Understanding ACA Reporting Requirements for Businesses

As a business owner, you're likely aware that offering health insurance to your employees is crucial. However, you may not be as familiar with the Affordable Care Act or the ACA reporting requirements that come along with it. These requirements can seem daunting, especially when you're already juggling the many responsibilities of running your business.

In this comprehensive guide, we'll break down the essential ACA reporting requirements, focusing on what needs to be reported, important deadlines, and how to ensure ACA compliance.

Who Needs to Worry About ACA Reporting?

Before diving into the specifics, it's important to understand which businesses are subject to ACA reporting requirements. The good news is that not every business needs to be concerned about these rules. ACA reporting requirements primarily apply to what the IRS calls Applicable Large Employers (ALEs).

Defining Applicable Large Employers (ALEs)

An ALE is a business with 50 or more full-time employees, including full-time equivalent employees. This classification is based on the average number of employees you had in the previous calendar year. Here's how to determine if your business qualifies as an ALE:

Full-time employees: These are individuals who work an average of at least 30 hours per week or 130 hours per month.
Full-time equivalent (FTE) employees: This category includes part-time employees whose combined hours equal that of full-time workers. For example, two part-time employees, each working 15 hours per week, would equate to one full-time equivalent employee.

To calculate your total number of employees for ALE purposes, add your full-time employees and FTEs together. If this number is 50 or more, your business is considered an ALE and is subject to ACA reporting requirements.

Small Businesses and ACA Reporting

It's worth noting that small businesses with fewer than 50 full-time employees (including FTEs) are generally exempt from these ACA reporting requirements. However, small businesses that offer self-insured group health plans may still have some reporting obligations, albeit less extensive than those for ALEs.

What Are the Specific ACA Reporting Requirements?

If your business qualifies as an ALE, you're required to report information about the health coverage you offer to your full-time employees. This reporting is done primarily through two IRS forms: Form 1094-C and Form 1095-C.

Form 1095-C: Employee Statement

Form 1095-C is the individual statement that ALEs must provide to each full-time employee. This form serves several crucial purposes:

It reports the health coverage offered to the employee during the year, regardless of whether they accepted it or not.
It provides information about the cost of that coverage.
It helps employees determine their eligibility for premium tax credits if they purchase coverage through the Health Insurance Marketplace.

Key details included on Form 1095-C:

Employee's name, Social Security number, and address
Employer's name, Employer Identification Number (EIN), and address
Information about the coverage offered to the employee by month
The employee's share of the lowest-cost monthly premium for self-only minimum value coverage
Applicable safe harbor codes

Form 1094-C: Transmittal Form

While Form 1095-C is for individual employees, Form 1094-C serves as a cover sheet or transmittal form that ALEs file with the IRS. This form provides a summary of the employer's ACA reporting information, including:

The total number of Forms 1095-C being submitted
Information about the ALE, including name, EIN, and address
The total number of full-time employees, by month
Whether minimum essential coverage was offered, by month
Certifications of eligibility for certain transition relief (if applicable)

Important Deadlines for ACA Reporting

Meeting deadlines is crucial for ACA compliance. Here are the key dates you need to keep in mind:

Providing Forms 1095-C to employees: ALEs must furnish Form 1095-C to each full-time employee by January 31 of the year following the reporting year. Note that in recent years, this deadline has been extended to March 2, but this extension may not be permanent. Always check the current IRS guidelines for the most up-to-date deadline.
Filing with the IRS: If filing on paper, Forms 1094-C and 1095-C must be submitted to the IRS by February 28 of the year following the reporting year. If filing electronically, the deadline is March 31.

It's important to note that ALEs with 250 or more Forms 1095-C are required to file electronically.

Ensuring Compliance and Avoiding Penalties

Compliance with ACA reporting requirements is not just about meeting deadlines; it's also about ensuring the accuracy and completeness of the information reported. Failing to comply can result in significant penalties.

