As we race toward the production and submission deadlines for the very first Affordable Care Act (ACA) filing season with the IRS, many companies find themselves bewildered with what – if anything – they must do and how to be compliant.
In helping employers understand this basic in IRS rules for ACA reporting, we point out that companies should view the federal requirement for employer reporting under the Affordable Care Act the same way they do the rule for W-2 submissions:
ACA returns are not optional and must be submitted on time. IRS deadlines for the new 1095-C and 1094-C forms mirror the annual reporting deadlines for W-2 and W-3 forms with the Social Security Administration. The non-filing fines are also identical: $500 per required form.
The intensity of what companies need to report on Form 1095-C and who they must produce a 1095-C form for differ greatly from W-2 guidelines. A strategy is needed – pronto! – for identifying where a company fits into the ACA compliance picture with respect to annual reporting.
Developing an ACA reporting strategy
The first thing a company must do is determine whether they are required to comply with the employer mandate of the ACA. Unlike submitting W-2s where all employers must submit employee withholdings, the new reporting requirements under the ACA do not affect every company nor do all employees receive the new forms.
Determining a company’s ALE status
Are you self-insured?
- You must file ACA returns for all covered individuals regardless of the employee count.
- Just two employees and their dependents participate in the plan? You have to file for all covered individuals whether they are employees or dependents.
Are you offering no coverage?
Are you offering fully insured health coverage?
- In either case, your employee count in the previous calendar year dictates whether you must comply with the IRS reporting requirement. If your count of full-time employees, including full-time equivalents, is 50 or more for the previous year, you must file ACA returns.
- Even if you have opted to take the penalty for offering no coverage or when you have been offering good coverage all along, you still must document to your employees, and the IRS, the availability of affordable health coverage at your company.
The ACA math for ALE determination
In analyzing the previous year, you calculate for each month the number of employees who worked 130 hours in that month. For employees who worked less than 130 hours, you total all those hours and divide by 120. That gives you the full-time equivalent.
Add the two numbers for that month. Calculate this for each month the company was in existence for that year, sum that number and divide the total by the number of months in existence. What you get is your ALE determination – the ACA acronym for who must comply: Applicable Large Employer.
To read this guidance as officially presented, click here for the IRS web page titled Determining if an Employer is an Applicable Large Employer.
If your company is part of a commonly controlled or affiliated group as defined by the IRS Section 414 rules, finding your ALE status gets a little more complicated. The calculation for all members of the group must be combined.
What the ALE math means for ACA compliance
When you go through this exercise, get a number under 50, and are a company that is not self-insured, there is nothing you need to do. The ACA employer mandate does not apply to you. ACA reporting will not be required of you.
If you teeter on the 50 FTE number, there may be an opportunity to reduce this number by eliminating from the count people whom the ACA does not define as employees. These include a sole proprietor, a partner in a partnership, or a person who is equal to or great than a 2 percent S corporation shareholder.
If you still hit the 50 FTE number, you will need to comply with the ACA employer mandate and provide the annual reporting to the IRS that verifies the status of your compliance.
Must-knows about ACA forms for employees
Where W-2s are provided to every employee who earned wages in the reporting year, the new ACA forms do not need to be provided to every employee. They are only provided to employees who were deemed eligible for access to health coverage during the reporting year.
A 1095-C will document, in monthly breakdowns, details of an employee’s access to health insurance sponsored by the employers, and of the coverage that the employer offered.
Whereas a W-2 must be produced to report withholdings for every employee who earned wages in the reporting year, a 1095-C must be provided only to every employee identified as eligible for an offer of health insurance during the reporting year. “Eligibility” – the ACA term for full-time status – hinges on hours of service to the employer, not just on paid hours on the job.
Also necessary to report on a 1095-C are attributes for the offer made to employees: Did it meet ACA coverage and affordability standards?
These differences create a tracking and record-keeping complexity that companies must be aware of and find a way to address immediately. Even the simplest compilation of the necessary monthly calculations – such as for a stable workforce, where employee schedules are predictable – exceeds what can accurately be captured on spreadsheets. The tracking task escalates in intricacy – and penalty risk – for workforces where employees’ schedules vary and turnover is frequent.
Help with filling out and filing ACA forms
To learn more about software that will auto-populate 1095-C forms for your employees and generate the file necessary to submit their transmittal, Form 1094-C, with the IRS: