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The Trade Preferences Extension Act, which became law on June 29, 2015, included a provision having nothing to do with extending trade preferences. Flying under the radar of many, the law has doubled penalties on employers for failing to file Affordable Care Act (ACA) information returns with the IRS starting in 2016, or failing to furnish employees with payee statements, as required by the ACA, regarding their health care coverage.

In the act, Congress amended Internal Revenue Code sections 6721 and 6722 to increase the penalties associated with a failure to properly file information returns or provide payee statements. “Among other things, these increased penalties will apply to Forms W-2 and the 1099-series, as well as ACA-required employer shared responsibility and minimum essential coverage reporting forms,” reports a July 13 Benefits Brief from Groom Law Group.

As a result of the amendments:

• The basic penalty for failure to file or furnish a correct information return or payee statement will more than double from $100 to $250.

• The standard annual penalty cap will double from $1.5 million to $3 million.

• If the failure relates to both an information return and a payee statement, the penalties are doubled to $500 per statement and a $6 million cap.

The new penalties are effective with respect to returns and statements required to be filed after Dec.31, 2015, which would include 2015 informational forms that are due in early 2016.

Good-Faith Efforts

“Despite the increase in penalty amounts, it appears that the current one-year transition rule is still available,” noted a July 15 online post from Leavitt Group, an insurance brokerage and advisory firm. “The one-year transition rule provides that employers and insurers will not be subject to penalties for the first year of reporting if they made a good-faith effort to comply but filed incorrect or incomplete information.” However, “there is no relief for failure to timely file” the required information returns with the IRS, or relief for failing to provide required statements to employees.

As a result, “If an [applicable large employer] with 100 full-time employees made zero effort to comply with the regulation or reporting requirements, it is looking at a minimum $50,000 fine out the gate,” pointed out a July 13 blog post from Benetech, an HR and payroll administration firm. As for the “good faith” exception, “The IRS has not provided any amplifying guidance of what constitutes a ‘good faith effort.’ It’s safe to assume that when the time comes, they’ll be judge and jury,” Benetech warned.

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