ACA 1095 PITFALL:
WRONG OFFER OF COVERAGE CODES
Not surprisingly, companies until November 2017 were not very interested in QA. Now the IRS is issuing penalty notices.
As the expression goes “haste makes waste.” Case in point. In July 2016, a ERISA attorney contacted us with an interesting, yet disturbing scenario. It turns out his client was being acquired by another company. The buyer’s attorney requested sample 1095-C forms. The buyer’s attorney reviewed the sample forms and determined that the forms had INCORRECT codes! The buyer’s attorney requested sample 1095-C forms. The buyer’s attorney reviewed the sample forms and determined that the forms had INCORRECT codes! As part of the discussion, the buyer’s attorney basically said “either fix the forms” or “we’re paying less for the company.” That’s when the seller’s attorney contacted us and asked us to review the forms.
Upon initial review of the forms we noticed a line 14 and line 16 code conflict. For example, employees with a 1E (not a qualifying offer) in line 14 had a 2D (employee in either waiting period or a Measurement Period) in line 16. Clearly, an employee cannot be offered coverage while in a waiting period. Hence, one of the two codes was wrong.
The seller’s attorney was in disbelief since one of the biggest payroll outsourcing firms in America prepared their forms. The attorney remarked “how could this happen?” Sadly, it’s either due to 1) Bad data, 2) Bad programming, 3) Bad QA (or none for that matter), or 4) All of the above. Regardless, in the event this was not discovered and the errors applied to all 800 employees, the penalty for incorrect codes could approximate $200,000. For a business operating on a 5% profit margin, that translates to $4,000,000 in revenue equivalents.
In order to mitigate future risks employers should 1) QA their previous submitted 1095 forms, 2) QA their current data (BTW – our company offers both 1095 Audit and 1095 Diagnostic services).
Employers have the opportunity to ensure Line 14 Offer of Coverage Codes are accurate and future penalties. As they say, “there’s no time like the present – do it now!”