If you are an Applicable Large Employer (ALE), or a company that employs 50 or more full-time or full-time equivalent employees, then you are required to offer 95 percent of the workforce and dependents Minimum Essential Coverage (MEC) that meets Minimum Value (MV). This is known as the ACA Employer Mandate.
When the ACA Employer Mandate is not met with total compliance by an organization, companies may be sent penalty notices, even years after filing or furnishing noncompliant forms or failing to include accurate information.
With this in mind, you’ll want to be very careful when filing ACA forms. We’ve listed below some of the most common causes of ACA penalties.
Failure to accurately include the following:
- Aggregated Employer Group Analysis: When related entities are not grouped within the same organization according to the ACA, this can lead to hefty penalties.
- Appropriate IRS Approved Measurement Methodology: Organizations must use one of the two correct measurement methodologies approved by the IRS. Without these methodologies, the chance for penalties is much higher.
Other causes for penalties
- Employee Misclassification: Some companies or organizations may not be an ALE on their own. However, some organizations, when grouped together as a conglomerate, can be considered an ALE. Within the ACA, part-time, full-time, and seasonal employees have different classifications and must be categorized accurately.
- Documenting health benefits incorrectly: Specifics regarding the health plan your company provides to employees must be carefully and accurately documented. Any special plan arrangements, including HRAs, flex credits, and opt-out payments must be reported as well.
- Incorrectly tracking employment periods: To determine ACA full-time status, you must carefully track your employee rehire, hire, and dates of termination. Providing incorrect information can lead to ACA penalties.
Types of penalty notices issued to employers:
- Letter 226J: These are the most widely scrutinized notice and are sent to employers the IRS suspects to have failed ACA compliance.
- Letter 297CG: If employers filed their ACA information after the deadlines established in IRC Section 6721, they will receive this notice.
- Letter 5699: This notice is sent to employers with specific information requests. These notices could then turn into a penalty.
- Letter 5005A: Form 1095-C reports the insurance coverage that is provided by a business entity. If 1095-C forms are not distributed to employees and properly filed, this could result in a penalty notice.
If you’d like to become more versed in the filing requirements of the ACA, take a look at this ACA 101 Toolkit.
Make sure to know the ACA reporting deadlines for the upcoming tax year.
When ACA penalties hit your business, the cost is extremely expensive. You could be paying thousands or even millions of dollars in fines. Since penalty rates only rise incrementally over time, you want to be punctual.
How an e-filing delivery service can help
TIN checking, especially when you have a large number of forms to file, can be an excellent asset in ensuring that all your information has been filed accurately. We also provide a number of options for delivery types, including e-filing, mail, and e-filing, or print and mail only. Volume pricing is an additional benefit for those who have a large number of forms to file.
An e-filing service like eFile360 can help prevent time-consuming, expensive penalties. Learn more about how it works.