ACA reporting penalties are unique in that most of the tax penalties are built into the system to occur automatically. The 5 different ACA tax penalties are:
- Individual mandate penalty – Each citizen must be covered by a qualifying medical plan. When a person files their taxes they must indicate if they maintained medical coverage all year. The IRS then matches their answer to the data they receive from insurance carriers and employers to determine if their answer was true. If not, they will be issued a penalty letter due for payment.
- Employer form distribution to employees – By the end of January following the reporting year, employers must provide their employees with a form 1095-B or 1095-C as applicable. For the 2016 reporting year the IRS issued an extension allowing to March 2, 2017 to provide this form. These forms are necessary since the employees will need them while validating to the IRS and health exchanges of the type and cost of coverage they were offered and maintained. If employers miss the deadline by less than 30 days late on their delivery, the penalty is $50 per form. After the 30 days, employers will be penalized $250 per form that was not distributed to the employees. At this point, these penalties are not issued automatically by the IRS. The process is very similar to how employers must issue timely W-2 forms to their employees.
- Employer form filing to the IRS – By the end of March following the reporting year, employers must submit to the IRS their forms 1094 and 1095. If employers miss the deadline to file, they will be penalized $250 per form that was not submitted.
- ‘A’ Penalties following the IRS filing – If applicable, from the 1094-C forms filed, the IRS will automatically calculate ‘A’ penalties due by the employer of $2,000 per employee per year (adjusted for inflation). The IRS will make their calculations from the information submitted in Section III of form 1094-C and then issue penalty letters to employers which are due for immediate payment.
- ‘B’ Penalties following the exchange notices – As addressed previously, employers will receive letters from the federal and state health insurance exchanges in regard to employees of the employer who went to these various exchanges, purchased coverage and received a premium subsidy. This combination of an employee purchasing coverage from an exchange and receiving a subsidy is the necessary element to trigger a ‘B’ penalty of $3,000 to the employer (adjusted for inflation). The employer will then have 1 attempt to submit an appeal letter to the exchange documenting if they offered qualifying, affordable coverage to the employee in question. The appeal will then be reviewed and a determination will be made by the exchange. Following this determination, the employer will receive either a notice that the appeal has been approved or, if not approved, they will automatically receive a penalty letter due for immediate payment.
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