Health Care Reform

Federal Audit May Spur IRS to Fine Employers Not Complying with ACA

ACA noncompliance fines

An audit released April 7, 2017, by the Treasury Inspector General for Tax Administration (TIGTA) addresses the major management challenge of implementing the Affordable Care Act (ACA). It found that some processes to ensure that applicable large employers subject to the employer shared responsibility provision are in compliance “were not working as intended.”

The audit’s findings may induce the government this year to levy large penalties against companies with 50 or more workers that don’t comply with the complex requirements of the ACA. It’s possible that noncompliant companies could face up to $31 billion in ACA fines for the 2016 reporting period.

Provision affects employers of 50 or more

In general, the ACA’s employer shared responsibility provision applies to businesses (“applicable large employers”) with an average of 50 or more full-time employees, including full-time equivalents during the prior calendar year. As of January 2015, applicable large employers that do not offer health insurance to full-time employees and their dependents during the current calendar year through an employer-sponsored plan could incur a shared responsibility payment if at least one employee obtains a premium tax credit for coverage.

The ACA dictates that the health coverage offered must:

  • Provide minimum essential coverage – health coverage that meets the minimum benefits standard of the small or large group market within the state and includes most broad-based medical coverage typically provided by employers.
  • Be affordable – the employee’s share of the self-only premium does not exceed 9.69 percent (for 2017, adjusted for inflation). Employers may use one of three methods (affordability safe harbors) to determine affordable coverage.
  • Provide minimum value to full-time employees and their dependents – the health plan covers at least 60 percent of the total allowed cost of benefits expected to be incurred under the plan.

The ACA requires applicable large employers to file information returns each year with the Internal Revenue Service (IRS) and provide statements to their full-time employees about the health care coverage they offered – or did not offer.

IRS agrees to six of seven audit recommendations

TIGTA’s audit found some processes were not working as intended, such as delays in processing paper Forms 1094-C and 1095-C.  The TIGTA audit made seven recommendations to the IRS to ensure compliance with the ACA’s employer shared responsibility provisions. The IRS agreed with six, all of which seem to have the goal of accurately assessing who’s in compliance and who isn’t.

The audit appears to have prompted the Treasury and IRS to improve data collection processes. These actions could pave the way for greater identification of businesses not compliant with employer shared responsibility provisions, as well as enforcement of the ACA requirements and associated penalties for noncompliance.

House passage of AHCA has no impact

On Thursday, May 4, 2017, Republican leaders in the U.S. House of Representatives ushered through a vote on the American Health Care Act (AHCA) to repeal and replace various provisions in the ACA. There is no impact at this point as it is still very early in the legislative process through Congress. We expect the IRS action on ACA compliance to continue.

How to prepare your firm for an IRS audit

Applicable large employers may need to prepare themselves to prove ACA compliance. Companies must demonstrate to the IRS that they offered minimum essential coverage to 95 percent or all but five of their full-time employees.

Accounting Today offers three recommendations:


1. Establish documentation to show the IRS that the company has provided:

  • An offer of benefits
  • The plan’s measurements
  • Administrative information
  • Stability periods
  • Processes for tracking hours
  • Calculations for determining employee eligibility


2. Show that the method of tracking worker employment status is accurate and correctly applied.

3. Demonstrate that company data pertaining to ACA coverage are valid and come from multiple sources.

The Trump administration may succeed in doing away with provisions of the ACA, including those affecting employer shared responsibility penalties, but until that happens, large employers that aren’t in compliance could face large penalties.

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