ACA Information Reporting Penalties Have Been Increased

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Code Sections 6055 and 6056 require large employers and all employers (even small employers) sponsoring self-funded health plans to file information returns with the IRS and furnish statements to applicable employees concerning the health coverage offered or provided to these employees and their dependents.  This information reporting begins in 2016 with respect to 2015 coverage.  It will be similar to Form W-2 reporting.

The Trade Preferences Extension Act of 2015 (the “TPEA”), enacted on June 29, 2015, increased the penalties for failing to comply with these new reporting requirements.  Before the TPEA, penalties were $100 per failure with an annual maximum of $1.5 million.  The TPEA increased penalties to $250 per failure with an annual maximum of $3 million.  A “failure” includes an untimely submission as well as inaccurate or incomplete forms.  The $250 penalty applies separately for each failure to file with the IRS and each failure to furnish an employee statement, meaning that the penalty is doubled (i.e., $500) if an employer fails to report on a required employee altogether.

Penalties are further increased for intentional disregard, and decreased if failures are corrected with certain timeframes.  The TPEA’s increased penalties also apply to other information returns, including the Form W-2 and the Form 1099 series.

The IRS previously issued short-term relief from penalties for 2016 reporting concerning 2015 coverage when the employer-filer can demonstrate a good faith effort to comply with these new reporting requirements (IRS guidance on this short-term relief can be found here for Section 6055 reporting and here for Section 6056 reporting).  The TPEA’s passage did not impact this relief.  However, this relief only applies to incomplete or inaccurate forms that are timely filed and furnished.  Employers cannot rely on this limited relief if they fail to file or furnish timely.

Employers may wish to gear up for these new reporting obligations, if they have not done so already.  Employers may wish to promptly determine how they intend to meet these obligations, including whether they plan on using a third-party vendor to do the reporting on their behalf.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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