Can You Appeal an ACA Penalty? Yes—Here’s How
The Affordable Care Act (ACA) is complex and requires employers to track and report certain employee data to ensure they’re offering health insurance that meets the law’s standards. If you’re an Applicable Large Employer (ALE) and find yourself facing a penalty due to noncompliance, you may wonder if it’s possible to appeal. The answer is yes, you can appeal an ACA penalty. In this blog post, we’ll guide you through the process of appealing an ACA penalty and explain the steps to avoid receiving one in the first place.
Understanding the ACA Penalty
Before diving into how to appeal an ACA penalty, it’s important to understand what triggers these penalties. As part of the ACA’s Employer Shared Responsibility provisions, certain employers are required to offer health coverage that is “affordable” and provides “minimum value” to their full-time employees. If an ALE fails to offer this coverage, they may face a penalty from the IRS. Penalties can also apply if employees are offered coverage, but it doesn’t meet affordability or minimum value standards, or if the employer fails to report information about coverage on time.
Types of ACA Penalties
The IRS imposes two main types of penalties under the ACA:
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Shared Responsibility Payment: If your company doesn’t provide qualifying health insurance coverage and at least one employee receives a premium tax credit through the Health Insurance Marketplace, you may owe a penalty. This is $2,000 per full-time employee (excluding the first 30 employees).
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Incorrect or Incomplete Reporting: Penalties can also occur if the required forms (1094-C and 1095-C) aren’t filed correctly or aren’t filed on time. These penalties can range from $50 to $270 per form, depending on how late the forms are filed.
Receiving an ACA Penalty Letter
If your company receives a penalty from the IRS, it will typically be in the form of a Letter 226-J. This letter outlines the penalty amount and explains why it was imposed. It also includes a response form (Form 14764) and an Employee Premium Tax Credit Listing.
If your business receives a penalty letter, it’s critical to act quickly. Let’s look at the steps you can take to appeal.
How to Appeal an ACA Penalty
1. Understand the Details in the Letter 226-J
Upon receiving Letter 226-J, carefully review the details provided in the letter. This will include:
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The amount of the penalty
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The specific months for which the penalty is assessed
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The reason the IRS believes your company violated the ACA’s Employer Shared Responsibility provisions
The penalty could be due to errors on the ACA forms (1094-C or 1095-C), an employee receiving premium tax credits through the Marketplace, or incorrect reporting of employee health coverage. Review all of this information thoroughly to understand why the IRS is imposing the penalty.
2. Check the IRS Employee Premium Tax Credit Listing
The Employee Premium Tax Credit Listing will detail the employees who received premium tax credits from the Marketplace, which can trigger penalties. Double-check the dates and employment status of these employees. Look for discrepancies or errors, such as incorrect employment dates, or instances where coverage was actually offered but incorrectly recorded.
3. Review Your ACA Compliance Reporting
Errors on Forms 1094-C and 1095-C are common reasons for penalties. These forms are used to report health insurance coverage to the IRS and to employees. If there’s a mistake on these forms, such as failing to report an offer of coverage or incorrectly categorizing an employee’s status (full-time vs. part-time), you may be able to resolve the issue.
If you find errors on the forms, they can often be corrected through an amended filing. The IRS may not penalize you for filing corrections if you do so promptly.
4. Respond to the Penalty Letter (Form 14764)
Once you’ve reviewed the details and identified any potential errors or misunderstandings, you’ll need to respond to the IRS. This is done by completing and submitting Form 14764, which accompanies Letter 226-J. This form gives you the chance to explain your side and correct any inaccuracies.
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If you disagree with the penalty, you can explain why you believe the penalty should not apply. This could involve providing evidence that coverage was offered, that employees were ineligible for coverage, or that a reporting mistake occurred.
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If you made an error in your ACA filing, you can submit corrections with your response. These corrections might resolve the issue and potentially reduce or eliminate the penalty.
Remember, the response must be submitted within 30 days from the date on the penalty letter.
5. Consult with a Professional or Use ACA-Track’s Compliance Services
If you’re unsure about how to proceed, it may be beneficial to seek the help of a compliance expert or a third-party provider like ACA-Track. ACA-Track specializes in ACA compliance tracking and reporting, helping businesses stay on top of ACA requirements. Their services include:
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ACA 1095-C Monthly Line Code Audits
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Variable Hour Tracking of Employees
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Federal and State Reporting (1094-C & 1095-C)
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IRS Electronic Filing via XML
A professional advisor or service can help you navigate the appeal process and ensure your reporting is accurate.
Steps to Prevent ACA Penalties in the Future
While appealing an ACA penalty is possible, the best strategy is to avoid penalties altogether. Here are some tips for staying in compliance with ACA regulations:
1. Track Employee Hours Accurately
One of the main reasons employers face penalties is the failure to properly track employee hours, especially for part-time and variable-hour workers. ACA-Track offers tools for variable hour tracking, allowing you to monitor hours worked by part-time and seasonal employees, ensuring you meet ACA reporting standards.
2. Ensure Proper Reporting and Timely Filing
You need to file Forms 1094-C and 1095-C on time. Keep in mind that these forms are due by January 31st for employee distribution and March 31st for IRS transmission. Failure to meet these deadlines could result in penalties, so use ACA-Track’s automated reporting to ensure everything is submitted on time.
3. Stay on Top of Employee Eligibility
ACA requires that health coverage be offered to all eligible employees. If employees are misclassified (for example, as part-time when they should be full-time), it can lead to penalties. ACA-Track’s platform helps you monitor employee eligibility thresholds and provides advance alerts when any changes are detected.
4. Audit Your ACA Compliance Data Regularly
Regular audits can help identify potential compliance issues before they become a problem. ACA-Track’s monthly audits of ACA data can help spot discrepancies early on, ensuring you stay compliant year-round.
Conclusion
Dealing with an ACA penalty can be stressful, but it’s important to understand that you do have options for appeal. Start by thoroughly reviewing the penalty notice, responding to the IRS promptly, and addressing any discrepancies in your data. If the process feels overwhelming, consider reaching out to ACA-Track for expert support.
By staying proactive with ACA compliance, tracking employee hours accurately, and using the right tools for reporting and filing, you can avoid penalties and ensure your business stays on the right side of ACA regulations. To learn more about how ACA-Track can help you manage ACA compliance, visit ACA-Track.
