Recently, the IRS began stepping up its enforcement of the ESR provisions, expanding its focus to include sending notifications to non-filers and inaccurate/incomplete filers. (Photo: ALM)

There's no dancing around the fact that health care remains one of the most complex, yet critical, issues for employers to manage.

Due to an ever-changing regulatory landscape in all levels of government, many of today's business owners may not know which Affordable Care Act (ACA) rules still apply to them. As a result, some are facing significant consequences for non-compliance.

Currently, under the ACA's employer shared-responsibility (ESR) provisions, certain employers (called “applicable large employers” or ALEs) must either offer minimum essential coverage that is both “affordable” and provides “minimum value” to their full-time employees (and their dependents adequate coverage), or potentially pay a large employer shared responsibility (ESR) penalty to the IRS if at least one full-time employee receives a premium tax credit after purchasing health insurance in a government marketplace.

Related: How to help employer clients with IRS Letter 226J

Additionally, ALEs must report information about the coverage they offer their full-time employees—defined as working at least 30 hours per week—as it relates to provisions under section 4980H of the Internal Revenue Code (IRC). This information is filed on Forms 1094-C and 1095-C. If businesses do not furnish or file this information accurately and timely, they might be subject to reporting penalties. In addition, for self-insured ALEs, the forms currently include reporting on all individuals covered under the employer plan, i.e. dependents as well as participants.

Recently, the IRS began stepping up its enforcement of the ESR provisions, expanding its focus to include sending notifications to non-filers and inaccurate/incomplete filers, who began receiving them at the end of 2017.

Employers should be prepared for how to handle a notice from the IRS that alleges they did not meet the reporting requirements under the ESR provision of the ACA. Fines can be financially devastating, upwards of $1M+ in some cases. These notices cannot and should not be ignored, as quick action is the best interest of any employer. There is only potential good faith relief for filing inaccurately, not for failure to file at all.

Here is a quick checklist to keep in mind if you're an employer and find yourself facing an IRS penalty notice:

If you work with a payroll, HR services and/or ACA reporting provider, contact them first. They will work with you to help navigate the complexity of the process.

Whether or not you have a provider or manage these issues internally, don't delay. Request an extension to allow ample time to review and collect applicable data/documentation and take time to understand your assessment.

Determine if there were errors in filing and, if so, take the following steps:

1. Research past years to determine what should have been filed
2. Make corrections to the form within the notice
3. Follow the response process outlined in the IRS notice to include a letter of explanation and reasonable documentation that the changes are valid.
4. Send all information to appropriate IRS address before the due date.

While a potentially daunting task, employers should ensure they are filing accurately the first time to avoid the trouble of having to seek out that information years after the fact. Researching, correcting, and responding to the IRS later can be a much more complex and time-consuming process.

Bottom line: if you do find yourself in this predicament, it is critical to quickly identify resources with the information and experience to help you respond to the IRS notice.

John Sobraske is senior product manager for insurance services at Paychex.

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