Despite the Affordable Care Act (ACA) being in place since 2012 and effective since 2015, misconceptions around the ACA Employer Mandate persist.
We’ll walk you through four common ACA misconceptions and separate fact from fiction.
Misconception #1: The ACA Employer Mandate has been repealed – it’s gone.
Despite all the political turmoil of the last two years, the Employer Mandate remains in place – complying with that mandate remains the law of the land for US employers.
In December 2018, a federal judge in Texas did rule the entire Affordable Care Act unconstitutional. However, he (and the White House) stated that pending the appeal process, the law remains in place. This appeal process will take a while – a decision is expected late this year – and is going to be interesting for sure. There is also no doubt that whatever the outcome of the appeal, the case will go to the Supreme Court (again) and that the Supreme Court won’t rule until after the 2020 election.
In December 2017, the administration touted that they just passed Tax Cuts and Jobs Act and “essentially” repealed the health law – wishful thinking. The INDIVIDUAL mandate (aka the requirement that individuals are required to have ACA-compliant health coverage or else pay a penalty), was indeed repealed in the sense that the penalties are now reduced to zero starting in 2019 but the EMPLOYER mandate remains untouched!
Misconception #2: The Employer Mandate does not apply to me because I don’t have 50 or more full-time employees, therefore, I am not an ALE (Applicable Large Employer).
If you are a small business and don’t have 50 or more full-time employees or full-time equivalents, lucky you–no requirement to comply with the Employer Mandate. However, this is one of the more tricky ACA misconceptions. Be aware of these pitfalls:
- The ACA defines “full-time” differently. Any employee that works 30 hours or more on average per week, counts as an FTE under the ACA. This can get complicated!
- Is your company commonly controlled or affiliated with another company? The IRS criteria for this is as follows:
- Do companies have owners in common?
- Do companies provide services to one another?
- Jointly, do the companies provide services to others?
If you answer YES to any of these questions, you could be on the hook. If the combined head count is over the 50 FTE threshold for ALE status, the Affordable Care Act applies to each of these companies, including yours.
Misconception #3: I already cover all my employees with regards to health insurance so I don’t have to do anything.
By now, most US employers know that if they have 50 or more full-time employees, including full-time equivalents, they must offer coverage of a certain standard to certain employees or face a penalty. However, it is difficult for employers who take pride in their both their conscientiousness and their generosity to come to terms with the fact that even they must file the same IRS forms intended for assessment of penalties against employers who offer limited or no coverage.
The ACA reporting requirements are:
- By January 31, 2020, employees who are eligible for coverage from their employer, or who have coverage from their employer, must receive their copy of Form 1095-C.
- By February 28, 2020, the employer’s copies of the 1095-C forms must be mailed to the IRS with a respective 1094-C transmittal form.
- If you are electronically filing, 1094-Cs are due to the IRS by March 31, 2020.
- E-filing is required if you have over 250 employees.
Misconception #4: The IRS will never enforce this – I am safe.
Think again – the IRS has already enforced 2015 and 2016. And they are now on to 2017 ACA enforcement actions! Two types of letters are being sent out:
- Non-Filing Letters (IRS Letter 5699): The IRS has identified 8,752 cases of potential non-filing. Employers with at least 50 W-2s who didn’t send in any 1095-C forms may receive a non-filing letter. As we shared in a blog from March of this year about the 2016 non-filing letters, it is important to act right away! Be sure to respond within the 30-day window.
- Employer Shared Responsibility Provisions (ESRP) Letters (IRS Letter 226J): There are approximately 50,000 employers that will be receiving a 226J for 2017. These are employers that filed the 1095-C and as a result, may be subject to an ACA penalty for failure to offer coverage timely and/or for failure to offer compliant coverage. In the majority of the cases in which we helped employers respond to a 226J letter, it was simply an error made in reporting and the entire assessment was waived after the employer made a timely response. The most important thing to remember if you get a 226J Letter is to remain calm and follow the instructions we’ve shared on this in the past.
Bottom line: Remain compliant with the ACA Employer Mandate.
Do your research or ask a tax or payroll professional if you have further questions around these ACA misconceptions.