If your business has 50+ full-time employees, you are an Applicable Large Employer (ALE) and subject to ACA reporting requirements.
You must offer affordable health insurance to at least 95% of your full-time employees and provide that information to the IRS annually, or face hefty penalties.
This guide breaks down what you need to know about ACA reporting, including requirements, filing forms, key deadlines, and penalties for noncompliance.
What is ACA Reporting and Why It Matters
The Affordable Care Act, also known as Obamacare, is a 2010 law that expanded healthcare coverage in the United States. It is one of the most essential requirements targeting larger businesses. Yet, to this day, many large employers do not understand what this law means and how it affects their business.
ACA reporting is the process by which Applicable Large Employers submit detailed information about health coverage offers to the IRS and employees annually. It demonstrates the type of health insurance coverage you offer and your employees’ enrollment status.
Here’s why it matters:
- It demonstrates your compliance with the ACA’s employer mandate as outlined under section 4980H of the Internal Revenue Code. This helps avoid penalties triggered by non-compliance.
- It helps employees verify their coverage and how much they paid for it.
- It helps the IRS verify whether employees who qualified for premium tax credits received coverage from their employers.
Which Employers Are Required to File ACA Reports?
The obligation to file ACA reports applies specifically to Applicable Large Employers (ALEs).
That is, a company with at least 50 full-time employees, including full-time equivalent (FTE), during the previous calendar year.
To determine whether you qualify as an ALE, add the total number of your employees who work 30 or more hours a week and full-time equivalent (FTE) employees. If the total number of employees is 50 or more, you are subject to ACA reporting requirements.
Note: To calculate FTEs, total the monthly working hours of your part-time employees and divide by 120.
ACA Reporting Requirements
ACA reporting requires Applicable Large Employers to:
- Offer Minimum Essential Coverage (MEC) to at least 95% of the full-time employees and their dependents.
- The coverage must provide a minimum value, meaning it should cover at least 60% of the total cost of the covered medical benefit.
- Report employees’ monthly contributions, which must not exceed a specified percentage of their household income. It’s adjusted annually to account for inflation.
- In the current year, it is 9.96%. Note that the IRS uses this information to determine whether the coverage meets the required affordability threshold.
- The reports must clearly show the employees’ benefits coverage, monthly contributions, and monthly working hours, including seasonal and variable hours.
- If the ALE uses safe harbors to determine the affordability of the health coverage offered to employees, this information must be reported on Form 1095-C.
Required ACA Reporting Forms
To prove to the IRS that you are offering affordable, qualifying health coverage to your employees, you must fill out and submit these key forms:
|
Form Name |
Purpose |
Issued to |
|---|---|---|
| Form 1095-C | Provides detailed information on the health insurance offered to each employee and their dependents, including coverage types and affordability. | Employee and IRS |
| Form 1094-C | It is a transmittal form of Employer-provided health insurance offer and coverage information returns. It summarizes the information provided on 1095-C Forms. | IRS |
The ACA reporting process can be complex, so it’s advisable to get professional help.
At Ethos Benefits, we are an employee benefits consultant that integrates ACA reporting into our comprehensive oversight of employee benefits administration. We take a fiduciary advisory approach to ensure proactive plan compliance before deadlines.
Book a call with us, and achieve accurate ACA reporting with our expert compliance guidance.
ACA Reporting Deadlines
ACA reporting is an annual activity with varying deadlines that you must meet. Failure to which you expose your business to avoidable penalties.
These Include:
Furnishing Forms to Employees
If an employee requests Form 1095-C, it must be forwarded to them.
Filing with IRS
Filing Forms 1094-C and 1095-C with the IRS has two deadlines, depending on how you choose to submit the information, whether electronically or on paper.
Note: If the due date falls on a weekend or a legal holiday, the deadline is extended to the next business day.
What to keep in mind for a reporting year:
- Filing 10 or more Forms 1094-C and 1095-C requires you to file electronically, through the IRS’s Affordable Care Act Information Returns (AIR) systems.
- For fewer than 10 returns of Forms 1095-C and 1094-C, you may file by paper.
ACA Reporting Process: Step-by-Step
Some employers perceive the ACA reporting process as complex, while others view it as an administrative burden.
It is structured, but a detail- heavy compliance process that requires a step-by-step approach:
Step 1: Confirm Your ALE Status
Calculate your full-time employee count to determine if your business is an Applicable Large Employer (ALE). If yes, document these calculations.
If you had over 50 full-time employees in the previous year, you need to complete and file Form 1094-C and 1095-C with the IRS.
Step 2: Track and Record Employee Details and Working Hours
Implement systems that accurately track and record your employees’ weekly and monthly working hours year-round.
It should also accurately capture employees’ details, including their Social Security numbers, current addresses, date of birth, and dependents’ information.
Step 3: Verify And Document the Coverage Offers
Confirm to be sure your employees’ contribution meets the appropriate safe harbors (that is, W-2 safe harbor, Rate of Pay safe harbor, and Federal Poverty Line safe harbor)
Step 4: Complete Forms 1095-C And 1094-C
Detail each employee’s offer coverage on Form 1095-C, capturing employee and employer information, as well as the offer of coverage, including the applicable safe harbor codes.
Then summarize all these forms on Form 1094-C.
Step 5: Furnish Employees with Forms 1095-C
Send each employee a copy of their 1095-C form electronically or by mail.
