We alerted you to the possibility of this back in March following the removal of the individual mandate via tax reform when some employers started to feel the pressure on them was off. We’re circling back because it appears the IRS has made good on exactly what we predicted: that it has every intention of leveling penalties against businesses that don’t comply with the ACA.
Here’s what we know so far about the latest escalation in enforcement efforts:
- IRS began sending out Letter 226J penalty notices for ACA noncompliance for the 2017 tax year right after sending out the same notices to employers that it believes failed to comply with the ACA in the 2016 tax year. This is exceptionally (almost unheard of) quick for the IRS -- to issue penalty notices back-to-back from different years.
- IRS will limit extension requests to one 30-day extension for each IRS notice received in the penalty process. So, if you receive a notice, you’ll have to respond quickly.
- IRS staff is scrutinizing the data and methodology employers use in determining which employees are full-time in ACA filings for 2017. This is a much deeper review than in previous years.
- IRS is asking individual taxpayers to obtain documents from their employers to prove they were entitled to receive premium tax credits to offset health insurance purchased through government exchanges.
- Employers who relied on do-it-yourself tax software and payroll programs are finding that their ACA information was never properly submitted to the IRS, and they’re receiving penalties. They now have to prove that they did indeed file that information. (If you are in this situation, please reach out. IRS will insist that you obtain submission acceptance notices to prove you filed before it will dismiss the penalty assessments.
With enforcement efforts becoming more aggressive and ACA penalties potentially in the millions of dollars for some companies, we urge clients who believe they are vulnerable to participate in an ACA penalty risk assessment. This assessment can determine if you are a “large employer” by IRS standards and at risk of receiving a penalty notice. Let us help you with this. It’s not painful, and it could save you a lot of money.
We also urge employers that have more than 50 full-time employees to contact us if you haven’t been filing ACA information with the IRS annually. You may already be at significant risk of penalties. The sooner you come clean and file that information, the better. Receiving IRS Letter 5005A penalty notice is not fun.
Again, let us remind you that the ACA, though it took some lumps under tax reform, is still very much in force. Do not allow the lack of media attention on it to prevent you from keeping your guard up.