The Affordable Care Act (ACA) is an important piece of legislation that business owners need to understand, along with the common terms used in regard to the ACA, how to make appropriate calculations, and how to comply with all applicable reporting requirements.
Who is required to report under the Affordable Care Act?
Applicable large employers are required to report under the Affordable Care Act. ALEs are those with 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 associated reporting requirements. Employers that meet this threshold but fail to submit all the proper forms required under the ACA are subject to potential penalties each year.
Calculating FTEs 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 month divided by 12 then determines whether a business is an ALE subject to employer shared responsibility (ESR) provisions.
ACA reporting requirements and health coverage offered to employees
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. For 2019, the ACA defines affordable coverage as costing the employee no more than 9.86 percent of the employee's household income for the lowest cost, self-only minimum essential coverage. Plans must also meet a minimum value threshold — that is, the plan must cover at least 60 percent of the total allowed cost of benefits under the plan.
Penalties for failure to offer affordable and adequate health insurance
If an ALE fails to offer minimum essential coverage (MEC) to at least 95 percent 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. This annual payment for the 2018 reporting year was $2,320 per employee, after excluding the first 30 full-time employees.
If the ALE offers coverage to 95 percent of its full-time employees but the coverage offered does not meet the minimum value and affordability stipulations listed above, employers could be subject to another type of ESRP. This fee for the 2018 reporting year was $3,480 per employee 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 for 2019
Each year, ALEs, subject to ACA reporting requirements, must compile data on applicable employees and submitting 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
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 for 2019. 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 percent 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. Like 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.
ACA deadlines for employers
As with a traditional tax season, the ACA reporting season has specific deadlines and associated penalties for failure to meet those deadlines. Employers should allow adequate time to prepare and submit all required forms before the deadlines. Employers that choose to handle all reporting requirements in-house may find that the entire preparation and reporting process takes several weeks or even months of diligent work and information gathering.
To meet IRS reporting requirements, employers must furnish all 1095-C forms to applicable employees by the end of January each year. All hard-copy paper forms for employers with fewer than 250 forms must be submitted by the end of February. Employers with 250 or more forms or other employers that opt for electronic filing have until the end of March to submit all required documentation.
ACA reporting deadlines for 2019
Although the deadline to distribute 1095-C forms to employees has been extended in recent years, employers shouldn't count on a similar extension for the 2019 reporting season. Employers should instead be prepared to distribute all forms to employees by Jan. 31, 2020, with deadlines to submit paper and electronic forms to the IRS in late February and late March, respectively.
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 it 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, like 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 the infamous lines 14, 15, and 16 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.