Four reasons ACA penalty risk is climbing for employers

Four reasons ACA penalty risk is climbing for employers

Employers have an important role in providing access to affordable healthcare that complies with the Affordable Care Act (ACA). Failure to comply can result in millions of dollars in penalties – in just one year. Click here to see how employer penalties can accumulate quickly. And risk is only climbing.

Four kettles are brewing in Washington that could cause America’s corporations to face tens of millions of dollars in IRS penalties for not complying with the ACA’s Employer Shared Responsibility Payments (ESRP). The four main conversations in Washington around the IRS and ACA all suggest that there will be stricter scrutiny and enforcement. Here’s why:

      1. Sunsetting of the “Good Faith Reporting Standard”
        In the past, the IRS has accepted ACA reporting forms as true and accurate under the Good Faith Reporting Standard. Meaning, when an employer submitted their reporting forms, the IRS would assume the information contained was accurate and would not necessarily penalize the employer for errors if the employer made a good faith effort to accurately report the information to the IRS on time. The IRS has given notice it will be discontinuing the Good Faith Reporting Standard this year, unless it receives public comment that warrants an alternative approach.
      1. Biden administration proposed a $1.2 billion increase to the IRS
        The Biden administration requested an additional $1.2 billion in funding for the IRS fiscal plan in 2022, making their total budget allocation $13.2 billion. This additional funding’s purpose is to increase IRS enforcement. The goal is for more tax compliance among high-income individuals and corporations. With the Good Faith Reporting Standard terminated and a stricter IRS enforcement, Applicable Large Employer’s (ALE) should expect stricter enforcement and higher penalties. 
      1. IRS to collect more in ACA ESRP penalties
        The Treasury Inspector General for Tax Administration (TIGTA) has conducted an audit that determined only a fraction of the penalties expected from employers that do not follow ACA requirements were being collected and recommended the IRS assess more penalties. The IRS rejected the recommendations last year during the Trump administration, but given the change in administration, expect that this may change as well, especially if there is additional enforcement funding available.
      1. No Statute of Limitation for ACA ESRP
        The IRS recently concluded that there is no Statute of Limitation on the Employer Shared Responsibility Payments (ESRP) under the Affordable Care Act. At the same time, we know the IRS is years behind in sending 226-J penalty letter assessments. This means that mistakes employers make today could result in very painful penalties years down the road.

Now more than ever, employers need to be ready to have effective systems in place to ensure that all reporting files sent to both the IRS and forms sent to employees are as accurate as possible and submitted prior to deadlines.

To learn more about how solutions from Health e(fx) can help you chart a course for a successful 2021 ACA compliance season, contact us today.