Proving
that your organization made a good faith effort to comply with ACA Reporting is
crucial to avoiding IRS penalties.
*Excerpted from the eBook ACA Reporting & Verification Audits in 2016
Organizations
have known for nearly two years that they would need to meet the reporting
mandates for the Affordable Care Act (ACA), but many still remain unprepared. And
with the $900 million the Internal Revenue Service invested in its new ACA
Information Retrieval System (AIRS), which is designed to ensure that the
agency can scrutinize employers’ Form 1095-C filings for accuracy as well as
for demonstrating they meet the letter of the law, it isn’t likely that
noncompliance will be missed or ignored.
So,
as we get closer to the reporting deadlines of May 31 for employers with 250
employees or less and June 30 for all others, what can you do to help your
organization minimize or eliminate its chances of receiving penalties for
noncompliance or inaccurate reporting?
This
tax season, the IRS wants organizations to show that they’ve made a good faith
effort to comply with all ACA mandates. High priority areas for them will
likely include:
- Eligibility
determinations:
Documentation that shows how your company determined its Applicable Large
Employer (ALE) status. Companies that meet this status have 50 or more
full-time or full-time equivalent employees.
- Proof of
coverage offers:
Documentation that shows you have provided information about your health
benefits plan to all eligible employees. Not only will the IRS be interested in
proof of coverage notifications, but they will also want to review your
enrollment materials, formal benefits plan documentation and summary of
benefits, especially as they reflect ACA compliance updates.
- Up-to-date
waivers of coverage and/or Waiver Notifications: Having waivers
for employees who declined your company’s health coverage is crucial to proving
that you made a good faith effort to offer it to everyone eligible. If waiver
forms haven’t been secured, an alternative is for the employer to rely on a
waiver notification found in their enrollment materials (e.g. the employee’s
inaction is deemed a declination of coverage) to meet this good faith litmus
test.
- Proof of contribution: Companies must
accurately report how much they paid for plan coverage. This relates to
affordability, and the IRS will use it to see how much an organization
contributed for the lowest cost plan offered for single coverage.
- Employee
classification:
Any employee who works 30 hours or more per week is considered a full time
employee, and companies of a certain size are required to offer them coverage.
- Documentation of
hours tracking:
The IRS will be looking for consistent and accurate tracking of employee hours.
The ability to show accurate tracking procedures is especially crucial for
organizations that have part-time, seasonal and variable-hour employees.
- Proof of plan
affordability:
Employers must address whether their plan was made affordable according to
calculations using one of three safe harbor gauges – the W2 wage form, the rate
of pay, or the federal poverty level.
Coverage under an employer-sponsored plan is considered affordable if
the employee’s required contribution for self-only coverage does not exceed 9.5
percent using one of those benchmarks.
Again,
the IRS will be looking to determine if organizations have made a good faith
effort to comply with ACA mandates. Companies will not get away with ignoring
the law, but there will likely be some leniency shown for those who did their
best to meet reporting and compliance requirements. The IRS is also expected to
give companies not in compliance a chance to correct their errors.
For
more on ACA reporting and verification audits, download our eBook to find out
what your business needs to know to execute and show a good faith effort.