ACA, and Reporting Requirements, Remain in Place Despite Judge’s Decision

Tom Hospod
December 17, 2018

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.

Take Action

Find out how Sovos helps companies avoid IRS penalties by keeping track of shifting ACA regulations and by centralizing and automating ACA reporting.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Tom Hospod

Tom Hospod is a Regulatory Counsel at Sovos Compliance. Within Sovos’ Regulatory Analysis function, Tom focuses om Affordable Care Act (ACA) reporting, Tax Withholding, and Automatic Exchange of Information (AEOI). Prior to Sovos, Tom worked as a legislative aide in the Massachusetts House of Representatives. Tom is a member of the Massachusetts Bar, earned his B.A. from Boston College and his J.D. from the University of Miami.
Share This Post

Tax Information Reporting United States
May 14, 2019
How to Prepare for 1099 Reporting Changes to Come in the Gig Economy

There has been a lot of attention paid to “gig” economy workers lately, and that includes some scrutiny by state and federal tax authorities. The growing impact to tax revenue as a result of under-reporting of income and minimal payments of self-employment taxes from this ‘new’ sector of American workers has not gone unnoticed. Academic […]

EMEA IPT
May 9, 2019
The Cost of Getting it Wrong – The Benefits of Getting it Right

Premium taxes shouldn’t be overlooked as pressure mounts for insurers to protect profit margins. The UK insurance market in recent years has achieved on average a combined ratio of 95%, meaning that for every £100 of premium income written, the insurer makes an underwriting profit of £5. If you then consider that the standard rate […]

Tax Information Reporting United States
May 6, 2019
Best Practices for Coping with the IRS Crackdown on 1099 Backup Withholding

Background Generally, under Internal Revenue Code 3406(a)(1)(A), when a payer of US source income fails to collect a US tax identification number (TIN) in the manner required for the type of payment being made, 24 percent backup withholding is applicable at time of payment. Filers are required to remit those amounts to the IRS and […]

E-Invoicing Compliance EMEA LATAM Sales & Use Tax United States VAT & Fiscal Reporting
May 6, 2019
Shielding SAP Central Finance Migrations from Tax Compliance Mandates

With more companies focusing on global integration, cross-border supply chains and expanding ecommerce, governments across the globe are introducing new ways to enforce tax rules and close their tax gaps. The evolving global regulatory environment produces unique tax determination and reporting challenges in the United States and additional VAT and e-invoicing compliance challenges around the […]

EMEA IPT
May 2, 2019
Italian Prepayments Can Be Painful

Some insurance premium tax regimes operate a kind of prepayment mechanism, whereby insurers are required to pay an amount to the tax authorities in anticipation of future tax liabilities.  This credit is then drawn down on or adjusted as and when actual tax liabilities crystallise.  Prepayment should not, therefore, represent an additional cost to insurance […]