Increased Penalties for Failing to File Information Returns

While we already knew there would be penalties for failing to file IRS forms 1094 and 1095, the recently enacted Trade Preferences Extension Act of 2015 revised Section 6721(a)(1) of the Internal Revenue Code, providing penalty increases, making it more painful should an employer fail to file in a timely manner.

Failures include not filing all required information, filing incorrect information and not filing by the due date. The penalty for general failures was set at $100 per return and is increased to $250. The cap on a calendar year raises from $1.5 million to $3 million. When an employer has an intentional disregard for the filing requirements, the penalty increases to $500 per return and the calendar year cap does not apply. While failures can be corrected within specific time frames, those penalties have increased as well.

Double impactful on Applicable Large Employers (ALE), there is also increased penalties when individual statements are not filed. Should an ALE be able to show a good faith effort to comply, there may be limited relief according to a previous IRS announcement.

While penalties include other information returns such as Forms W-2 and 1099-R, it’s important to realize that they all require a vase amount of information, greatly increasing the possibility of errors leading to higher penalties.

The penalty increases make it even more important to utilize a good data management system and file in a timely manner.

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