Penalties, Forms and Notices Raise the Stakes on ACA Compliance

As if complying with the ACA wasn’t already tough enough, employers now face an updated set of forms, notices and penalties.

John Barlament is a lawyer and partner with Quarles & Brady LLP, Milwaukee who led the “All About the ACA” Alliance Learning Circle held Aug. 16 at Monona Terrace. Barlament’s presentation alerted employers to developments that raise the stakes for ACA compliance.

Increased ACA Compliance Penalties Ahead

Barlament said penalties for required ACA reporting have increased significantly as a result of legal and technical changes. For example, the fine for failing to file Internal Revenue Service (IRS) Form 5500 has increased from $1,100 per day to $2,063 per day.

Barlament noted that while ACA penalties may seem “theoretical,” they may be charged on the basis of per employee, per day or both.

“Penalties can become astronomical very quickly,” Barlament said.

Other examples of significant fine increases include:

• Failing to fine an M-1 Form, from $1,100 per day to $1,502 per day.
• Failing to provide a summary of benefits and coverage (SBC) from $1,000 per failure to $1,087.
• Failing to file ACA reporting forms as required by the Trade Preferences Act, from $100 to $250 per form.
• Intentionally ignoring ACA filing rules, called “bad actor” penalties, from $250 to $500 per form.

2016 Exchange Notices Arrive

Many people in the room raised their hands when Barlament asked if they had received a 2016 Employer Exchange Subsidy Notice, which alerts employers that an employee received subsidized coverage from the federal exchange.

“These exchange notices are sort of leading you down the path to an IRS penalty under the employer shared responsibility rules,” Barlament said.

Employers who offered health benefits to full-time employees that met the minimum value and minimum essential coverage (MEC) rules should fight the notice, Barlament advised. Writing the first response will take an employer two to three hours, but that language can then be copied and pasted into other responses. The four-page Employer Appeal Request Form is available on the U.S. Department of Health and Human Services website.

Employers do not need to take action at this time on notices for part-time employees.

“Don’t discourage employees from getting subsidized exchange coverage in the future, “ Barlament added, as that might lead to other types of penalties.

Drafts Released for 2016 IRS Forms

Employers should also take note of the changes in IRS forms 1094-C and 1095-C and the related draft instructions that were released in early August. The forms are used to fulfill the ACA reporting requirement related to showing that health benefits were offered and that benefits met MEC standards.

Significant revisions include:

• Eliminating the “transitional relief” that gave employers a break on reporting requirements in 2015.
• Changing reporting for spousal coverage in Form 1095-C, which appears in line 14 as new codes 1J and 1K. To meet this requirement, employers should be prepared to provide a list of any conditions that applied to the offer of coverage.
• Changing how “cash in lieu of coverage” arrangements for spouses are handled, which is linked to opt-out payment regulations released in July 2016. Barlament said the regulations now make it harder for an employer’s plan to pass the “affordability test” for health benefits if they offer a cash in lieu of coverage arrangement.

Finding and Fixing Errors

The IRS is also sending a notice to employers when their 1095-C forms are accepted “with errors.” Barlament said this might occur if a spouse married and changed his or her surname, for example, or if an employee provided an incorrect Social Security number for a child.

While many issues can be resolved quickly working with the employee, Barlament said some surprises do occur. In one case, an employer that identified an incorrect tax identification number notified the employee of the problem. The employee left the workplace and never returned.

Barlament said the IRS has a formal correction process to fix errors, but there is still significant confusion over what is required. The IRS has said it will revise its notices next year to address the issue. In the meantime, the employer should consider how errors impact the effective date of the offer of coverage, the need to reissue other IRS forms such as the W-2 and the potential need to report identity theft.

Other Issues Abound

Many more changes impact the rules for employers who offer health benefits or wellness programs. Barlament’s presentation also covered Equal Employer Opportunity Commission (EEOC) rules for wellness plans, the Cadillac Tax and a wide range of ACA issues.

One thing is certain: more forms, notices and penalties await employers as they continue to work to comply with the ACA.

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