Trade Act Increases ACA Reporting Penalties

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The Trade Preferences Act of 2015, which was signed into law last week, significantly increased the penalties for employers who fail to file Forms 1094-C and 1095-C with the Internal Revenue Service (IRS) and provide statements to their full-time employees.  Under Internal Revenue Code section 6056, employers subject to the Employer Mandate must report on all of their full-time employees and the coverage offered plus provide payee statements to each full-time employee identified in the IRS reporting.

The penalties for failing to file a return or provide a statement increased from $100 for each failure up to a max of $1.5 million to $250 for each failure up to a max of $3 million.  The penalties apply separately to the IRS reporting and furnishing of statements so that if a failure is for both the return and the statement, the penalty amounts are doubled.

Penalties may be assessed for failing to file a return with the IRS or failing to provide a statement, failing to include all the required information or providing incorrect information.  However, relief may be available if the failure is due to reasonable cause.

For the first year reporting due in early 2016 based on the 2015 calendar year, the IRS will not impose penalties on employers that make good faith efforts to comply with the reporting requirements.  However, this relief is only for incorrect or incomplete information reported on the return or statement.  No relief will be available if a good faith effort to comply is not made or there is no timely filing of a return or statement.

Note:  The increased penalties also apply to other information returns, such as Form W-2.