ACA Reporting: Everything You Need to Know
ACA reporting continues to be a significant concern for employers.5 min read
ACA reporting continues to be a significant concern for employers. ACA, also referred to as the Affordable Care Act or Obamacare, significantly affects employee benefits. Enacted in 2010 under the Obama Administration, ACA requires employers falling into the category of Applicable Large Employers (ALEs) to disclose to the Internal Revenue Service (IRS) whether it offered the dependent children of its full-time employees’ to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan. A company qualifies as an ALE if it employs more than 50 full-time employees.
The ACA also requires those ALEs report health coverage information to the IRS and employees on a yearly basis. The IRS then takes the information and utilizes it to enforce the ACA’s “shared responsibility” provisions and order premium tax credits.
If an ALE does not provide affordable health care coverage, the company may be penalized one or more employees qualifies for a premium tax credit and uses such credit to purchase coverage in the health insurance exchange. As such, an employer must be required to provide such affordable coverage so that its employees need not utilize the external health care insurance exchange to find health benefits.
Employer Shared Responsibility
Also referred to as the employer coverage mandate, the employer shared responsibility has specific provisions for ALEs, including a requirement that the company offer a MEC that is both affordable and provides some type of value to its employees working at least 30 hours a week; if the company doesn’t provide this, it will be penalized.
To fully prepare for this type of responsibility, mid-size employers should identify how many full-time employees it has. Again, if the employee works at least 30 hours a week, he or she is considered a full-time employee under ACA, even if the employee is only a short-term employee or contractor.
Large employers subject to these provisions should keep track of all processes to verify that information is accurate with regard to the number of employees, the type of healthcare benefits provided, and ensuring that they offer a MEC that is affordable and provides a level of value to those full-time employees.
ACA reporting requirements apply to all ALEs. Such reporting instructions can be found in Section 6055 and Section 6056 of the IRS Tax Code. Both sections can be found on the following forms:
- Form 1095-C (Employer-Provided Health Insurance Offer and Coverage)
- Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage)
- Form 1094-B
- Form 1094-B
Employers will always fill out “C” reports, which are used to identify the employer shared reporting requirements and penalties as well as employees’ premium tax credit eligibility; however, B reporting is filled out by insurance carriers. An employer will complete Form 1095-C for each full-time employee and subsequently distribute the form to each employee by January 31 of each year.
For those large ALEs, ACA information consisting of all 1095-C forms as well as one Form 1094-C must be reported to the IRS by February 28 or alternatively, must be filed online by March 31. Such forms identify the specific healthcare coverage each full-time employee uses.
Keep in mind that ACA reporting requirements vary based on the size of the ALE and type of healthcare coverage the employer offers its employees:
- Employers with 50 or more full-time employees must report, even if they don’t offer healthcare coverage.
- Employers with less than 50 full-time employees must report only if they offer self-insured health coverage.
- If the employer is part of a controlled group, it must combine the employees of each company when making the calculation for reporting purposes. A controlled group is one in which two or more companies are treated as a single employer. See sections 414(b), (c), (m), and (o) of the Internal Revenue Code for additional guidance.
1094-C and 1095-C
The information included on Form 1094-C assists the IRS in determining if a Section 4980H(a) and/or Section 4980H(b) penalties applies. Such information on this form also includes whether the employer offered a sponsored health benefits, the number of full-time employees each ALE has, whether the healthcare offered to the employees was both affordable and provided some sort of value, and whether the ALE was eligible for transition relief. Form 1095-C details employee-level information about the health coverage offered as well as the plan each employee uses, name and the number of dependents.
An ALE may be subject to two shared responsibility penalties if the company failed to offer affordable MEC. If MEC was not offered to at least 95% of its full-time employees, and one or more of those employees received a premium tax credit for purchasing health coverage through a state insurance marketplace, then the employer will be penalized under Section 4980H9(a). Additionally, the employer may incur a second penalty under Section 4980H(b) if the ALE, while offering the MEC to at least 95% of its full-time employees, has one or more employees that receive a premium tax credit for purchasing health coverage through a state insurance marketplace.
Cadillac tax is a nondeductible 40 percent excise tax incurred on employers for the cost of health coverage that exceeds annual limits. The plan will not be implemented until 2018, but it is currently one of the more debated provisions as it fines employers for offering benefit-rich plans to employees.
Penalties for ACA Information Returns
Penalties will apply in the following circumstances:
- Incorrect employee name and/or SSN, which carries a penalty of $260/statement, up to a maximum of $3,178,500/year
- Missing information
- Incorrect information being provided, which carries a penalty of $260/return, up to a maximum of $3,178,500/year
- NOTE that the maximum penalty for both the failure to file and provide information is $6 million/year
Penalty relief is possible if the employer makes a good faith effort to comply with ACA reporting requirements.
Electronic Filing of ACA
Many ALEs file electronically with the IRS, since the IRS established a new electronic filing system called the Affordable Care Act Information Return System (AIR). Notably, electronic filing is required for those ALEs that file 250 or more Forms 1095-C. Regardless, all ALEs should file electronically as that is the recommended standard of filing.
Combined ACA Reporting for ALEs
- ALEs with former employees who left the firm within one year, i.e. COBRA participants, retirees, who are enrolled in the company’s self-insured plan must file under IRS Section 6055 on either Form 1094-B or Form 1095-C, depending on if the ALE is an insurance carrier.
- ALEs with former employees and non-employees must ensure that the company has those former employees’ SSNs to input into Form 1095-C.
Forms 1094-B and 1095-B will be used by non-ALEs to report coverage for it employees enrolled in a self-insured health plan for more than one month out of the reporting year. Such employers need to complete Part I, Part II, and Part IV; however, Part II is not required.
If you want to learn more about ACA reporting requirements or if you own a company and are unsure as to whether or not you are properly abiding by such requirements, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.