Some employers dropped the ball with the Affordable Care Act informational reporting — mandatory for applicable large employers (ALEs).
“I’ve had employers tell me, even a few weeks ago, ‘I don’t have to worry about that. I just have 300 part-time employees,’” says Kimberly Flett, senior director of Compensation and Benefits at BDO USA, LLP. “But your part-timers are converted to full-time equivalents, so you can’t presume you’re not an applicable large employer. You need to triple check that.”
You may be late, but you still need to get this done, Flett says. Some IRS penalties have been reduced, but you still run that risk.
Smart Business spoke with Flett about the latest regarding Forms 1094 and 1095.
What’s the first thing you’re advising employers?
Employers need to determine whether they were an ALE — had more than 50 full-time equivalents — during 2014. If yes, then they must issue Form 1095-C to all full-time employees, whether or not they are enrolled in the health plan, and part-time employees who enrolled. In addition, regardless of size, if you offer self-funded health insurance, you must issue Form 1095-C.
These forms demonstrate to the IRS whether your organization offered minimal essential coverage. They provide details about the coverage offered, the lowest-cost premium available and the months when the coverage was available.
The deadline to get this form into the hands of participants was pushed back to March 31, 2016. Taxpayers, however, could file individual returns without it and shouldn’t have to amend their return.
Don’t presume, based on head counts, you did the math correctly for whether you’re an ALE or not. Demonstrate your reasoning in writing and back it up with your advisers, including CPA and legal counsel.
What other informational reporting forms need to be transmitted?
Form 1094-C, the transmittal form ALEs must send to the IRS, had its due date pushed back to May 31 for paper copies and June 30 for electronic fillings. If you have more than 250 forms, you must file electronically and need access to appropriate vendor software.
If you’ve missed the March 31 deadline, what should you do now?
Reduce the risk by getting your Form 1095-Cs out quickly. The penalties reflect the timing. If you issue them within 30 days late, it’s $50 per statement, with a maximum penalty of $500,000 per calendar year. If you get it corrected before Aug. 1, it’s $100 per statement, with a maximum penalty of $1.5 million. Otherwise, the penalty could be $250 per statement, with a maximum penalty of $3 million. The penalties apply to both the IRS and participant copies.
If you fail to file correct information, the IRS may waive penalties for a good faith effort. But the term ‘good faith’ is a nebulous and generally means you’ve hired the right expert help. Therefore, errors could draw the same potential penalties.
Also, if you’ve missed the March deadline, you can still transmit Form 1094-C on time, which likely reduces your penalty risk.
What else should tardy employers know?
Now that payroll companies and accounting firms are past the initial crunch, many are again accepting new business — helping employers complete forms or understand the complicated coding on the forms. Some codes trigger a penalty and it’s not easy to pull verbatim from the IRS instructions. Talk to a tax or legal expert who can decipher exactly what will result if you put that particular code down.
Also, it’s important to gather all data, such as dependent Social Security numbers and who was covered. If you hadn’t done this in 2015, circle back and get that information, and then maintain those records on an ongoing basis for future tax years. This year, you must demonstrate a reasonable effort to obtain Social Security numbers — three written solicitations or informing employees of the $50 IRS penalty for failure to provide a dependent Social Security number. Then, if you don’t obtain the data, you can use birthdates.
The IRS will start processing the forms this summer. The next step is seeing what penalties may be assessed. If you get a bill, don’t just pay it. Get help from your advisers to sort through the IRS assessment.
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