More Details on ACA Employer Mandate Penalties Released
We understand how employers can find it difficult to identify any level of transparency around how the IRS prioritizes companies for ACA compliance. One of the many benefits of using Tango for ACA compliance is that we monitor a variety of sources to uncover the latest around ACA compliance and reporting. One of these sources is a recent report from the Treasury Inspector General for Tax Administration (TIGTA), that reveals just how serious the IRS is in reviewing and collecting ACA Employer Mandate penalties. It also showcases the complexity of calculating the penalty and most importantly, reveals that the IRS is actively sending penalty notices to employers.
The report, Affordable Care Act: Processes to Identify Employers Subject to the Employer Shared Responsibility Payment Need Improvement , was written as an audit of practices and steps made by the IRS thus far and reveals:
- The IRS in conjunction with the U.S. Treasury estimate that ACA penalties may be in the range of $4.3 billion dollars to large employers.
- TIGTA found that the IRS missed 840 large employers in their initial analysis owing an estimated $113 Million in penalties. The average penalty assessment per Applicable Large Employer (ALE) member is $134,000. The IRS has since corrected their processes and these originally unidentified large employers have now been (or soon will be) assessed the estimated fines.
- The process the IRS uses to find large employers is like a funnel of checks, each check isolating down the candidate large employers that are in non-compliance to ACA laws. Originally the IRS analyzed their data and found approximately 49,259 potentially liable ALEs. Of these, they randomly selected 6,015 for a deep-dive investigation.
- Why Random? We aren’t sure, but TIGTA questioned this and proposed a more rational selection process that would identify companies with multiple employees requesting a Premium Tax Credit. This allows for a maximum fine potential, per IRS regulations 4980H(a) and 4980H(b) and would generate the largest penalty assessment that can go in the dreaded 226J IRS letter. The IRS has agreed with TIGTA’s recommendation, and will soon be deep diving on these penalty assessments from those with the largest fine potential to the smallest.
What does all of this mean?
The reality is, it is imperative to keep up with your ACA compliance on a monthly basis. This includes ongoing review of Minimal Essential Coverage (MEC) across all Employer ID Numbers (EINs) to ensure that compliance with the ACA laws –especially with what is submitted to the IRS. Unfortunately, it also means that HR teams should be watchful for anyone on their staff receiving a 226J letter from the IRS. Here’s what a 226J letter looks like if you haven’t already seen it.
We at Tango Health strive to be the best of the best for handling complex ACA compliance for large corporations and large public institutions (States, Counties, Cities, Universities, etc.). One of the ways we stay on top of what’s going on with the ACA is tracking any new developments. Reviewing reports from TIGTA are just a small part of our constant effort to ensure our customers are in full compliance, and that we are providing support along the way wherever they may need it.
Categorized in: ACA