Affordable Care Act (ACA) reporting requirements for eligible employers remain in effect for Tax Year 2018 despite a ruling last week from a federal judge that held that the law is unconstitutional without penalties to enforce an individual mandate to purchase health insurance.
With no injunction in place to shut down the law, the ACA will remain in place during the appeals process, which is very likely already underway. Therefore, applicable large employers (ALEs), companies with 50 or more employees, will still be required to send ACA forms 1095-B and 1095-C to employees and the IRS in the coming tax reporting season.
IRS penalties will continue as well for companies that fail to comply with ACA reporting requirements. The agency is sending out Letter 226J, a notice to eligible employers that they might be liable for an Employer Shared Responsibility Payment, or financial penalty for non-compliance.
Sending the letter demonstrates the IRS’s willingness to enforce ACA reporting regulations despite the shifting nature of the legislation itself. The IRS recently pushed the deadline for sending forms to employees from Jan. 31 to March 4 for Tax Year 2018. The deadline for transmitting to the IRS remains March 31.
No injunction of the ACA
The judge’s decision did not actually “strike down” the ACA but rather stated that the law is unconstitutional without penalties to enforce the individual mandate, which the Supreme Court identified as a tax in a landmark 2012 decision. The ACA remains in place because the judge did not issue an injunction against enforcement of the law.
The judge’s decision holds that if the legitimacy of the individual mandate is predicated on taxing power, and since Congress effectively removed the penalty provisions associated with the individual mandate (which were treated as a tax), then the mandate becomes an unconstitutional exercise of Congressional power. Further, since the individual mandate is a fundamental and inseparable element of the Affordable Care Act, then the entire law must fail.
An appeal is almost assuredly underway. The 5th Circuit Court of Appeals will hear the case, and the losing party at the 5th Circuit will very likely appeal the decision to the Supreme Court. The 5th Circuit has already upheld the constitutionality of the ACA in two previous lawsuits. Speculation on how the Supreme Court might rule should the case get that far is murky at best, although the court could also refuse to hear the case and allow a 5th Circuit ruling to stand.
Find out how Sovos helps companies avoid IRS penalties by keeping track of shifting ACA regulations and by centralizing and automating ACA reporting.