Checking your mailing for an IRS Letter 5699?
The IRS has amped up its system for identifying non-compliant Applicable Large Employers (ALEs) that have not filed and targeted May 31, 2017 as the deployment date.
It has also started sending IRS Letter 5699s to potential non-compliant employers. The IRS Letter 5699 requests missing Affordable Care Act (ACA) information from ALEs. The criteria for identifying potentially non-compliant employers is based on W-2 total employee count reported for calendar year 2015.
Case in Point
In an actual Letter 5699 from an IRS tax compliance officer to an ALE, titled “Request for Employer Reporting of Offers of Health Insurance Coverage (Forms 1094-C and 1095-C)”, the IRS is notified the employer that it may be non-compliant with Internal Revenue Code (IRC) Section 6056 because the IRS has not received the required 2015 returns.
The letter states IRC Section 6056 requires ALEs to file ACA information returns with the IRS (Form 1094-C) and provide statements to full-time employees relating to the health insurance coverage, if any, that was offered to full-time employees (Forms 1095-C).
According to the letter, the IRS requires one of the following responses within 30 days from the date of the letter:
- I was an ALE for calendar year 2015 and already filed Form 1094-C and Forms 1095-C with the IRS using < <name of employer>> and <<employer identification number>> on <<date>>.
- I was an ALE for calendar year 2015 and my Form 1094-C and Forms 1095-C are included with this letter.
- I was an ALE for calendar year 2015 and will file my Form 1094-C and Forms 1095-C with the IRS < <name of employer>> and <<employer identification number>> by <<date>>. (If more than 90 days from the letter, the response must explain why.)
- I was not an ALE for calendar year 2015.
- Other (must explain)
When the employer completes and returns IRS Letter 5699, the IRS will utilize the information to identify the ALEs that fail to report in violation of IRS Section 6056 and subsequently assess penalties to those ALEs.
The fine for filing incomplete or inaccurate information on submissions after December 31, 2015 can be up to $250 per required return, with a maximum of $3 million a year. The fine for not filing any mandated forms after December 31, 2015, can be from $250 per required return to $500 per required return. And, for the mandated ACA submissions, there’s no maximum on the $500 penalty per required return.
There are provisions for reducing the penalties if the employer corrects within 30 days of the March 31 deadline and by August 1 of the reporting year. However, those dates are long past for reporting year 2015 … and will end August 1, 2017 for reporting year 2016.
It is important to note that no relief is provided in the case of reporting entities that do not make a good-faith effort to comply with the regulations or that fail to file an information return or furnish a statement by the due dates.
You can find the authority on penalties at this website: https://www.irs.gov/irb/2016-49_IRB/ar07.html
So, if you have received an IRS Letter 5699, it’s decision time! Employers that are non-compliant will need to decide what level of risk they want to expose their company to, and once that decision is made, they must be aware of how much it will cost the company.
Non-Compliant Employer Case Examples
Here are two cases of non-compliant employers and the options they have in terms of potential penalties under current IRS regulations and ACA law:
Case #1: ACME Widget Company – 75 Employees
The Decisions: ACME Widget offered health insurance during 2015 that was not considered affordable as defined by ACA. The Owner of ACME Widget decided not to increase the employee health insurance benefits to comply with ACA. It was also decided not to file the 1094-C nor provide 1095-C forms to employees for neither 2105 nor 2016 reporting years.
The Penalties: The penalties for not reporting by the deadline for 2015 reporting would amount to $250 for each form ($250 x 75 employees = $18,750). In addition, the failure to send the 1095’ to the ACME employees would amount to another $250 for each form ($18,750). If the IRS determines that ACME’s failure to file and send 1095s to its employees was intentional disregard for the mandate, the penalty rises from $250 to $500 per form, totaling $37,500. So, for reporting year 2015, the penalty alone could be as high as $56,250. For reporting year 2016, the same penalty would be assessed ($750 x 75 if ACME does not provide 1095s to its employees by August 1, 2017) for a grand total of $112,500 in penalties for both reporting years. (On top of that, the IRS assessment for not providing affordable health insurance would also be applied – this amount would be determined by the difference between the cost of ACA-defined affordable health insurance and the cost of the health insurance being offered by ACME and calculated by the premium tax credit formula). However, that amount is an assessment, not a penalty.)
The Options: The only current option for ACME Widget would be to reduce the 2016 penalty by filing the 2016 form 1094-C with the IRS before August 1, 2017 and by providing 1095s to each of its employees by August 1, 2017. This option would reduce the 2016 penalty from $500 for each infraction to $100 each ($5,000 instead of $56,250). It would reduce the overall penalty (for both years from $112,500 to $61,250).
Case #2: ABC Cab Company – 75 employees
The Decisions: ABC offered health insurance during 2015 that was also not affordable as defined by ACA. The Owner of ABC Cab Company did not increase its health insurance benefits to the employees. However, it did report the 1094-C to the IRS, and it provided 1095-C forms to its employees for both reporting years.
The Penalties: There would be NO penalty imposed on ABC Cab Company because it reported to the IRS on time and further complied by sending 1095’s to its employees. ABC Cab Company will only be responsible for the assessment imposed by the IRS for the difference between the cost of ACA-defined affordable health insurance and the cost of the health insurance being offered by ACME and calculated by the premium tax credit formula. NO penalties would be applied.
If you are a non-compliant employer, what will your decisions be?
Confident you’re on the right track for ACA complying for 2017? Need to switch for more service and perhaps even better pricing? Contact Matt Simons, firstname.lastname@example.org at ACA-Track 1.800.488.7395 — you may be able to switch for no to low on-boarding fees.