In previous years, the IRS has provided relief of penalties to reporting entities that report incomplete or incorrect information as long as these entities can show they made a good-faith effort to comply with the information reporting requirements. In late 2020, the IRS released Notice 2020-76, which among other things, provided for a good-faith waiver for 2020 ACA Reporting to apply to missing and inaccurate taxpayer identification numbers and birthdates, as well as other information. Unfortunately, in this same Notice the IRS states: “As this good-faith relief was intended to be transitional relief, this is the last year the Treasury Department and the IRS intend to provide this relief.” However, the IRS did renew their request for comments related to furnishing requirements under 6055 and 6056 of the ACA regulations. They further state: “Unless we receive comments that explain why this relief continues to be necessary, no relief … will be granted in future years.” The comments were due by Feb 1, 2021.
What this could mean for employers is that if they have been somewhat complacent about the employee and dependent data they utilized for their ACA reporting in the past, it is time to audit and check for accuracy on all employee and dependent information including spelling of names, social security numbers, and birthdates.
Another new development is the changes made under the American Rescue Plan in which, until now, only individuals who made less than 400 percent of the federal poverty level (FPL) were eligible to receive a subsidy. Now, the Plan expands eligibility by eliminating the 400 percent FPL income cap for tax years 2021 and 2022. The legislation does not change the sliding scale nature of PTCs. But, for 2021 and 2022, it reduces the premium percentage at all income levels (above 100 percent FPL). Those with incomes from 100 to 150 percent FPL are eligible for no-premium coverage (i.e., they contribute no income towards premiums for a silver benchmark plan).
The premium contribution increases as income increases but is ultimately capped at no more than 8.5 percent of income for those with higher incomes (including those with income above 400 percent FPL). These levels are not indexed to increase annually for two years, meaning the percentages (e.g., 0 percent to 8.5 percent) will remain the same for both 2021 and 2022.
With the threshold removed on the marketplace, more individuals will likely qualify for subsidies, which makes it all the more critical that employers who are Applicable Large Employers and required to abide by ACA regulations, offer coverage that meets Minimum Value, Minimum Essential Coverage and most importantly offer premiums that are considered affordable under current ACA Guidelines, which has not changed. The affordability threshold for 2021 remains at 9.83% for 2021.
However, because of the potential increased IRS scrutiny, coupled with the subsidy expansions under the ARP, it may lead to additional employer penalty letters and notices from the IRS. To review the revised penalties and steps you should take now to eliminate challenges for the 2021 filing Click Here.