularly.
I hope this helps and that you have a successful ACA reporting season. Cimplx is here to help and we have been very successful in eliminating and mitigating risk for our compliance clients. But with whoever you choose, make sure your vendor is more knowledgeable on this subject than anyone else in your supply chain, you will need this to be true when the tax man cometh.