By Jason Lacey
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If your company offers health insurance coverage to full-time employees, it's also required to report coverage to the IRS. But even though you offer coverage, an error in reporting can still result in a tax penalty assessment, the size of which just might make you glad you have health insurance.
Staying True to Form
Late last year, the IRS began issuing "226J" letters to employers with proposed Affordable Care Act (ACA) penalty assessments for 2015. Employers that received the letters often saw eye-popping penalty amounts. Most assessments were at least $100,000, with reports of assessments well into seven figures.
But the news hasn't been all bad. Employers that have engaged with the IRS have generally found the agency willing to work with them to provide additional time to evaluate the assessments and prepare a response. Some employers have succeeded in securing significant reductions in assessed penalties.
A consistent theme among employers that received penalty assessment letters has been a problem with their reporting on Forms 1094-C and 1095-C. Many of the proposed penalty assessments can be traced directly to errors in forms that were filed for 2015.
For example, employers that failed to answer the question on Form 1094-C about whether they offered coverage to enough full-time employees were presumed not to offer coverage. Problems with the month-by-month codes used on Form 1095-C, such as for months during which an individual wasn't employed, also have been a source of issues.
Bottom Line
All the notifications point to at least one clear conclusion—accurate ACA reporting makes a difference. Reporting isn't just an academic exercise. The IRS is looking at ACA forms (or at least their computers are) and using the information on those forms to determine which employers may be subject to penalties.
That means now is a good opportunity to review your ACA reporting forms for 2016 and 2017 and make sure they accurately reflect the health coverage you offered your employees. If there are gaps or mistakes in the reporting, it may not be too late to fix them before the IRS sends a penalty notice. Identifying problem areas now will help you avoid repeating those issues in future filings and address underlying issues with the way in which you offer coverage.
Jason Lacey, a partner with Foulston Siefkin, works with clients on tax and benefits matters. You can reach him at 316-291-9756 or jlacey@foulston.com.