Part I – Basic ACA information
As an employer, what does the Affordable Care Act mean to my company?
Section 4980H of the Internal Revenue Code by the Affordable Care Act (ACA) affects some employers. Under these provisions, certain employers called applicable large employers (ALEs) must either offer health coverage that is “affordable” and that provides “minimum value” to their full-time employees (and offer coverage to the full-time employees’ dependents; or potentially make an employer shared responsibility payment to the IRS, if at least one of their full-time employees receives a premium tax credit for purchasing individual coverage on a Health Insurance Marketplace (Marketplace), also called the Exchange.
How do I know if my company is an Applicable Large Employer (ALE)?
Whether an employer is an Applicable Large Employer and, therefore, subject to the employer shared responsibility provisions, depends on the size of its workforce. In general, employers employing 50 or more full-time employees, including full-time equivalent employees (a combination of part-time employees that count as one or more full-time employees) are ALEs.
Whether an employer is an ALE in a particular calendar year generally depends on the size of the employer’s workforce in the preceding calendar year. For example, an employer will use information about the size of its workforce during the previous calendar year to determine if it is an ALE for the current calendar year.
What is the definition of a full-time employee for the purpose of ACA?
Full-time employees are individuals employed, on average, for at least 30 hours of service per week during the month or at least 130 hours of service during the month. An employer determines its number of full-time equivalent employees for a month by combining the number of hours of service of all non-full-time employees for the month (but not including more than 120 hours of service per employee), and dividing the total by 120. For example, an employer that employs 40 full-time employees and 20 employees each with 60 hours of service in a month has the equivalent of 50 full-time employees in the month (40 full-time employees plus 10 full-time equivalent employees [20 X 60 = 1200, and 1200/120 =10]).
Use the calculator below to calculate your Full-Time Equivalent Employees
Why is it important to track part-time and variable hour employees?
Tracking part-time and variable hour employees gives the employer important information when determining whether the employee is eligible for an offer of insurance coverage under ACA regulations.
What happens if my company is NOT tracking the actual hours worked for part-time or variable hour employees?
If the part-time worker seeks coverage for medical insurance from the Marketplace when the employer should have offered insurance coverage, the employer is then at risk for penalties for failing to comply with the ACA. The only way to document or prove the employee worked LESS than 30 hours average per week is to track and document the employee’s actual hours worked. If there is no documentation of hours worked, then the employee has the advantage, since under ACA and employment laws, it is the employer’s responsibility to monitor all employees’ hours worked.
If we are tracking now, should our company continue to track the hours of our part-time workers?
Yes. Although the individual insurance coverage mandate of the ACA was rescinded in 2017, the Shared Responsibility provision for ALE’s is still in effect, and ALE’s still must offer health insurance and report full-time worker insurance coverage. The only way to determine if a part-time employee has worked an average of 30 hours or more is to track and document the employees’ actual hours worked.
What department in an organization is responsible for ACA? Benefits? Finance? Payroll? HR?
Because the data that is required to comply with regulations under the Affordable Care Act is found in multiple departments in large organizations, all departments must combine efforts to address ACA compliance. Together the benefits, finance, payroll and HR departments must first produce the required data, then ensure that compliance rules are followed. It is not uncommon for companies to assign ultimate responsibility for ACA to the chief finance officer or to the human resource director, and some companies assign ACA compliance to the benefits director.
Part II – ACA Reporting – Compliance, 1095s to employees, 1094 IRS Submission, IRS Corrections
As an ALE, what are my company’s responsibilities for reporting?
ALEs are required to report information about whether they offered coverage to employees and, if so, information about the offer of coverage. ALEs are required to send this information to the IRS on Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. ALEs are also required to provide an individualized Form 1095-C to each employee. The information on these forms is used to determine whether an ALE owes a payment under the employer shared responsibility provisions.
What kind of data is required to be compliant with ACA?
There are two components of ACA that require data for full compliance. First, there is the data needed for tracking part-time and variable hour workers. Second, there is the data needed for ACA reporting to the IRS.
