How to Address Form 1095 TIN Verification Errors

Taxpayer Identification Number (“TIN”) verification errors remain a common and critical issue in ACA reporting. Employers frequently receive IRS notifications highlighting mismatches between employee or dependent names, dates of birth, and TINs. Addressing these discrepancies promptly and strategically is essential to compliance and avoiding costly penalties.

What Are TIN Verification Errors?

Form 1095-C (for applicable large employers) and Form 1095-B (for certain smaller or self-funded plans) require accurate reporting of employee and dependent information, including names, dates of birth, and Social Security Numbers (“SSNs”). When the IRS matches this data with the IRS’s databases, mismatches often occur, triggering TIN verification errors. These errors indicate discrepancies between what was reported on Form 1095 filings and the IRS’s official database.

Why Do TIN Verification Errors Matter?

TIN verification errors are essentially an early warning. If errors remain unaddressed, the IRS may later initiate the penalty process. Typically, after tax filing season, the IRS will compile information return errors and potentially issue Notice 972CG to the file. Notice 972CG is the IRS letter proposing penalties for information return failures. Employers that receive Letter 972CG typically have 45 days to respond to the IRS before the IRS assesses the penalty. The response to the IRS is the employer’s opportunity to show “reasonable cause” and request a waiver of the fines.

Understanding IRS Penalties for Incorrect TIN Reporting

The penalties under IRC §6721 and IRC §6722 for incorrect or incomplete information on Forms 1094 and 1095 are shown in the following tables.

Table 1: IRC §6721 & IRC §6722 Penalty Rates for Large Businesses and Government Entities (Other Than Federal Entities) with Gross Receipts Over $5 Million (Average annual gross receipts for the most recent 3 taxable years)

Table 2: IRC §6721 & IRC §6722 Penalty Rates for Small Businesses with Gross Receipts Less Than or Equal to $5 Million (Average annual gross receipts for the most recent 3 taxable years)

Common Causes of TIN Verification Errors

The most prevalent cause of TIN verification errors involves name discrepancies, often resulting from typographical errors, use of nicknames, outdated or improperly recorded legal names (e.g., after marriage or divorce), or inconsistencies with governmental records. Additionally, errors may arise from incorrect or missing SSNs for dependents, inaccurate dates of birth, or simple transposition of digits.

How to Resolve TIN Verification Errors Effectively

Employers should proactively address TIN verification errors as soon as they’re identified by following these steps:

Step 1: Contact Employees

Reach out to affected employees promptly to request verification and correction of their TIN and/or personal information. Provide clear instructions and emphasize the importance of accurate details. Suggest that they directly refer to their social security card and the information provided on their latest tax return, and to communicate if there are any discrepancies between the two.

Step 2: Document Efforts

Maintain thorough records of all communications and attempts made to obtain correct information. IRS regulations permit waivers of certain penalties if an employer demonstrates diligent efforts to secure accurate information.

We suggest all attempts to obtain correct information is documented in writing and retained for no less than 7 years.

Step 3: File Corrected Returns

File corrected Forms 1095 (with Form 1094) as soon as you have accurate information. Timely corrections reduce penalty risks and demonstrate compliance diligence to the IRS.

Best Practices to Minimize Future TIN Verification Errors

Implementing preventive measures helps minimize future errors, improve compliance, and simplify ACA reporting:

• Conduct Regular Employee Information Audits: Regular audits can uncover outdated or incorrect data early, reducing year-end discrepancies.
• Implement Real-Time Data Verification: Use HR/payroll systems or third-party vendors that integrate real-time verification of TIN and employee data against governmental databases.
• Educate Employees: Educate your workforce about the significance of accurate personal information for ACA reporting and potential impacts of inaccuracies.
• Strengthen Communication Channels: Ensure effective communication between HR, payroll, benefits, and your ACA reporting vendor. Clear internal protocols facilitate accurate data collection and reporting.

Failure or Refusal to Provide Correct Data

If an employee or dependent refuses to provide correct information, employers must document multiple requests clearly:

• Initial request during enrollment.
• Second request by December 31st of the year of enrollment.
• Third request by December 31st of the following year.

Paper or electronic documentation of these requests can shield employers from certain IRS penalties under the “reasonable cause” provision.

Conclusion

Effectively managing ACA Form 1095 TIN verification errors is crucial for compliance, penalty avoidance, and overall administrative efficiency. Implementing robust data collection and verification processes, responding swiftly to identified errors, and maintaining clear documentation positions your organization strongly against IRS scrutiny.

As you navigate ACA reporting complexities, remain proactive, communicative, and organized. Doing so ensures smoother ACA compliance and a significantly reduced administrative burden.