Common ACA Reporting Errors and How to Correct Them
Affordable Care Act (ACA) employer reporting is very complicated. Therefore it’s no surprise that mistakes happen, and if they are not corrected promptly, there can be significant penalties.
But what should you do when you discover a reporting error?
How Errors Are Discovered
There’s several different ways that employers can discover that reporting errors have been made. Unfortunately, they are most commonly discovered when the IRS sends a notice that an Employer Shared Responsibility Payment may be due.
Other times employers discover errors when they change payroll or reporting vendors and the new vendor catches errors made by the previous vendor.
Every now and then an employee, or even the employee’s tax preparer, may notice a mistake on the employee’s own form and bring it to the employer’s attention.
First Things First
Before rushing to fix potential errors, you should make sure an error was actually made. The following data and documents will help you make this determination:
- Payroll records.
- Evidence of offers of coverage/waivers of coverage (can be paper or electronic).
- The IRS instructions for the form that applied to the form in the year it was filed (i.e., the 2018 instructions for forms filed in 2018). These can be obtained from the IRS website (see About Form 1094-C and About Form 1095-C).
- Contract with the payroll and/or reporting vendor.
These documents should be compared with the forms filed with the IRS to determine where the error lies.
The error may be with the source data sent to the payroll/reporting vendor or an error in their system. In other cases, it may not be a true error, but rather a difference of interpretation in how the IRS codes should be applied on the forms.
Differences in interpretations may be more likely in the first years of reporting when the process was new for everyone or when switching vendors.
Depending on the error, it may be beneficial to review forms filed in other years to see if there are similar errors in those forms.
Once you discover the source of the error, be sure to fix it in your systems now for future reporting. Otherwise, you will continue to make same errors in future reporting years.
When and How to Correct an ACA Reporting Error
Once you’ve determined that you have a true ACA reporting error, be sure to follow the information from the most recent instructions to the applicable form to correct as soon as you reasonably can. Below is a summary of the current instructions (including some errors that don’t require corrections):
Is the error on the Authoritative Transmittal? Each entity that is part of an applicable large employer subject to the ACA employer mandate (more detail here) is required to file a single “Authoritative Transmittal.”
This is done by checking the box on Part I, line 19, of the Form 1094-C. Only the Authoritative Transmittal needs to be corrected. The IRS instructions say “Do not file a return correcting information on a Form 1094-C that is not the Authoritative Transmittal.”
How do I correct it? File a new standalone Form 1094-C including the correct information and enter an “X” in the “CORRECTED” checkbox.
Do I need to file all the Forms 1095-C too? No other documents need to be filed,unless they also require correction.
Do I have to correct? If the error is only due to an incorrect dollar amount on Line 15, you may not have to make corrections.
The IRS has created a de minimis safe harbor, which applies if no single amount in error differs from the correct amount by more than $100.
Errors that fall within the safe harbor do not require corrections and importantly do not trigger penalties.One important exception to the safe harbor is that an employee can elect not to have this safe harbor apply to him or her.
If the employee has made that election, you will need to correct. More information on this safe harbor is available here.
Common examples how errors occur on Line 15 include reporting a lower wellness participation rate rather than the higher non-wellness rate, or reporting the lowest cost offer of coverage for the plan generally, not specific to the employee receiving the form (such as where an employer charges higher rates for those with higher incomes).
How do I complete a corrected Form 1095-C? File a fully completed Form 1095-C including the correct information and enter an “X” in the “CORRECTED” checkbox.
If you catch an error after you have sent the form to the employee, but before it is filed with the IRS, then you do not enter an “X” in the “CORRECTED” checkbox. The reason is that the IRS has not previously received the original, incorrect form. If you mark the box as corrected this could cause more confusion as the IRS system will look for the original form and not be able to find it.
Instead, the IRS advises that you write, type, or print “CORRECTED” on the new Form 1095-C furnished to the recipient.
Do I need to file a Form 1094-C with it? However, do not mark the “CORRECTED” checkbox on Form 1094-C (unless it also contains an error).
Do I need to send the corrected Form to the employee? Generally, yes.
If you sent an original Form 1095-C to the employee, you will need to send the employee a copy of the corrected one. There is a limited exception for employers that used an alternative method (which is not common) of reporting if they made a “qualifying offer” for all 12 months under a self-funded plan.
If you used this limited exception for your initial reporting, then you may not need to furnish an updated form to the employee. Refer to the most recent IRS instructions for more information.
Currently, electronic filing is required if you file more than 250 of an information return.
This applies separately to original and corrected returns, so even if you were required to file your original returns electronically, you may not have to file your corrected ones electronically. For example, if you are filing 100 corrected Forms 1095-C, you may file on paper. However, if you are correcting 500 Forms 1095-C, they must be filed electronically (along with the 1094-C).
There is a hardship waiver process described by the IRS in the form instructions. Even if you’re not required to file electronically, the IRS still encourages all employers to file electronically if possible. &