What is ACA?

The Affordable Care Act (ACA) was designed to ensure that employees were offered timely and affordable healthcare by their employers. Employers must track and report this information as a part of ACA compliance to avoid costly penalties from the IRS.

What is ACA Compliance?

Employers that are subject to ACA must offer affordable healthcare that provides minimum essential coverage to at least 95% of their full-time employees and their dependents. Among other important notices, employers are required to provide employees with:

Notice of coverage offered in a timely manner
Summary of Benefits and Coverage (offered plans and employee cost)
Form 1095-C

Who is subject to ACA Compliance?

Applicable Large Employers (ALEs)
All-size employers that offer self-funded group medical plans (including level-funded plans)

How to calculate ALE status:

Count employees with 120+ hours worked in one month.
Calculate hours for all other employees that work under 120 hours and divide by 120.
Add the numbers from Step #1 and Step #2 and round to the nearest hundredth.
Repeat steps 1-3 for each month of the year and then divide by 12. If this number is over 50, the employer qualifies as an ALE.

Tips: For the employees that work under 120 hours, include all employees that work billable hours, such as part-time, seasonal, union, etc.

The different forms:

1094-A and 1095-A

These forms are used by public marketplaces to report coverages.

1094-B and 1095-B

These forms are used primarily by insurance carriers to report coverage on fully-insured plans. Small employers, if offering self or level-funded plans, need to report coverage information on these forms.

1094-C and 1095-C

These forms are used by ALEs to report insurance coverage for the employer and employees. If the employer is not only an ALE but also offers self-funded coverage, this reporting is all done on these forms.

*It is important to note that even if the insurance carrier sends out the 1094-B and 1095-B, The ALE is still responsible for reporting coverage information on the 1094-C and 1095-C forms. The insurance carrier does not process this reporting.

Letters/penalties from the IRS to look out for:

5699

The IRS Letter 5699 is a penalty notice issued by the IRS to ALEs for not filing forms 1094 and 1095-C. In 2022, the penalty for not filing was $280 per form and there was an additional $280 if employees did not receive their 1095-C forms.

226J

The IRS Letter 226J is a penalty notice issued by the IRS to ALEs regarding employees offered incorrect or insufficient coverage.

972CG

The IRS Letter 972CG, Notice of Proposed Civil Penalty, is a penalty notice issued by the IRS to ALEs for late or missed filings or missing/incorrects TINs. This penalty was $290/form for 2022.

What is Good Faith Relief?

Through 2020, IRS provided relief from reporting penalties for failing to provide complete and correct information, as long as it was evident that the employer made *good faith effort* to submit correct reporting in a timely manner. In 2021, this Good Faith Relief is no longer offered.

Now, there are harsh penalties for employers that don’t offer coverage or that make mistakes in reporting.

What is the deadline for ACA Compliance reporting?

Copies to Individuals: March 1, 2024 (this can be provided to employees electronically with employer consent)

IRS Submission: April 1, 2024

While these are the official IRS deadlines, it is important to note that if an agency is submitting the ACA Compliance reporting on your behalf, they may have different deadlines that are crucial to adhere by.

§ 4980H (a)

95% of full-time employees and their dependents must be offered minimum essential coverage
Penalty applies if any full-time employee enrolls in subsidized public exchange coverage
- 2022 Penalty: $229.17/month ($2,750/year) for each employee

§ 4980H (b)

95% of full-time employees and their dependents must be offered affordable medical coverage
Penalty applies if any full-time employee enrolls in subsidized public exchange coverage
- 2022 Penalty: $343.33/month ($4,120/year) for each employee

How do you determine what is affordable for employees?

An employee’s contribution for minimum value coverage should not exceed a certain percentage of the employee’s household income.

Affordability percentages (maximum percentage of income to be spent on health insurance):
- 2019: 9.86%
- 2020: 9.78%
- 2021: 9.83%
- 2022: 9.61%
- 2023: 9.12%
- 2024: 8.39%

Additional things to consider:

An employer must make three obvious attempts to obtain accurate information from employees. It is important to save documentation for all three attempts to avoid potential employer penalties.
States with individual mandate reporting:
- California
- Massachusetts
- New Jersey
- Rhode Island
- Washington D.C.

Common mistakes to avoid:

Failure to mark “Yes” on Form 1094-C - Part III - Column A
Failure to properly code waiting periods and appearing as if not in compliance even though the employer may be
Failure to code employer and employee contributions correctly
Failure to report the employees covered by COBRA

NOTE: The IRS changed the ACA filing requirements for the 2023 tax year. Starting in 2024, employers that are required to file 10 or more of any tax form must send Forms 1095 to the IRS electronically. Previously, an employer was required to file electronically only if they had 250 or more Form 1095 returns.

Want to avoid the potential of making mistakes and receiving penalty notices from the IRS? Contact us by January 15th and we will process your ACA reporting for you.

We’re here to help!

This information is intended for information purposes only. Any reader understands that Apex Benefit Group is not providing legal advice, tax advice, or professional services in this article. This article serves to offer practical information regarding the subject matter and is not a comprehensive resource.