As a business owner – or a compliance manager who reports to a business owner – you may be hoping that all must-dos for the Affordable Care Act (ACA) would just go away. With so much talk all along about repeals and because the recent federal budget deal did just repeal one (small) part of the employer mandate, you are sure that, if you wait long enough, it won't really affect your business.
That is not the case.
Waiting for a repeal or waiting on the IRS to grant additional relief for employer reporting responsibility under the ACA is not an option - you need to be prepared to comply with the tax provisions of the law.
Remember: The IRS is the ACA enforcer. So whatever your business decides to do about the coverage you have to offer, you still need to be prepared to tell the IRS – in a lot of monthly detail – what you are or aren’t offering.
The same way you can’t close your eyes and have ACA compliance responsibilities go away, you can’t close your eyes and be handed more time to get your compliance act together.
The original start date of the penalty-assessment period for the ACA employer mandate was January 1, 2013. That compliance date was pushed back – twice – to January 1, 2015, mostly because formats for the new IRS forms weren’t ready so employers couldn’t ready their information systems. The formats have been out for more than a year, so chances for another extension because of this reason are dim.
Another ACA grace period for employers also isn’t likely because the ACA individual mandate is already in effect. For Tax Year 2014, the penalty for someone showing on their individual tax return that they did not have health insurance was light: $95 per adult or 1% of their household income, whichever was higher. But this individual penalty is rising for 2015 and 2016! With individuals being able to avoid those penalties by either getting coverage through their employer or on an exchange, the employer piece of the ACA enforcement puzzle needs to be in place.
So, now you might be counting on the fact that government tends to move slowly, and that it will take the IRS a bit of time to enforce ACA compliance.
This, too, is not the case.
The IRS’s new ACA-specific processing system has cost more than $921.2 million in development. Enforcement of ACA compliance is the sole focus of the massive data clearinghouse known as the AIR (Affordable Care Act Information Returns) system. As the AIR system cross-references data feeds from insurance companies, the exchanges, individuals and employers, penalties for ACA returns showing non-compliance will come quickly to individuals and employers.
Keep in mind that when parts of the Affordable Care Act were being put together in 2009, the U.S. deficit was at its highest since 1945. So crafting of this legislation centered on not worsening the deficit. A funding mechanism was, therefore, built in. As part of that ACA funding mechanism, the IRS will, according to the Office of Management and Budget, need to collect $15 billion a year in employer penalties over the next 10 years.
The new IRS forms for ACA compliance are due to employees and the IRS at the same time as W-2s. A fully insured business that does not give every full-time employee a Form 1095-C and then send copies of these forms with the IRS under a Form 1094-C will face a non-filing penalty of $500 per required return. A self-insured business that does not give every covered employee, regardless of their full-time status, a form documenting their coverage faces the same non-filing penalty.
To use government lingo, just as you cannot – without financial consequences – “willfully ignore” producing W-2 forms and filing their copies with the Social Security Administration, you now cannot “willfully ignore” producing 1095-C forms and filing their copies with the IRS.
These penalties cannot be deducted as business expenses.
The incentive to be compliant is easy to see. And with the first of these new employee forms due February 1, 2016, the pressure to understand how to produce these forms is easy to feel.
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