What HR Needs to Know About the Government Shutdown and ACA
What is happening post-Government shutdown?
The U.S. Government shutdown lasted 35 days and cost the economy over $3 Billion. Even though the shutdown ended on Jan. 25, it continues to impact employers who are complying with the Affordable Care Act (ACA) employer mandate, including new efforts to repeal teh Cadillac Tax.
Here are some of the top concerns for employers during the shutdown:
No impact to the 1095-C mailing deadlines and 1094-C/1095-C filing deadline
The IRS held fast on deadlines for mailing 1095-C tax forms to employees, even though they did approve automatic 30-day extensions on the deadlines late last year. The IRS’ AIR system, which processes ACA tax filings, was considered critical and retained funding throughout the shutdown. It returned from maintenance on January 17th – two days behind schedule. While most employers printed forms prior to the January 31st deadline, the IRS is allowing employers an extra 30 days to mail their forms.
New Letter 226J penalty letters coming, after a delay
For a few weeks prior to the shutdown, a rush of new IRS penalty notices, Letter 226Js, hit employers announcing penalties for the 2016 tax year. The previous season for the 2015 tax year had subsided over the summer, with the IRS steadily working through responses and moving onto Letter 227s which confirm resolution or indicate a demand of tax payment.
During the shutdown, phone calls and faxes to the IRS went unanswered so employers were unable to ask for status, seek clarification, or request extensions. We recommended that requests for extensions should be mailed as soon as possible after receiving a notice but encourage employers to check in to see if their requests were processed. Time will tell how the IRS will handle extension requests received during the shut down.
Our research shows only major A-penalties had been sent by the IRS prior to the shutdown, which assesses a tax when employers did not offer qualifying coverage to more than 95% of full time employees during a month in which an employee received a Premium Tax Credit. Now that the shutdown has ended, we expect the IRS will continue with A-penalties and then move on to B-penalties, just as they did for the 2015 tax year. They will first need to get through their backlog from the shutdown.
Reignited efforts to repeal the Cadillac Tax
Immediately after the shutdown ended, the first of two proposed legislations were introduced to the House to repeal the Cadillac Tax, which currently goes into effect in 2022. Now, proposed legislation has been introduced into the Senate. Previous efforts have tried to continue delaying enforcement of the provision that would enact a 40% excise tax on high cost employer-sponsored health coverage. Both new bills target a full repeal of the provision but are unclear how the government would reconcile the lost revenue from taxing higher-cost employer plans.
Latest trend in 4980H penalty notices
Several employers are receiving demands for payment on owed 4980H penalties, plus interest, when no record of Letter 226Js or follow-up mail exists. For Tango clients, we have been successful in working with the IRS to resend the original Letter 226Js but extensions are not allowed beyond 90 days of the original Letter 226J date and it is unclear whether reduced penalties will still owe interest or if nullified penalties will come with an interest price. We recommend notifying all locations listed on your 1094-Cs to keep an eye out for any IRS letter with respect to ESRP payments.
Orginally published January 21, 2019, updated March 13, 2019
Categorized in: ACA