What is ACA?
The Patient Protection and Affordable Care Act also known as Affordable Care Act was signed into law in March 2010 and supported by a Supreme Court decision in June 2012. The Act represents the most extensive changes to the nation’s health care system in many years. The main objective of this health care law is to provide coverage to a huge number of uninsured Americans through expanded public insurance, as well as federal and statemanaged health insurance exchanges.
How Does ACA Reporting Works?
Starting January 2016, certain employers are required to file annual information returns with the IRS and provide summary statements to employees in accordance with the ACA Employer Shared Responsibility provision. ACA Reporting requirements apply to certain types of employers, including those that fall under these categories:
● Those with 50 or more fulltime employees
● Selfinsured employers (regardless of size)
● Health insurance providers
The new ACA reporting requirements make the key details of health insurance coverage known, which is inclusive of the verification that employers are able to meet the “minimum essential coverage” (MEC).
Types of ACA Employer Reporting Requirements
The ACA employer reporting requirements are imposed by two sections of the Internal Revenue Code to ensure that health coverage information to the IRS is being reported by employers and health insurance insurers, as well as to monitor the issuance of statements to employees annually.
This section of the Internal Revenue code covers ACA reporting requirements that are applicable to any of the following:
● Health insurance carriers
● Small employers that provides sponsorships for selffunded health plans
● Employers who provide minimum essential coverage
This section involves ACA reporting requirements that specifically apply to ALEs (Applicable large employers) or those who have more than 50 fulltime employees or fulltime equivalent employees (FTEs). Under this provision, ALEs are required to share coverage details with to be able to identify if they are qualified for a premium tax credit.
Minimum Essential Coverage: The Basics
What is Minimum Essential Coverage?
Under the Affordable Care Act, otherwise referred to as Obamacare, health insurance that adheres with a government standard known as “minimum essential coverage” or MEC, is a requirement for most Americans to comply with the shared responsibility provision. Based on the Minimum Essential Coverage law, penalties will be imposed among employers who failed to provide minimum essential health coverage to at least 70 percent of their full‐time employees and their dependents. Penalties also apply when MEC is not provided to at least one full‐time employee who is entitled to receive a premium tax credit through the health insurance marketplace. Still under the Minimum Essential Coverage, a 2nd type of penalty may be imposed if an employer offers a minimum essential coverage that is not affordable or didn’t provide minimum value. According to the Affordable Care Act, any health insurance plan offered by an employer is qualified as
Minimum Essential Coverage and should include:
● Coverage for present employees
● Coverage for those who retired from full‐time work or retirees
● COBRA continuation coverage which permits former employees of a company to keep their health insurance for a specific period of time, even after leaving an employer.
Determining the Affordability of Plans
While there is a wide range of medical plans that adhere with the legal parameters for minimum value or those plans that pay at least 60% of covered benefits. In assessing affordability, the premium for the lowest cost, self‐only minimum value coverage should be lower than 9.5% of the gross household income of the employee. To be able to determine the affordability of your coverage, there are three safe harbor tests that you can use as basis:
1. Form W‐2 Safe Harbor
2. Rate of Pay Safe Harbor
3. Federal Poverty Line Safe Harbor
Minimum Essential Coverage Qualifications In order to avoid the penalty of not having insurance, one must be enrolled in a plan that is classified under minimum essential coverage. Health plans that qualify under MEC are as follows: ● Coverage that Fall under Government‐Sponsored Programs This includes Medicare part A, most Medicaid programs, CHIP (Children’s Health Insurance Program), most TRICARE, most VA programs, Peace Corps and Department of Defense Non‐appropriated Fund Programs
● Employer‐Sponsored Coverage As a whole, this coverage includes any plan that is a group health plan under ERISA, including both insured and self‐insured health plans, COBRA coverage, Retiree coverag, and coverage under an expatriate health plan for employees.
● Individual Health Market Coverage Under this, health plans acquired through federally facilitated and state‐based marketplaces, as well as those health insurance bought individually and directly from an insurance company are qualified.
● Grandfathered Plans This coverage generally refers to any plan that existed before the Affordable Care Act has taken effect.
● Miscellaneous MEC This coverage includes other health benefits that are recognized by the Department of Health and Human Services as those covered under minimum essential coverage.
Is Your Business Affected by ACA Reporting?
The responsibilities for ACA reporting depend on employer size and the type of insurance maintained. As a rule, businesses having more than 50 full‐time equivalent employees will follow new IRS reporting requirements for healthcare coverage at the start of 2016. As stated under the Affordable Care Act, employers with full‐time equivalent employees not less than 50 are considered as “large employers” and must be able to provide employee health care coverage, or pay a penalty.
These companies will also be required to report to the IRS on the employee health coverage offered or not offered. For the 2015 tax year, initial reports are due by January 31, 2016.
Are you a “Large” Employer?
Here are some of the points that determine if you are a large employer or not:
● Having 50 or more full‐time employees or those who work at least 30 hours a week per calendar year
● Having 50 full‐time equivalents on your payroll within a calendar year
● Having less than 50 FTEs but classified under a controlled or common service group with common owners, collective services or alliances that employ at least 50 FTEs during a calendar year, collectively.
Do You Have a “Smaller” Business?
