A new federal tax law aimed primarily at foreign competition – the Trade Preference Ace of 2015 – contains some hidden and increased penalties for domestic businesses that fail to file tax returns with the IRS on time or who don’t provide the required statements to those they have paid throughout the year. The increase comes in that businesses can be penalized once for not filing timely with the IRS and then again if that business does not submit the proper statements to the payee. The fines are even stiffer if the IRS determines that the failure to file is intentional.
One area where employers could face increased fines is for failing to properly report health coverage offered to full-time employees under Obamacare. Many of these penalties are designed to encourage large employers to timely Form 1095-C and Form 1094-C .
As a reminder, an applicable large employer is an employer that employed an average of at least 50 full-time employees including full-time equivalents on business days during the preceding calendar year. If you are uncertain whether you are considered a large employer for 2015, contact us immediately.
The Form 1094-C is the transmittal statement for the 1095-C. The 2015 form is due to the IRS by Feb. 29, 2016, if paper filing, or by March 31, 2016, if filing electronically. The 1095-C is a statement you provide to your full time employees. The 2015 form is due to the employee by Feb. 1, 2016.
There are several penalties that have been enacted to encourage applicable large employers to file correct and timely forms with the IRS and with employees. These penalties are effective for calendar years beginning in 2015 and later. Individually the penalties may not seem like much, but the penalties can increase rapidly since each full-time employee requires a separate 1095-C.
Here are some things to know:
• Penalties for each incorrect form sent to the IRS required to be filed in 2016 for the 2015 calendar year range from $50 to $250, depending on when the failure is corrected. A $500 penalty is imposed per filing in the case of intentional disregard to filing with no cap on total penalty amount. The maximum annual penalty is $3 million. For applicable large employers with average annual gross receipts of $5 million or less for the three most recent tax years, the maximum penalty is $1 million.
• Penalties for each incorrect Form 1095-C sent to a full-time employee range from $50 to $250 depending on when the failures are corrected for the Forms 1095-C required to be filed in 2016 for the 2015 calendar year. The maximum annual penalty is $3 million. For applicable large employers with average annual gross receipts of $5 million or less for the three most recent tax years, the maximum penalty is $1 million.
• The IRS has indicated that it will not assess penalties for incorrect or incomplete information reported for 2015 calendar year if the applicable large employer makes a good faith effort to comply. Note that this relief does not apply to a failure to file timely or if no effort is made to comply.
It is very important that you have procedures in place so that these forms can be filed accurately and timely. If you outsource your payroll, your payroll service should be preparing these for you. You will want to make sure you or your office personnel are providing your payroll service with the information they have requested to enable them to prepare these forms for you.
Please contact our office if you have any questions or do not have a plan in place for handling ACA reporting requirements. As you can see, the consequences can be quite severe.
Sources: Checkpoint, Don Farmer