The IRS recently ended Good Faith Transitional Relief for inaccurate or incomplete Affordable Care Act (ACA) reporting beginning tax year 2021. Translation: you could soon be facing increased penalties for ACA non-compliance. At the same time, the agency is facing funding and staffing issues and a massive pandemic-related backlog of paperwork. So, if you are a staffing owner looking for guidance or answers about ACA compliance in 2022, you might have to look elsewhere for assistance.
To help, we have put together a quick guide on what compliance looks like, what the penalties are and where to turn for guidance should you need it.
The State of the ACA’s Employer Shared Responsibility in 2022
While the ACA has gone through changes over the years, the ACA’s Employer Shared Responsibility provision is still very much in effect and being enforced. In 2022, Applicable Large Employers (ALEs) — employers with an average of 50 or more full-time employees and full-time equivalent employees during the prior calendar year — must still:
- Offer affordable and adequate coverage (by IRS standards) to full-time employees for each calendar month of the year or risk a potential assessment if at least one full-time employee receives a Premium Tax Credit.
- File Forms 1094 and 1095 with the IRS.
- Provide timely and accurate Form 1095-C statements to employees.
- Actively manage employee eligibility and compliance.
Completing your filings accurately and on time is crucial; otherwise, you could face stiff financial penalties.
The Different Types of Penalties
There are several different ways to fall short of your ACA compliance and get hit with penalties. Here are the main types to know:
4980H(a) – Failure to offer coverage to at least 95% of employees. For tax year 2021, ALEs incur a $2,700 penalty per full-time employee minus the first 30 if the employer fails to offer minimum essential coverage to at least 95% of its full-time employees and their dependents, and any full-time employee obtains coverage on the exchange and receives a Premium Tax Credit.
4980H(b) – Failure to provide affordable, minimum value coverage. Even if you offer minimum essential coverage to 95% of your full-time employees, you can still be subject to a second type of penalty. The Employer Shared Responsibility penalty for failure to offer coverage that meets minimum value and affordability standards set by the IRS is $4,120 annually per full-time employee that receives a Premium Tax Credit.
The IRS is currently issuing 4980H proposed penalties via Letter 226-J.
Failure to file Form 1094/1095. Employers who fail to file correct Forms 1094 or 1095 face penalties of $280 per return, with a $3,426,000 maximum. If it is found they intentionally disregarded the filing, the penalty increases to $570 per employee.
The IRS will send these proposed penalties via Letter 5005-A.
Failure to furnish Form 1094-C or 1095-C . If employers fail to provide correct 1094-C or 1095-C forms to employees, they face a penalty of $280 per form that doubles to $570 for intentional disregard.
What Staffing Firms Can Do
The positive news is that there are several proactive things staffing owners can do to help prevent costly penalties.
- Look over your Form 1094-C and Form 1095-Cs carefully. Be sure that the forms you file with the IRS and furnish to your employees are accurate. For instance, on Form 1095-C, make sure the “Yes” box is checked in Line 23 if minimum essential coverage was offered for all 12 months. On 1095-C, review the codes carefully to avoid combinations that may trigger assessments.
- File electronically to avoid backlog. The IRS is facing a paper backlog, and best practices suggest you file online. This will also help you avoid fees for filing in the wrong format. Organizations have until March 31, 2022, to file electronically.
- Find a vendor to help. Sometimes the best thing you can do for your staffing business is to admit that you need expert help on a complicated topic. There are many companies that specialize in ACA compliance, some specifically for the staffing industry.
At the end of the day, you can avoid costly penalties by staying compliant and on top of any changes that occur when it comes to the ACA.