Note changes to ACA thresholds and signs of more audits

It’s almost time for the annual open enrollment period, so it’s important to note that the IRS recently announced the affordability percentage for 2020 under the Affordable Care Act will decrease to 9.78 percent. This is a slight decrease from the 2019 threshold of 9.86 percent.

Employers should make sure that your insurance broker is aware of this change. Remember, all employers with 50 or more full-time employees (applicable large employers, or ALEs) must provide their employees access to affordable health insurance that provides the minimum essential coverage at minimum value.

There is some indication that the IRS is stepping up audits of potential ACA violations. For instance, the IRS has started issuing Letter 226-J penalty notices for noncompliance for the 2017 tax year, coming on the heels of penalty notices being sent in June for compliance violations in 2016. To some observers, this quick transition from one tax year to the next is a sign that IRS ACA enforcement activities are increasing.

IRS Letters 226-J are based on information from Forms 1094-C and 1095-C filed by the ALE, the individual income tax returns filed by the ALE’s employees and information from the state health insurance exchanges relating to premium tax credit qualification.

AccountingToday outlined some other signs of increased scrutiny of ACA violations by the IRS:

  • The IRS is paying greater attention to the methodology and data used in employers’ determination of full-time employees in ACA filings for the 2017 tax year.
  • The IRS is asking individual taxpayers to obtain documents from their employers to prove they were entitled to receive premium tax credits to offset health insurance purchased through government exchanges.
  • Employers are being required to provide proof that they filed ACA information with the IRS. While many employers rely on do-it-yourself software or payroll companies to submit ACA information to the IRS on their behalf, there have been instances where the software and payroll companies did not realize that the submissions were never accepted. The IRS is asking employers to obtain submission acceptance notices to prove they filed with the IRS.

If you work with Tony Wilson at NUVISION Financial Corp. and you receive a Letter 226-J, you can contact him directly. Otherwise, please contact us if you have any questions.

Heidi A. Pearson, CPA, CVA, is a partner with Antares Group, Inc. She can be reached at hap@antarescpas.com.