The Trade Promotion Authority bill signed into law the beginning of this month included provisions which increase the penalties related to employers’ Affordable Care Act (ACA) reporting (e.g., Forms 1094-C and 1095-C). The bill also reinstated the trade-related Health Coverage Tax Credit (the HCTC), which had expired on December 31, 2013.
The trade bill made increases in the penalties for IRS reporting failures. These increased penalties also apply to other information returns and filings, such as W-2s, and are effective for reporting required to be filed or furnished after 2015. So the increased penalties would apply to the first year’s filings under the ACA, which relate to 2015, but are due in early 2016.
The general penalty for failure to file a required information return with the IRS (which is subject to reduction, waiver or increase for various reasons) will increase from $100 per return to $250 per return.
The cap on the total amount of penalties for such failures during a calendar year will increase from $1,500,000 to $3,000,000.
If a failure relates to both an information return (e.g., a Form 1095-C required to be filed with the IRS) and a payee statement (e.g., that same Form 1095-C required to be furnished to the individual), these penalties are doubled.
If a failure is caused by intentional disregard, the new $250 penalty noted above is doubled to $500 for each failure, and no cap applies to limit the amount of penalties that can be applied with respect to that calendar year.
When looking at these increases, you should remember that these increases don’t affect the IRS’s enforcement policy for the first year of ACA filing. Specifically, the IRS won’t penalize employers that can show they make good faith efforts to comply with the ACA reporting requirements.
So, the “good faith efforts” standard is still in effect, but the penalties that will apply if that standard is not met are much more severe. If the employer attempts to complete the forms, but the information reported is incorrect or incomplete, that reporting failure would be considered a good faith effort and may be excused under the IRS enforcement policy. If, however, the employer does not file or provide a required form by the deadline, it seems that the good faith standard would not apply.