Managing Affordable Care Act Reporting Requirements Due in 2023
Business owners need to understand the common terms used regarding the Affordable Care Act (ACA), how to make appropriate calculations, and how to comply with their ACA reporting requirements.
ACA Reporting Deadlines: Important Dates for 2023
For Tax Year 2022, applicable large employer must furnish Form 1095-C to applicable employees by March 2, 2023. The deadline for filing paper Forms 1094-C and 1095-C with the IRS is Feb. 28, 2023. The due date for electronic filing is March 31, 2023. The affordability rate for plan years beginning in 2023 is 9.12% (a decrease from 9.61% for plan years beginning in 2022).
Businesses subject to ACA tracking and reporting requirements have several deadlines to meet if they want to be in ACA compliance. There are deadlines for furnishing forms to employees and for filing forms to the IRS. The extended due date for Applicable Large Employers (ALEs) to provide forms 1095-C to applicable employees is 30 days from the deadline of Jan. 31. The IRS granted this extension automatically and has indicated it will apply permanently to the ACA furnishing deadline.
The deadline for ACA filing of all paper forms with the IRS remains Feb. 28. However, the deadline is March 31, if filing electronically. The due date is the next business day if it falls on a weekend or legal holiday. It should be noted that all employers with 250 or more returns to file must do so electronically.
Who Is Required To Report Under the Affordable Care Act?
Applicable large employers (ALEs) are required to report under the Affordable Care Act. ALEs have an average of 50 or more full-time employees, including full-time equivalent employees (FTEs), during the prior year. This distinction is a key metric, since only ALEs are subject to the ACA’s Employer Shared Responsibility (ESR) provisions and must fulfill applicable ACA reporting requirements.
What Are the ACA Reporting Requirements?
Employers that meet the threshold to be considered an ALE are required to submit all the proper forms under the ACA. Failure to do so could result in potential penalties each year.
Calculating Full-Time Equivalents for ACA Reporting
To calculate your full-time equivalents, add the hours of service for all employees who worked less than an average of 30 hours a week or 130 hours a month in a given month. Count no more than 120 hours per employee per month. Then divide the total hours by 120 to get your FTE count for that month. This number is then added to the count of regular full-time employees for each month. The total number of full-time employees, including full-time equivalents for each month in the preceding calendar year divided by 12then determines whether a business is an ALE subject to employer shared responsibility (ESR) provisions.
ACA Reporting Requirements and Health Coverage Offered to Employees
To fulfill their ACA compliance, employers that meet the ALE threshold must offer adequate and affordable health insurance coverage to full-time employees and their dependents or risk an assessment if at least one full-time employee purchases health insurance coverage from a government marketplace and receives a premium tax credit. ALEs are required to complete Forms 1094-C and 1095-C to report information about health insurance coverage offered to full-time employees and their dependents.
The ACA also provides specifics on what constitutes adequate, affordable coverage. The ACA defines affordable coverage as costing the employee no more than 9.5% (adjusted for inflation each year) of the employee's household income for the lowest cost, self-only minimum essential coverage. Plans must also meet a minimum value (MV) threshold — that is, the plan must cover at least 60% of the total allowed cost of benefits under the plan.
How To Determine Affordability?
Recognizing that it is difficult for employers to know the household income of their employees, the U.S. Department of Treasury provided for the following three safe harbors in the ESR final regulations that can be utilized to assess the affordability of an offer of coverage in lieu of using household income.
- W-2 Safe Harbor: An ALE’s offer of coverage for every month of a calendar year is considered affordable if the employee’s required contribution for the lowest cost, self-only coverage that provides MV for the calendar year does not exceed 9.5% (as adjusted) of the wages paid to the employee by the employer as reported in Box 1 of the Form W-2. Special rules apply for partial years of employment.
- Rate of Pay Safe Harbor: An ALE’s offer of coverage for a calendar month is affordable if the employee’s monthly required contribution for the lowest cost, self-only coverage that provides MV does not exceed 9.5% (as adjusted) of an amount equal to 130 hours multiplied by the lower of the employee’s hourly rate of pay as of the first day of the coverage period or the employee's lowest hourly rate of pay during the month for an hourly employee, or of the employee’s monthly salary for a non-hourly employee.
- Federal Poverty Line Safe Harbor: An ALE’s offer of coverage for a calendar month is affordable if the employee’s required contribution for the calendar month for the lowest cost, self-only coverage that provides MV does not exceed 9.5% (as adjusted) of the federal poverty line for a single individual for the calendar year divided by 12.
Keep in mind, premium incentives under a wellness program might impact the affordability calculation. COVID-19 vaccine-related premium incentives under a wellness program, as with other non-tobacco use premium incentives, are treated as not earned, whereas qualified tobacco-related wellness incentives are treated as earned. This means the impact on the employee’s required contribution will be as if the employees did not receive the COVID-19 vaccine. (Note: An FAQ issued by the U.S. Department of Labor, Health and Human Services, and Treasury provides that the COVID-19 premium incentives must meet requirements of an activity-only health-contingent wellness program.)
