Correcting Employer Reporting Errors Needed to Meet Good Faith Compliance Standard

As employers were struggling to complete Forms 1095-C to get them in their employees’ hands by March 31, they had the small comfort that the IRS had announced that employers needed to meet a “good faith compliance” standard to avoid penalties. The expectation was that employers would do their best to comply with this new obligation and the steep learning curve accompanying the obligation.

The IRS is now providing more details of what may – or may not – meet the “good faith compliance” standard. In a new video on correcting errors, an IRS spokesman notes that:

“If a filer transmits a batch of returns with no health coverage information but just names and addresses, then the good-faith relief would not be available for the failure to file accurate and complete returns.”

The video titled Affordable Care Act Information Returns Corrections Process can be found here. It provides a detailed review of the corrections process for both paper and electronic returns.

The video notes that there are three (3) ways that errors can be identified:

  1. By the IRS as an error message reported by the IRS as a part of the information return submission process
  2. By the employer as a result of internal review
  3. By the employee who reports an error to the employer.

Employers should take the time between now and the deadline for filing with the IRS to review their records. It is easier to correct errors before returns have been filed with the IRS. Paper filing reporting is due at the end of May. Those filing 250 or more returns must file electronically with a due date of June 30, 2016.

Once returns have been filed with the IRS, the IRS will review the returns to validate whether the information was accurate and complete. Filers will be advised regarding errors or missing information.

The types of errors and steps needed to correct them are detailed in the instructions for the Forms 1094-C and 1095-C. Among the more common errors are:

  • Mismatches between names and social security numbers
  • Safe harbor or relief codes
  • Premium amounts.

When correcting a return, the employer will need to refile the correction along with the information that was on the original form. It is unacceptable to file the return showing only the corrected information. In essence, the corrected return will totally replace the one previously filed. It’s also important to note that a corrected return must also be provided to the employee.

In the case of an error in the social security number, employers cannot simply default to the date of birth. A filer may have to prove to the IRS that they followed the “TIN solicitation process.” This process requires:

  • The initial solicitation is made at an individual´s first enrollment or, if already enrolled on September 17, 2015, the next open season
  • The second solicitation is a reasonable time thereafter
  • And the third solicitation is made by December 31st of the year following the initial solicitation.

Employers should not disregard any error notices from the IRS. Failure to make corrections – or to make them timely – can result in the assessment of sizable penalties.