Step 6: File with IRS
Submit the 1094-C and 1095-C forms to the IRS by paper filing or electronically.
Make sure you retain copies of the forms and any supporting documents for at least the next 6 years, in accordance with IRS and ERISA best practices.
ACA Penalties for Non-Compliance
The IRS may impose penalties on ALEs that fail to meet the IRS reporting requirements under sections 6055 and 6056, and the ACA coverage mandate under sections 4980H a and b.
It is important to note that these penalties are subject to annual inflation adjustments. This explains the year-to-year increases.
1. 4980H(a) Penalty
If an employer fails to offer the Minimum Essential Coverage (MEC) to at least 95% of its full-time employees and their dependents, it can trigger a penalty imposed under section 4980H(a).
It is triggered if at least one employee receives a premium tax credit through the marketplace. Note that this fine is calculated by subtracting 30 full-time employees from the total, then multiplying the difference by the annual penalty amount.
2. 4980H(b) Penalty
The penalty under section 498/H (b) is $5,010 (a $660 increase from the previous year). It is imposed on ALEs who fail to offer affordable coverage.
Here are the ACA penalties for failing to meet IRS ACA reporting requirements:
- Filing the correct ACA forms within 30 days of the due date avoids a $60 per return or statement fine, up to a maximum of $683,000 (an increase of $18,500 over the capped amount from the previous year).
- Filing after the due date results in a $130 fine per return or statement. The maximum is $2,049,000 (a $55,500 increase)
- Filing on or after August 1 subjects you to $340 per return or statement, with a maximum of $4,098,500 (a $111,500 increase)
- While intentionally neglecting to file Forms 1094-C and 1095-C will result in a fine of $680 (a $20 increase)
Need some guidance staying compliant? At Ethos, we know the ACA reporting season is an annual challenge for most ALEs, and we can make it simpler for you.
Common ACA Reporting Challenges and How to Avoid Them
Many organizations struggle with ACA reporting due to challenges that often lead to IRS fines or audits.
They include:
- Inaccurate Employee Data: Incorrect or missing employee hire dates, Social Security numbers, names, addresses, or dependent coverage status can result in filing rejections and trigger IRS audits.
How to avoid this: Use automated tools to prescreen employees’ information and cross-check onboarding details.
- Inaccurate Tracking of Employee Hours: ALEs must determine who is a full-time employee based on hours worked. If employee hours are inaccurately tracked, their work status can be misclassified, leading to payroll errors and potential penalties.
How to avoid this: If you track your employees’ working hours manually, supplement it with an automated, cloud-based software solution like ACA-Track.
- Last-Minute Rush: Starting to file your reports at the last minute creates pressure and can lead to unforeseen errors due to insufficient time to review them thoroughly. Trying to correct errors may result in missed deadlines, while submitting reports with errors may lead to IRS penalties.
How to Avoid this: Instead of waiting until the deadline to start gathering employee data, adopt a year-round data tracking and employee benefit plan audit strategy. Review the data accuracy quarterly.
- Failing to File Electronically When Required: ALEs submitting 250+ Forms must file electronically. Opting for paper filing in such a scenario can lead to non-compliance issues.
How to avoid this: Evaluate the number of returns that need filing in advance to establish the most required filing method.
- Failing to Respond to IRS Notices On Time: Ignoring or delaying responses to IRS penalty letters, such as 226-J, 972CG, and 5699, may prompt the IRS to take severe measures.
How to avoid this: Designate a specific employee to handle IRS communication (mostly the HRO or CFO).
Frequently Asked Questions (FAQs)
These questions address concerns that most employers have when managing their ACA compliance reporting:
Should You Use ACA Reporting Software Instead of Manual Filing?
Yes, you should. ACA reporting software:
- Minimizes human error by automatically validating the data you enter to ensure it meets IRS requirements.
- Can process and handle large amounts of data without burnout.
- Stays up to date with the latest IRS regulations, which eliminates chances of non-compliance. Manual filing requires you to research and implement regulatory changes manually.
Can Employers Outsource ACA Reporting Responsibilities?
Yes. Most employers opt to outsource ACA reporting responsibilities to a third-party vendor. This helps avoid the consequences of incorrect filings and missed deadlines
Is ACA Reporting Required for Remote Employees?
Yes. ACA reporting requirements apply to all full-time employees regardless of their work model.
Are Part-Time Employees Subject to ACA Reporting?
No, part-time employees are generally not subject to ACA reporting, but their working hours may be used to determine if an organization is an Applicable Large Employer.
Can ACA Reporting Errors Be Corrected After Filing?
Yes, ACA reporting errors can be corrected. If you submit reports to the IRS and are accepted with errors, you can make corrections and retransmit the report.
Conclusion
ACA reporting is a compliance requirement of ALEs. As an employer, you can face steep penalties for late filings, data errors, or missed requirements. Besides, meeting this compliance requirement requires you to handle the complexity of data tracking, compilation, and filing.
To avoid these penalties and the administrative burden of ACA reporting, you cannot treat it as an end-of-year compliance exercise. It requires you to collect and validate data year-round.
Otherwise, you may expose your business to costly IRS scrutiny and significant penalties.
At Ethos Benefits, we offer fiduciary employee plan guidance that helps your ACA reporting align with your compliance obligations. We integrate ACA tracking into our administration services. Our flat-fee consulting model means you can get ACA compliance support with no surprise charges.
Book a discovery call and get the employee benefits guidance you need to stay compliant with ACA reporting.
