By Helen Karakoudas | ACA Education Director, Integrity Data
February 24, 2016
It was two years ago this month – in February 2014 – that the IRS released tax-code regulations for the Affordable Care Act provisions known as “the ACA pay-or-play rules” for U.S. employers.
For those of us who had been following the drawn-out implementation of this part of a then-4-year-old law, getting to some of the fine print for its employer-compliance requirements presented a light-bulb moment: When those employers to whom the ACA applied finally could see the scope of detail required for ACA compliance, they would pay close attention to the regulations intensifying workplace reporting.
With so much to do at an unprecedented depth, the planning for compliance strategies, we thought, would surely become top-of-mind for ACA-affected employers.
Answering the question of whether to play by offering health insurance or to pay the penalty for offering no coverage rested – and still does rest, in part, on framing payroll and benefits data for a read on ACA penalty-risk management.
And, yes, some employers were proactive about ACA compliance back in February 2014. In fact, the first commercial installation of our ACA tracking and reporting engine was done two years ago this week.
- This installation was for a large franchisee of a fast-food restaurant chain – a business whose ACA compliance team was aware that by offering limited or no health insurance, their company was vulnerable to substantial financial consequences for noncompliance when the penalty-assessment period for the ACA employer mandate would begin.
- They knew they needed help in getting at their workforce data in new and exacting ways in order to avoid or minimize IRS non-compliance penalties. They understood their information systems had to be rewired. They appreciated that this process would not happen overnight.
other ACA-affected businesses were not as attentive to Affordable Care Act compliance back in early 2014.
And now, two years later – amid the first production and filing season for ACA returns, that disconnect persists.
How did ACA compliance to-dos get so tuned out?
On the same day in 2014 that the ACA pay-or-play regulations were released, U.S. businesses got the second of two breaks on when the penalty-assessment period would begin for noncompliance with the ACA employer mandate.
As you recall, the period for which the IRS would start assessing ACA noncompliance penalties was supposed to begin January 1, 2014. But budget standoffs and the resulting sequestration, combined with a slowdown in publication of the respective reporting guidelines, led the IRS in July 2013 to delay the beginning of the penalty-assessment period for all employers to January 1, 2015.
What was intended with grace periods for ACA compliance
When the first break came in July 2013, the official statement of that grace period (IRS Notice 2013-45) said the “transition relief” was “intended to provide employers, insurers and other providers of minimum essential coverage time to adapt their health coverage and reporting systems.”
When the second break came on February 10, 2014, there was an echo of the nudge for businesses to invest time in preparing for the compliance requirements:
- “To ensure a gradual phase-in and assist the employers to whom the policy does apply …”
- “To provide a gradual phase-in of the employer responsibility provisions …”
What actually happened with grace periods for ACA compliance
Although the limits of each grace period were clear in the language of the relief notices, they became fogged in public awareness of a politically charged law.
Amid repeal-and-replace rhetoric, facts about must-dos for ACA compliance got lost:
- “By when do we need to do this?” turned into “Do we really have to do this?”
The numbers behind ACA unpreparedness
According to a January 2016 report, findings in a 2015 study show significant numbers of employers, to whom the Affordable Care Act applies, behind in ACA reporting awareness and preparedness.
This employer study was conducted by the ADP Research Institute, the fact-finding arm of the leading payroll service provider. It shows that:
- 52% of companies with 50-999 employees said they were unsure whether they were at risk of violating ACA compliance requirements for Tax Year 2015
- 45% of companies with 1,000+ employees said they were unsure whether they were at risk of violating ACA compliance requirements for Tax Year 2015
- 44% of companies with 50-999 employees said they were not prepared to produce 1095-C forms by the February 1, 2016 deadline
- 37% of companies with 1,000+ employees said they were not prepared to produce 1095-C forms by the February 1, 2016 deadline
Conducted before December 28, 2015, when the IRS extended the 1095-C production deadline by two months from February 1, 2016 to March 31, 2016, this study found:
- 18% of companies with 50-999 employees said they planned to file for an extension to the February 1, 2016 production deadline for 1095-Cs
- 32% of companies with 1,000+ employees said they planned to file for an extension to the February 1, 2016 production deadline for 1095-Cs
Given that the IRS granted the 60-day deadline extension for 1095-C production across the board, filing for additional time to produce 1095-C forms is not an option for any U.S. employer.
The upshot for employers still behind in ACA reporting
“With the prior extensions, employers had significant time to prepare and perhaps change course to a compliant solution,” Stacy H. Barrow, an employee benefits attorney with Marathas Barrow & Weatherhead LLP in Boston, told us the afternoon in December 2015 that the IRS announced the 1095-C delay.
“Now,” Barrow said, “we just have a brief window for employers to be sure they’re in good-faith compliance with the reporting requirements for 2015.”
Sanity for Tax Year 2015
In the brief window before March 31, 2016, there still is time to produce the 1095-C forms required for ACA compliance in Tax Year 2015.
Integrity Data’s ACA Compliance Solution, a tracking and reporting engine in commercial use since February 2014, can help in this fire drill.
- Being of service to businesses ranging from 51 employees to more than 60,000 employees, our software – backed by deeply knowledgeable support and development teams – has been debugged for so many reporting scenarios.
- Because we do not require a full-blown HR implementation, deployment is a matter of hours – not days or weeks – once the data we list for you is gathered. We accept data from every payroll and ERP system.
Effective management for Tax Year 2016
Whereas getting through the motions of form production and filing is the ACA to-do for Tax Year 2015, dotting your j’s and crossing your x’s is the ACA must-do for Tax Year 2016 – the penalty-assessment period for which the IRS will be looking for more than a good-faith effort. That is the ACA reporting year for which you will need to be audit-ready.
- In this respect, too, Integrity Data’s ACA Compliance Solution can help. The ACA concepts, classifications and calculations coded into our logic make for comprehensive tracking and reporting features that will answer the question that is likely to be the starting point of an audit: “How did you make the determination of full-time employees?”
- Yes, before our ACA software went into commercial use in February 2014, its penalty-risk management functionality was in beta testing for more than a year with two employers, the smaller of which had 19,000 employees. We know ACA risk management. We know how to keep employers updated.
To get through the ACA-reporting fire drill for Tax Year 2015 and to stay confidently on top of ACA compliance for Tax Year 2016, learn more about Integrity Data’s ACA Compliance Solution here.