IRS warning employers of fines for ACA non-compliance
The U.S. Internal Revenue Service is catching up with a backlog of penalty letters to employers who failed to demonstrate compliance with the Affordable Care Act.
Beginning this spring, the IRS sent notices to companies that didn’t adequately prove they offered the minimum coverage required under the act in 2015. The affected companies had at least 50 full-time equivalent employees.
The notice, referred to as letter 226-J, warns employers they might have to pay a fine for failing to comply with the act.
According to the IRS website, the agency sent the letters after it reviewed the paperwork employers must fill out under the Affordable Care Act and send to the agency. The act, often referred to as Obamacare, requires large employers to provide minimum essential coverage and to report that coverage by filing 1094-C and 1095-C forms with the government.
“If you are a larger employer and opted not to provide health coverage to your employees, it’s important that you start to understand that it carries with it a penalty and the IRS is now starting to focus on this requirement and they are pursuing people,” said Mark Smith, a partner with Lancaster-based Barley Snyder law firm in charge of its employee benefits practice, said.
Smith said letters sent out this year were for 2015 and the IRS will still need to send out 226-Js for the following years the act has been in effect. He said looking forward, he believes the service is going to tighten up on employers who failed to comply with the act and that future letters could target companies with larger penalties.
The size of the penalty is based on variables unique to each company.
While the penalties can be high, Smith said some companies could actually be saving money by just paying the fine versus offering health insurance. But they may pay for it in other ways in the long run.
“You pay for health insurance, you get a tax deduction,” Smith said. “It’s not as easy as saying it will cost me more to provide so I won’t pay the penalty. You will have retention issues if you aren’t providing coverage.”
Matt Pfeiffenberger, vice president of health benefits solutions at Murray Securus in Lancaster city, said that the most common reason he has seen companies receive the letters has been by error.
“From our experience the vast majority of things we heard about were forms filled incorrectly because something was omitted unintentionally,” Pfeiffenberger said. “Companies that were trying to do the right thing but were caught in the complexity of the reporting.”
Businesses that receive a 226-J letter are encouraged by the IRS to provide the correct information if they believe they received it in error.