If you have a smaller business or if you are among the self‐insured employers, you are qualified for ACA Reporting and must comply with its requirements. Some businesses qualify as small businesses or those having less than 50 full‐time employees. On the other hand, self‐insured businesses are required to fill out form 1095‐B and 1094‐B transmittal form to give a written account of the name, address and Social Security number (or date of birth) of covered individuals.
Are You Among Applicable Large Employers (ALEs)
Large employers or those having not less than 50 employees, as well as those with 50 or more full‐time equivalent employees are the ones who bear the biggest impact with the new ACA reporting requirements. However, it is also important to note that there are employers who fall under the category, “Applicable Large Employers” or ALE. This classification of employers may either be a single entity or may consist of a group of related entities including parent and subsidiary, and other affiliated entities.
For ALEs, if the combined number of full‐time and full‐time equivalent employees meet the definition of an ALE, each employer in the group who are referred to as an ALE member will be subjected to the Employer Shared Responsibility provision, even if it wouldn’t be an ALE as separate entities.
How to Calculate FullTime and FullTime Equivalent Employees
To be able to fully understand your requirements for ACA reporting, it is essential to know how to calculate Full‐Time employees, as well as Full‐Time Equivalent employees or FTEs. But first, it is important to define the types of employees involved.
Full Time Employee:
This type is defined as someone who works at least 30 hours on average per week for a duration of one month or a total of 130 hours in a calendar month.
Full Time Equivalent Employee:
This type refers to a combination of employees who are not regarded as full‐time employees individually, but together count as a full‐time employee. In calculating the hours of services, each hour worked by the employee is entitled to payment which also include vacation, leave, holiday, disability, illness, layoff, jury duty, military duty, and other forms of leaves of absence.
3 Steps to Determine the Number of FTEs
There are 3 steps to calculate your number of full‐time equivalent employees per month:
1. Compute for the overall part‐time service hours rendered in a month (Maximum of 120 hours per employee)
2. Divide the total number of hours by 120.
3. Check the result. If the total is fraction, round off to the next whole number. Upon arriving at the total number of FTEs, add the total to the number to your total number of full‐time employees to determine whether or not you are categorized as a large employer.
1095B Filing for Smaller, SelfInsured Businesses
Employers who fall under the classification smaller, self‐insured businesses are those with less than 50 full‐time employees and they are required to must complete Form 1095‐B, as well as the 1094‐B transmittal form).
Important information must be reported to the IRS and a form must be furnished to employees. To do these, the following must be completed:
Part 1: Responsible Individual
This is inclusive of the name and address of the primary person insured, as well as the Social Security number and code for Origin of the Policy.
Part 2: Employer Sponsored Coverage
This part can be left blank and is not applicable for self‐insured employers.
Part 3: Issuer or Other Coverage Provider
This part should be furnished with important details including name and address of coverage provider (which is the employer), Employer Identification Number (EIN), address, and phone number
Part 4: Covered Individuals
This portion includes the Social Security number or date of birth, if SS number is not available for each covered individual, including the coverage per month.
The 1094-C Transmittal Form
The 1094‐C transmittal form is a representation of the total 1095‐C filings submitted for the season. It works as a cover sheet and includes:
● Name, address, and Employer Identification Number (EIN) of your organization.
● Information stating if your organization provided coverage to at least 70% (95% after 2015) of your full‐time employees along with their dependents
● The total number of 1095‐Cs issued to employees
● Information about members of the aggregated applicable large employer group, if any
● Total number of full‐time employee per month
● Total number of employee per month
● Your eligibility for certain transition relief which includes certifications
For employers filing a minimum of 250 forms, e‐filing is a requirement.
● Those who failed to file
● Those who failed to provide recipient statements
● Those who failed to file on time
● Those who failed to file electronically as required
As of January 1, 2016, the IRS penalizes those who fail to file or furnish ACA forms. The penalty for such increased by more than 100% or from $100 to $250, with a maximum penalty of $3 million.
The IRS also disclosed that within a one‐year transition period, penalty won’t apply to individuals who made a good‐faith effort to comply but failed to file correct or complete information by accident. However, this relief is only suited for filing incorrect information and not for failure to file outright.
Remember Your Deadlines
● March 31: Provide Form 1095 copies to recipients/employees
● May 31: Filing of 1095s and 1094 transmittals to IRS
● June 30: Electornic filing of 1095s and 1094 transmittals to IRS
Capture and Track All Required Data
There are four major departments that can help you in gathering data required for 1095 reporting and at the same time help you complete your forms with accuracy and on time. These departments include:
4. Time Trackers
What to Track?
● Your Full‐Time Employees
● Your Full‐Time Equivalent Employees
● Coverage provided for employees, their spouses and dependents on a monthly basis
● Ensure that employees are notified that they will be receiving 1095‐C and may need information from it that will enable them to complete their tax filing for the previous year.
● 1094‐C authoritative transmittal should only be filed once.
● In case of error, file returns with corrections as soon as possible.
● File form 8809 whenever necessary to avail a 30‐day extension to file with the IRS. However, while signature or explanation is not required for this extension, a signed letter to the IRS supported by a reason for the delay will be necessary to file a 30‐day extension for providing forms to employees,
● Only one 1095‐C per employee. In cases when an employee moves between various divisions with different benefits in an organization during the year, data should be consolidated onto one 1095‐C.
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