Are you safe? IRS is Issuing 2017 ACA Penalties!

By Raza Hussain, ACA Compliance Analyst

Here at CXC Solutions, we help our clients in generating and filing Forms 1094/1095 to the IRS. We frequently have employers asking for help with the IRS 226-J letter they have received for prior year filings. Recently we have experienced a surge in the number of companies approaching us with late filing penalty letters and hefty fines.

The IRS issues the 226-J letters to employers who are non-compliant under IRC section 4980H. The penalty is divided into 2 sections, “A” and “B”. An “A” penalty is imposed when a full-time employee gets health insurance from the marketplace and receives a premium tax credit. A “B” penalty is assessed if an employee rejects sub par coverage from an employer and gets coverage via the marketplace. The A penalty is $2,260 per employee for tax year 2017 and the B penalty is $3,390 for failure to offer coverage that meets the affordability and minimum value criteria defined by the IRS.

We have also noticed some employers receiving the 972-CG letter. This letter is an explanation of the penalty proposed by the IRS. The 972-CG letter does give the opportunity to respond to the notice within 45 days with an explanation. Employers, who need additional time to respond, may send a written letter before the end of the 45 days. Within the 972-CG letter the IRS issues a penalty, and this penalty is based upon how late the filing was submitted. Figure 1 illustrates the penalties if the business grosses more than $5 million, and figure 2 illustrates if business grosses less than $5 million.

Figure 1

Figure 2

The best way to avoid such penalties is to prepare for the upcoming ACA season. Start by organizing employee data to ensure accurate SSN, address, hire/term dates, etc., are being used. Along with employee data, if self-funded, look for accurate dependent’s information. Track all status changes and all variable hour employees if applicable to your business. Since it is very easy to lose track of variable hour employees, do put in place a good system to track these employees.

If you receive any penalty letters from the IRS, contact us and let us help you in exercising your options. We’ve helped many clients reduce their penalties significantly including eliminating the fines completely. We look forward to be your trusted adviser!