New Law Increases Affordable Care Act Information Reporting Penalties

Increased Penalties Will Apply to Returns & Statements Filed After December 31, 2015

On June 29, 2015, President Obama signed H.R. 1295 Trade Preferences Extension Act of 2015. This bill included significant increases in the penalties incurred due to failure to file various tax reporting forms. This includes the penalties relating to Form 1094/1095 reporting.

As the deadlines regarding the employer reporting requirements under the Affordable Care Act draw closer, a new law has increased the penalties that companies may face for non-compliance. The Trade Preferences Extension Act of 2015 will increase the penalty amounts that may apply to employers subject to the Affordable Care Act’s information reporting provisions, among other things. Such employers are required to report for the first time in early 2016 for calendar year 2015.

Information Reporting Penalties

Self-insuring employers that provide minimum essential health coverage (regardless of size) and large employers with 50 or more full-time employees (including full-time equivalents) that fail to comply with the information reporting requirements may be subject to the general reporting penalty provisions under Internal Revenue Code (IRC) sections 6721 (failure to file correct information returns) and 6722 (failure to furnish correct payee statements).

In general, the penalties—including increases under the new law—are as follows:

  • The penalty for failure to file an information return generally is $100 (increased to $250) for each return for which such failure occurs. The total penalty imposed for all failures during a calendar year cannot exceed $1,500,000 (increased to $3,000,000).
  • The penalty for failure to provide a correct payee statement is $100 (increased to $250) for each statement with respect to which such failure occurs, with the total penalty for a calendar year not to exceed $1,500,000 (increased to $3,000,000).
  • Special rules apply that increase the per-statement and total penalties if there is intentional disregard of the requirement to furnish a payee statement, and the waiver of penalty and special rules under IRC section 6724 (including abatement of penalties for reasonable cause) may apply for certain failures.

In addition, if an employer fails to provide the employee statement, as well as the filing with the IRS, the penalty is doubled.

These new penalty amounts become effective for the 2015 filings which are due in 2016. However, the IRS’s enforcement policy for the first year of ACA filing remains unchanged. This means that as long as employer can show a good faith effort to comply with the reporting requirements, penalties will not be enforced. If a good faith effort cannot be shown, then these new penalties will apply. Penalties are reduced if a corrected return is filed within 30 days of the required filing date or by a lesser amount if filed by August 1 following the required filing date.

The law will apply with respect to returns and statements required to be filed after December 31, 2015; the IRS has stated that it will generally not impose penalties under sections 6721 and 6722 for 2015 returns and statements filed and furnished in 2016 on reporting entities that can show that they have made good faith efforts to comply.

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