Navigating ACA Reporting: A Guide for Success
ACA reporting can be a complex and time-consuming task for businesses, especially those unfamiliar with its detailed requirements. With evolving regulations and strict deadlines, companies often find themselves overwhelmed. Let’s explore common challenges and how adopting best practices can simplify the process.
Important Legislative Updates
Last week, Congress passed the Paperwork Burden Reduction Act and the Employer Reporting Improvement Act. Both Acts significantly alter ACA reporting requirements. President Biden is expected to sign both Acts soon.
Paperwork Burden Reduction Act
The Paperwork Burden Reduction Act modifies ACA reporting requirements by eliminating the need for employers and insurers to automatically send 1095-B and 1095-C tax forms unless requested.
Current Requirement: Employers must send 1095-B and 1095-C forms to covered individuals and report to the IRS.
New Provision: Employers must provide these forms only upon request, fulfilling the request by January 31 or 30 days after the request, whichever is later.
Effective Date: Applies to statements for calendar years after 2023.
Employer Reporting Improvement Act
This Act streamlines employer reporting obligations and extends compliance flexibility:
Substitutions Allowed: Employers can use an individual’s date of birth if a Tax Identification Number (TIN) is unavailable.
Electronic Delivery: Employers can offer tax forms electronically.
IRS Response Window: Employers now have 90 days to respond to initial IRS assessment letters, up from 30 days.
Effective Date: Applies to statements due after December 31, 2024.
Employer Mandate: Who Must Comply?
The ACA applies to Applicable Large Employers (ALEs), defined as businesses with 50 or more full-time employees (including full-time equivalents) during the prior calendar year.
Full-Time Employee Definition: An employee working 30+ hours per week or 130+ hours per month.
Full-Time Equivalent Calculation: Total monthly part-time employee hours divided by 120.
Tip: Use an ACA compliance tracker to monitor employee hours.
Minimum Essential Coverage (MEC)
ALEs must offer health insurance that meets Minimum Essential Coverage (MEC) requirements:
Minimum Value Standard: The plan must cover at least 60% of expected health costs.
Affordable Coverage: Employee premiums for self-only coverage cannot exceed 9.83% of the employee’s household income (indexed annually).
Tip: Regularly review insurance plans to ensure compliance with affordability and coverage standards.
Reporting Requirements
ALEs must report health insurance coverage information to both employees and the IRS:
Forms 1095-C: Provided to employees showing coverage details.
Form 1094-C: Submitted to the IRS summarizing 1095-C information.
Deadlines:
January 31: 1095-C forms must be given to employees (if requested).
February 28 (paper filing) / March 31 (electronic filing): 1094-C and 1095-C must be filed with the IRS.
Tip: Use automated payroll and benefits systems to streamline reporting.
Penalties for Non-Compliance
Penalties apply if an ALE:
Fails to Offer Coverage: $2,970 per full-time employee (minus the first 30) if no coverage is offered.
Offers Non-Compliant Coverage: $4,460 per affected employee if coverage fails MEC, affordability, or minimum value standards.
Reporting Errors: Fines of up to $280 per incorrect or missing form.
Tip: Conduct annual ACA audits to avoid costly fines.
Best Practices for Compliance
Track Employee Hours: Use payroll systems to monitor full-time and part-time hours.
Audit Insurance Plans Annually: Ensure the plan meets current MEC and affordability standards.
Maintain Documentation: Keep detailed records of coverage offers and employee elections.
Stay Informed: Regularly review IRS updates on ACA compliance.
Work with a Consultant: Leverage expert assistance for ACA compliance management.
Additional Resources
By following this guide, employers can reduce the risk of penalties, improve compliance, and ensure they provide valuable benefits to their employees.
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