New Six-Year Statute of Limitations on ACA Employer Penalties Provides Relief for Employers

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Employers now have greater clarity and protection regarding potential Affordable Care Act (ACA) employer shared responsibility penalties (ESRP) thanks to a recent amendment to U.S. tax law. Under the Employer Reporting Improvement Act, Congress established a six-year statute of limitations for assessing ACA penalties related to an employer’s failure to provide minimum essential coverage (MEC) or offer affordable health insurance.

Previously, the IRS did not have a statute of limitations for these penalties, leaving employers vulnerable to liability for an indefinite period. Due to IRS processing delays, companies could face assessments years after the tax year in question, creating uncertainty in financial planning, compliance, and mergers or acquisitions. With the new law, employers now have a definitive timeframe in which the IRS must assess ACA penalties, reducing prolonged risk exposure.

How This Change Benefits Employers

For employers, the new six-year statute of limitations provides greater predictability and a clear timeline for potential ACA liability. Previously, the IRS could audit records and assess penalties for an** **unlimited period, leaving businesses uncertain about long-term financial risk. The new limitation period allows employers to better manage compliance strategies and ensure that any potential penalty exposure is identified and resolved within a reasonable timeframe.

It is important to note that the six-year clock does not start until ACA reporting forms (1094-C and 1095-C) are filed. If an employer fails to file, the statute of limitations does not begin until the forms are submitted. Therefore, employers should ensure timely and accurate filing to take full advantage of this legal protection.

Key Takeaways for Employers

• The six-year statute of limitations ensures ACA penalty assessments must occur within a defined period, eliminating indefinite risk.
• Employers must file Forms 1094-C and 1095-C to activate the six-year timeframe. Failure to file means the IRS can assess penalties at any time.
• Although this change offers relief, ACA reporting and compliance remain necessary to avoiding penalties. Employers should continue monitoring their workforce size, benefit offerings, and filing obligations to ensure compliance.

While this law provides much-needed protection and clarity, employers should remain diligent in their ACA compliance efforts. BAS’ ACA data collection and reporting service can help employers address compliance matters. For information about BAS’ ACA services, contact your account manager or solutions@basusa.com.