Data required for tracking part-time and variable hour workers
Employers must keep track of part-time and variable hour workers during a measurement period of three to twelve months. The employees who qualify as full-time must be offered health insurance for a stability period* of no less than six months. Then, the entire cycle repeats itself. Time and attendance records for part-time and variable hour workers are necessary data that are used to determine if the employees meet eligibility requirements of full-time employees. In essence, if the employee works an average of 30 or more hours per week or an average of 120 hours or more per month, during the measurement period, then the employee is considered full-time equivalent (FTE*) for the ensuing stability period. Employers must average the employee’s actual hours worked either monthly or weekly for the entire measurement period. And, there are rules affecting the averaging formula regarding employee leave and company shut-down periods.
Data required for ACA Reporting
Data for the Forms 1095 and 1094 often comes from several different divisions within a company. Payroll, human resource and finance data, as well as time and attendance records and benefits information, are all needed for ACA reporting. Data such as full-time or part-time status for every employee is required along with employer identification number and IRS reporting authorization. The employees’ hire dates, termination dates, changes of employee status dates, and reassignment dates are required data. Insurance coverage data and data on employees who opted to waive coverage is also required. Because the data comes from several departmental sources, the data is often difficult to extract and compile into reporting readiness.
What are the timelines for 1095s to employees and the 1094 transmittal to the IRS?
Forms 1095 are normally due to employees by January 31 of each year for insurance information from the previous year. Since the beginning of the Affordable Care Act, however, the IRS has extended that deadline by at least 30 days. The 1094 transmittal is due to the IRS by March 31 of each year, but there have been no extensions for the 1094 transmittal deadline since 2015.
What is the difference between fully and self-insured?
In the health insurance marketplace there are primarily two types of funding an employer group can choose: self–insured and fully-insured. The essential difference between the plans is who assumes the risk for the claims generated by the employees. In a fully–insured plan the risk falls on the insurance company. Employers with self-insured employee health programs pay for medical claims and fees out of current revenue—in effect, acting as their own insurers. Self-insured is the alternative to a fully insured plan where employers pay a fixed premium to a third-party commercial insurance carrier that covers the medical claims.
For reporting, an ALE that sponsors self-insured health coverage will use the same form it uses to report about offers of coverage (Form 1095-C) to satisfy the ACA reporting requirement by filling out an additional section (Part III) for employees and family members who enroll in the coverage.
What are the steps for securing a Transmittal Control Code for the IRS submission?
If the employer has more than 250 employees, the employer must file electronically. All electronic employer filers must obtain approval from the IRS, Technical Services Operation and be assigned a Transmitter Control Code (TCC) prior to electronically filing forms 1094 and 1094. The IRS must receive the TCC 45 days before the filing deadline. TCC applications can take up to 45 days to process by IRS.
Once the TCC has been obtained, data must be tested against IRS schema to ensure it is in the correct format to be received by the IRS. Additionally, the TCC must be renewed each reporting year.
I am an employer of less than 50 employees, but my company is “self-insured”, so we must report to the IRS. Which forms do I use? 1094 and 1095 B or C?
Normally employers file the 1094/5 C however there is a condition when the employer would file the 1094/5 B.
The employer is responsible for filing IRS Form 1095-B only if two conditions apply: It offers health coverage to its employees, and it is completely “self-insured.” This means the company itself pays its employees’ medical bills, rather than an insurance company. A company that doesn’t meet both conditions won’t have to deal with Form 1095-B. Its employees might still receive a 1095-B, but it would come from their insurance company, not the employer.
Part III – Non-compliance (Penalties – penalty letters)
What are the consequences for employers that do not comply with ACA regulations?
The consequences of noncompliance of the employer’s responsibility under ACA regulations can be severe. There are assessment fees, penalties and fines for noncompliance. The ACA provisions are complex, and the applicable penalty depends on which of these many ACA provisions is violated and the nature and extent of the violation. In addition to shared responsibility assessment fees, employers should keep the following penalties in mind as they work to ensure ACA compliance for their group health plans.
2020 penalty rates
For ACA forms/statements/filings Due 1/1/2020 through 12/31/2020
Penalty for ACA returns filed/furnished if less than 30 days late: $50 per return or statement ($194,500 maximum)
Penalty for ACA returns filed/furnished 31 days late until August 1: $110 per return or statement ($556,500 maximum)
Penalty for ACA returns filed/furnished after August 1: $270 per return or statement ($1,113,000 maximum)
Keep in mind that there is a penalty on furnishing and filing. The $270 penalty is doubled to $540 if the forms or statements were neither filed NOR furnished.
