We are smack in the middle of Form 1094 and 1095 reporting season, so we are fielding a lot of reporting questions. I have received the same question in various forms multiple times this week so I thought it was worthy of a blog post. The conversation usually goes something like “Our vendor submitted our Form 1094-C file to the IRS and it was accepted with errors. What do we do now?”
I had one client ask if “accepted with errors” was like getting the blue screen of death. Most of us probably have a negative memory of vigorously typing away on a term paper, a brief, or an email to a client/boss and all of a sudden everything locks up and you see it – the blue screen of death. It never happens at an opportune time and slamming your fingers on your keyboard never changes the result. Most people reading this post probably know that seeing the blue screen means that a fatal error has occurred and you won’t be finishing that term paper, brief, email, etc. any time soon. And while receiving an “accepted with errors” message from the IRS may seem as frustrating as getting the blue screen of death, it does not in fact mean a fatal error occurred or that your submission was rejected. However, it also doesn’t mean that your return was completely accepted by the IRS.
What it means is that, while your return was accepted, you had some records that contained errors. The most common error that we are aware of is coded on the IRS reports as AIRTN500. This code means that the taxpayer identification number does not match the name of the individual in the IRS’s system. At first, most employers assume that this means that there was an error in the employee’s social security number. However, for self-funded employers, the error may be with your employee or it may be with one of their enrolled dependents. And even more frustrating is the fact that the IRS does not indicate which individual has an error but rather only that an error occurred on that employee’s submission. Another misconception is that it is the social security number and not the name that is wrong. Often times, employers realize after multiple correction attempts, that it is actually the name that was wrong.
The IRS does expect employers to correct, or at least try to correct, those errors. So accepted with errors should not mean that you are done until next year (if employers have to do these again next year). A failure to make a good faith effort to correct the errors can result in penalties up to $500 per employee. There seem to be some commonality in the fact patterns causing errors and we can walk you through the steps that you should take in order to minimize the risk of penalty for an incorrect filing if you receive an accepted with errors message. So while it may at first seem as frustrating as a blue screen of death, take a deep breath because without hopefully too much additional time and effort, you can get your records to a place that they are just accepted and not accepted with errors.