What Is Good-Faith Transition Relief Provided By IRS?

The Affordable Care Act requires employers that have coverage to disclose that they provide minimal essential protection to their employees, by filing IRS Forms 1094-C and 1095-C.

Up until recently it was the case that the IRS provided "good-faith transition relief" which permitted businesses to stay clear of penalties arising from the inadvertently submitted or incorrect information on Form 1094-C or 1095-C filings. This includes the absence of or in error, taxpayer identification Numbers (TINs) as well as date of birth and other important information.

According to the policy, a company that has submitted forms that contain incorrect or inaccurate information can be exempt from penalties by proving before the IRS that it took in "good-faith" endeavor to be in compliance with ACA regulations when supplying these forms to people and submitting them to the IRS. Many people also seek assistance from professionals to prevent ACA reporting penalties.

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In 2020, the ACA reporting period was the final one during which the IRS granted relief in good faith. Without it, mistakes are more likely to be penalized for companies. 

The reason for IRS sanctions is similar even in the absence of good faith relief but now there is an increased responsibility on businesses to record their efforts to eliminate and correct mistakes in their filings to avoid penalties. But, despite the absence of the protections offered by good-faith relief, not every mistake in filing will lead to an automatic penalty.

In order to benefit from this policy employers must prove that the mismatch isn't caused by the employer's mistakes or inattention.

The IRS could waive penalties completely in the event of an error caused by factors outside of the control of the employer like an employee giving false or inaccurate details. In this regard, it is crucial employers take concrete measures to verify accuracy as well as rectify errors.

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