The challenges of Affordable Care Act reporting for the 2015 tax year will likely follow companies and organizations into 2016 — and the honeymoon period with the IRS is over. It will take more than careful administration to ensure proper reporting and avoid kicked back forms or penalties for missing or inaccurate data. Benefits brokers that specialize in ACA reporting recommend a combination of careful administration along with support from payroll outsourcing companies. This planning includes a CPA team that can advise on tax and payroll administration.
The IRS late “Christmas miracle” last tax season gave employers extra time to report compliance with ACA affordable health insurance coverage mandates and the status of employee health care coverage. It is not expected to be repeated for 2016.
Applicable large employers (ALEs), those that have 50 or more employees (or full time equivalent), must show compliance with the ACA employer mandate to provide affordable health care coverage to eligible employees. Both ALEs and employers that are self-insured are required to report which employees were eligible for coverage and when. They also have to report which employees waived coverage and which were in fact covered in any month during 2016.
Starting and ending dates of coverage as well as starting and ending dates of dependent coverage (including birth dates and SSNs) are crucial for accurate reporting. Even eligible employees who left the employer sometime during the year must be accounted for.
Experiences from last year illustrate the complexity and financial costs at stake for employers navigating ACA reporting. Well-intentioned employers can get hung up at various stages of employee and payroll administration, data gathering and IRS reporting. They may also not understand if they fall under the definition of ALE if they are a subsidiary with fewer than 50 employees. However, the IRS views all subsidiaries or entities of large companies as falling under the same employer for the ACA reporting obligation.
Penalties can involve hundreds of dollars for each missing form with no limit on the total penalty per employer.
Last year, approximately 9 percent of all Form 1095 forms were rejected.
Some of the most common errors involved the following:
- Improper use of EIN numbers
- Employee and dependent names and SSNs that didn’t match tax forms (e.g. name changes due to marriage were kicked back)
- Discrepancies with employee and dependent start dates and termination dates
When processing through the new Affordable Care Act Information Return System (AIR), some forms were rejected due to the use of apostrophes in last names or an extra space prior to an employer’s name. The IRS is working to improve AIR for 2016 filing, but employers and their advisors should be aware of IRS tips to avoid common errors and expedite processing.
Continue Reading: Why is the IRS Cracking Down on ACA Reporting?
Cornwell Jackson’s payroll team can help. Partnering with Brinson Benefits, we manage ACA-compliant payroll administration. We can guide employers to the right resources and answer questions about reporting deadlines and other payroll and tax compliance issues. For example, we advise on hourly and salaried employee compliance and new overtime rules, which tie into employee eligibility for benefits and any required ACA reporting. Read our whitepaper on outsourced payroll. Send us your questions and we’ll point you to the experts.
Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at email@example.com or 972-202-8000.
Sharon Alt is Director of Compliance with Brinson Benefits in the Dallas/Fort Worth area. With a focus on Affordable Care Act regulations, she is responsible for ensuring that Brinson and their employee benefit clients meet all regulatory compliance standards in regards to healthcare benefits administration, particularly with regard to healthcare reform and the Affordable Care Act. She regularly guides clients through the ACA 6055/6056 reporting requirements.