On June 29, 2015, President Barack Obama signed the Trade Preferences Extension Act (the Act) into law. In addition to containing several revenue offsets, the Act significantly increased penalties for incorrect information returns, including those required by the Affordable Care Act (ACA).
The Internal Revenue Service (IRS) may impose penalties for both failing to file and filing incorrect or incomplete information returns and/or payee statements after the due dates for such forms pursuant to Internal Revenue Code Section 6721 and 6722. These penalty provisions apply to a variety of information reporting requirements including Forms W-2 and 1099, and now more recently to Forms 1094-B, 1095-B, 1094-C, and 1095-C relating to compliance with the ACA.
Below we have summarized a few of the notable penalty changes made by the Act.
| Description | Old Penalty Amount | New Penalty Amount |
| Penalty for filing incorrect returns (per return) | $100 | $250 |
| Penalty for incorrect returns if corrected within 30 days (per return) | $30 | $50 |
| Penalty for incorrect returns if corrected by August 1 (per return) |
$60 | $100 |
| Penalty for intentionally disregarding to file timely and correct returns | $250 | $500 |
| Maximum penalty per calendar year | $1,500,000 | $3,000,000 |
| Maximum penalty per calendar year if corrected within 30 days |
$250,000 |
$500,000 |
| Maximum penalty per calendar year if corrected by August 1 |
$500,000 |
$1,500,000 |
Keep in mind that the final ACA regulations provide that penalties will not be imposed on entities that show they made good faith efforts to comply with the reporting requirements for 2015. The IRS has indicated that anuntimely filed form will not meet the good faith requirement. Should the requirements regarding ACA reporting not be met due to good faith requirements, the penalties may be still be waived if the failure was due toreasonable cause.
Because the penalties for incorrect forms are applied with respect to each incorrect form, it may be advisable, where possible, to take advantage of the combined form reporting where authorized. For example, an employer may use one Form 1094-C to transmit all Forms 1095-C rather than multiple Forms 1094-C.
In summary, employers should be aware that larger fines now exist for failures in reporting and the penalties apply to each incomplete or incorrect form. For example, intentionally incorrect information with respect to one employee could result in a penalty of $500 for both the Form 1095-C filed with the IRS and the Form 1095-C provided to the employee, for a total of $1,000 for that one employee. Furthermore, it is important to file all forms in a timely manner to show good faith under the ACA transition rule for 2015 Forms.