What are assessment (shared responsibility) fees?
If an employer does not provide coverage, provides coverage that does not offer minimum value, or provides coverage that is unaffordable, then the employer must make a per-employee, per-month “Employer Shared Responsibility Payment.” The IRS will provide the employer with a notice about the payment. Employers will not be required to include the Employer Shared Responsibility payment on any tax return that they file.
If an employer owes the fee because the employer didn’t cover workers, it is a flat $2,000 per full-time employee (excluding first 30 employees). If only a few employees end up with unaffordable coverage or if that coverage doesn’t meet minimum value standards, it’s $3,000 per full-time employee who got cost assistance (but, never more than $2,000 per full-time employee). The fee is always per month, so it is always 1/12 of those annual totals for each month.
What is an IRS 226-J penalty letter?
The IRS 226-J is a letter from the IRS to the non-compliant employer that explains the consequences of the non-compliance. It explains the penalty with a detailed summary table itemizing the amount of the penalty and the proposed payment per month. It also contains a response form (Form 14764), an Employee Premium Tax Credit Listing, and a description of the actions the employer should take.
In addition, the letter gives a description of the actions the IRS will take if the employer does not respond in a timely manner.
What should my company do if we have received a 226-J Penalty letter?
If your company receives or has received a Letter 226-J from the IRS, immediate action should be taken. First, observe the response due date. Most 226-J letters require a response within 30 days of the date of the letter. Determine how much time you have to respond and plan accordingly. Determine also why you received the Letter 226-J. It could be that a portion of the 1094 was in error. There could have been a mistake on the “minimum essential coverage” designation. Review all the employees named in the letter as having received subsidies through a Health Insurance Marketplace. Check the dates of the health insurance marketplace with internal employment dates. Review for date errors. Be prepared to provide documentation in your company’s defense. Seek the assistance of legal counsel or a full-service ACA compliance and reporting service to help demonstrate a) a qualifying offer was made, but waived, or b) the employee did not qualify to receive an offer. Also, make sure your organization is getting subsidy notices. While delivery of Marketplace notices may be late coming, it is important to confirm who is designated in your organization to receive such notices, and have a standard operating procedure in place for timely follow up and resolution when needed.
For further information on the letter 226J, click this IRS link: https://www.irs.gov/individuals/understanding-your-letter-226-j
Part IV – Top considerations for a third party provider for ACA Tracking and Reporting
What are the upfront costs for a third party provider?
Some third party providers charge a flat rate, some charge an upfront cost for setup, then additional, separate charges for data exchange, printing of 1095’s, and IRS 1094 transmission. Customer support in some cases is also an additional service with an extra charge for time expended for telephone support. Employers should diligently investigate the cost/benefits when considering third party providers.
Does our company employee data have to be in a certain format to outsource?
Most third party providers require data be sent to them in a certain format.
What kind of support does a third party provider offer?
Some third party providers provide little or no support after data exchange or only certain hours of telephone support. Some third party providers provide a full-time, dedicated staff member to assist their customers in real time.
What if our payroll system does not fit the IRS schemata rules for transmission?
According to the IRS regulations, if the employer employers 250 or more employees, the employer MUST submit the ACA reporting electronically. The IRS publishes and presents extensive documentation and webinars on the technical aspect of transmitting ACA reporting data to the IRS (dubbed AIR – Affordable Care Act Information Returns).
For further information, click here: https://www.irs.gov/e-file-providers/air/affordable-care-act-information-returns-schemas
How can our company ensure all our employee personal information and ACA data is secure?
Employers cannot overlook compliance of data privacy laws. As more employers adopt enterprise-level information management systems and outsource certain human resources administration functions, increasing amounts of personal data is being transferred and shared within and between organizations. Employers should consider all legal requirements (whether local, state or provincial or nationwide) that may impact their data privacy policies and procedures. Companies seeking to minimize their exposure from legal violations and security breaches involving employee Personal Data should consider adopting data privacy and protection best practices that aim to limit the amount of Personal Data they collect, process, transfer and store; secure Personal Data collected (in all formats in which it is kept); limit access to Personal Data to the extent practical, and provide training to staff who handle Personal Data; ensure third parties receiving Personal Data are subject to and apply appropriate security measures.