Eye-Opening IRS Penalties Make Filing Your ACA Returns a Priority
Tucked away as a revenue offset in a piece of recent legislation passed late last month, Congress approved increases to the penalties assessed to employers that fail to file, untimely file, or file incomplete or inaccurate informational returns to the IRS or corresponding payee statements to employees (e.g., the W-2, Forms 1099, etc.). Unfortunately for employers sponsoring self-insured plans and all large employers under the ACA (50 or more full-time equivalent employees), the increased penalty also applies to the Forms 1094/1095-B and 1094/1095-C that must be transmitted to the IRS and furnished to full-time employees, beneficiaries, covered retirees, and COBRA recipients.
Instead of a potential penalty of $100 for each day that a return or payee statement is missing, late, or incomplete, the penalty has more than doubled to $250 per day for each form (so $500 if an employer misses on both – an employer with only 50 full-time employees would be on the hook for a staggering $25,000 per day if it failed to file the Forms 1094/1095 with the IRS and furnish the Forms 1095 to its 50 full-time employees). The maximum penalty also doubled from $1.5 million per year to $3 million per year. As an added kicker, the penalties are increased even further for those that intentionally disregard the filing requirements to $500 per form, and penalties attributed to an intentional failure are NOT limited to the $3 million maximum that applies to unintentional failures.
For employers, there is good news and bad news. The good news: the 2015 year is the first year that employers are required to complete the Forms 1094/1095 (due in early 2016), and the IRS has taken the position that it will not impose a penalty if an employer makes a good faith attempt to complete the forms. The bad news: as a practical matter, this good-faith relief is limited to employers that submit incomplete or inaccurate forms only, as those that fail to file and furnish the forms, or do so untimely, may only avoid the penalties if they can show reasonable cause (who knows how the IRS will come down on reasonable cause arguments, but I doubt it will be too lenient). If you are a large employer and you have been putting off your preparation for 1094/1095 reporting, this should be your warning bell. The longer you wait, the more difficult it will be to argue you made a good faith attempt if the forms are inaccurate or incomplete, and if you miss the January 31, 2016 deadline (which will be here before we know it), you will face even stiffer penalties courtesy of our friends on Capitol Hill.