Example: An ALE offers coverage to full-time employees and their dependents. The employee monthly share of the lowest cost, self-only coverage is $200.
Discount: If the plan has a $50 per month premium discount for individuals who receive the COVID-19 vaccine under a wellness program, the premium discount is disregarded when determining employee required contribution regardless of whether the employee received the vaccine. The employee’s required contribution per month is $200 for ESR purposes. Whereas, if the discount is related to a tobacco cessation program, the employee’s required contribution would be $150.
Surcharge: If the plan has a $50 per month premium surcharge for individuals not receiving the vaccine, the surcharge is added to the employee required contribution regardless of whether an employee receives the vaccine. The employee’s required contribution is $250 (200 + 50) a month for ESR purposes. If the surcharge is related to a tobacco cessation program, the employee’s required contribution would be $200 for ESR purposes.
Penalties for Failure To Offer Affordable and Adequate Health Insurance
If an ALE fails to offer minimum essential coverage (MEC) to at least 95% of its full-time employees and their dependents, the employer risks being assessed one type of employer shared responsibility payment (ESRP) if at least one full-time employee purchases health insurance in a government marketplace and receives a premium tax credit. The payment is $2,000 per full-time employee (adjusted each year for inflation), after excluding the first 30 full-time employees. This is a 4980H(a) penalty.
There is also a 4980H(b) penalty, which is assessed if the ALE offers coverage to 95% of its full-time employees, but the coverage offered does not meet the minimum value and affordability stipulations listed above. This penalty is $3,000 per employee (adjusted each year for inflation) who received the premium tax credit provided by the IRS for individuals without access to affordable coverage.
Gathering and Submitting Data To Meet ACA Reporting Requirements
Each year, ALEs subject to ACA reporting requirements must compile data on applicable employees and submit this information to the IRS. Attention to detail with all forms and requirements is vital, since any missteps, inaccuracies, or delays in processing can result in penalties and interest.
Required ACA Forms for Reporting: Forms 1095-C and 1094-C
The first reporting requirement for ALEs is to provide a copy of Form 1095-C to every full-time employee, regardless of whether they enrolled in the company-sponsored health plan. Employers must also keep a copy of every 1095-C form to send to the IRS to fulfill ACA reporting requirements. Correctly filling out lines 14 through 16 on this form can be particularly challenging for many people.
Employers must also complete Form 1094-C, which acts as a summary for the aggregated 1095-C forms and provides helpful information to the IRS, including contact information and the employer's Employer Identification Number (EIN), the name of a contact person, and the total number of employees.
Preparing for ACA Year-End Reporting
Part of a solid preparation plan involves gathering the data needed to complete the required IRS forms in time for ACA year-end reporting. An ALE will need a variety of information, including but not limited to:
- Employer Identification Number and business contact information
- Key contact person within the company and that individual's contact information
- Total number of employees each month
- Total number of full-time employees each month
- Average hours worked by each employee each month
- Whether insurance was offered to each full-time employee
- The type of insurance coverage offered (if applicable)
- Monthly cost to each employee for the lowest-cost, self-only minimum essential coverage providing minimum value that is offered
- Individual employee names and Social Security numbers
- Proof that 95% or more of full-time employees and their dependents were offered minimum essential coverage
Submitting Your Required ACA Forms to the IRS
Once the employer completes the required forms with the proper information, they should prepare them for transmission to the IRS. As with traditional business tax returns, ACA reporting forms can be submitted electronically or via regular mail. However, employers with 250 or more Forms 1095-C are required to submit all forms electronically.
Prepare for ACA Year-End Reporting in Advance
Verifying, cataloging, and reporting accurate data takes a considerable amount of time. Starting the process early helps to avoid an unnecessary last-minute rush to gather information and can avoid costly late fees and penalties due to inaccuracies. Beginning in the third or fourth quarter of the previous calendar year, employers should begin verifying employee records with each individual employee to ensure that all personnel data is accurate and up to date. Employers should also cross-reference facts such as employee hire dates and average hours worked, in case employees are newly eligible for benefits.
Simplify ACA Compliance Through Outsourcing
Reporting is difficult and can be costly. Having an integrated solution that combines benefits, payroll, and insurance data can take much of the burden off your shoulders at reporting time.
An ACA reporting service such as the Paychex Employer Shared Responsibility Services monitors your ALE status, FTE hours, and the type and affordability of your offered coverage throughout the year*. You can also receive help with end-of-year reporting, including lines 14, 15, and 16 of Form 1095-C for each employee.
*The Coverage Adequacy Service is available only to payroll clients who receive their health and benefits (H&B) coverage through Paychex Insurance Agency or the Paychex PEO.