Potential Penalties

Late filing or failure to file: The IRS can impose penalties for late filing or failure to file. For the 2023 tax year, these penalties were up to $280 per form, with a maximum penalty of $3,426,000 per year.
Incorrect or incomplete information: Penalties can also be imposed for filing forms with incorrect or incomplete information. These penalties are similar to those for late filing.
Failure to provide statements to employees: ALEs can face penalties for failing to provide Forms 1095-C to employees.
Employer Shared Responsibility Payment (ESRP): In addition to reporting penalties, ALEs may be subject to the ESRP if they don't offer affordable, minimum value coverage to at least 95% of their full-time employees and their dependents.

Note that penalty amounts are adjusted annually for inflation. Always check the current IRS guidelines for the most up-to-date penalty amounts.

Strategies for Ensuring Compliance

To avoid these penalties and ensure compliance with ACA reporting requirements, consider the following strategies:

Stay informed: Keep up-to-date with changes to ACA regulations. The ACA landscape can shift, so it's crucial to stay informed about any updates or modifications to reporting requirements.
Maintain accurate records: Implement systems to track employee hours, health coverage offers, and enrollment information throughout the year. This will make it easier to complete the required forms accurately.
Use ACA reporting solutions: Consider using specialized software or services designed to help with ACA reporting. These solutions can help automate much of the process, reducing the risk of errors and ensuring timely filing.
Conduct regular audits: Periodically review your ACA compliance processes to identify and address any gaps or areas for improvement.
Train your staff: Ensure that your HR and benefits teams are well-versed in ACA reporting requirements and understand their roles in maintaining compliance.
Plan ahead: Don't wait until the last minute to start preparing your ACA reports. Begin gathering necessary information well in advance of the filing deadlines.
Consult with experts: If you're unsure about any aspect of ACA reporting, consider consulting with a benefits advisor, tax professional, or legal counsel who specializes in ACA compliance.

Understanding Affordability and Minimum Value

A crucial aspect of ACA compliance for ALEs is offering coverage that meets the law's standards for affordability and minimum value.

Affordability

Under the ACA, coverage is considered affordable if an employee's required contribution for self-only coverage doesn't exceed a certain percentage of their household income. For the 2024 plan year, this threshold is 8.39% of household income.

Since employers typically don't know their employees' household incomes, the IRS provides three safe harbor methods for determining affordability:

W-2 Safe Harbor: The employee's annual contribution doesn't exceed 8.39% of their W-2 wages.
Rate of Pay Safe Harbor: The employee's monthly contribution doesn't exceed 8.39% of their hourly rate multiplied by 130 hours.
Federal Poverty Line Safe Harbor: The employee's contribution doesn't exceed 8.39% of the federal poverty line for a single individual.

Minimum Value

A plan provides minimum value if it covers at least 60% of the total allowed costs of benefits expected to be incurred under the plan. Additionally, to provide minimum value, a plan must provide substantial coverage for inpatient hospital services and physician services.

The Role of the Federal Poverty Level (FPL)

The Federal Poverty Level (FPL) plays a significant role in ACA reporting and compliance. It's used to determine:

Eligibility for premium tax credits and cost-sharing reductions for individuals purchasing coverage through the Health Insurance Marketplace.
Whether employer-sponsored coverage meets the affordability requirement under the Federal Poverty Line Safe Harbor method.

The FPL is typically updated annually in late January or early February. ALEs should be aware of these updates when assessing the affordability of their health coverage offerings.

Conclusion: Navigating ACA Reporting with Confidence

While ACA reporting requirements may seem complex, breaking them down into manageable components can help your business navigate them with confidence. By understanding who needs to report, what needs to be reported, and when reports are due, you can develop a systematic approach to ACA compliance.

Remember, the key to successful ACA reporting lies in staying informed, maintaining accurate records, and planning ahead. By implementing robust systems and processes, you can ensure that your business meets its ACA reporting obligations while avoiding costly penalties.

Offering health coverage to your employees is more than just a legal requirement—it's an investment in your workforce's well-being and your company's success. By mastering ACA reporting requirements, you're not just checking a box; you're demonstrating your commitment to compliance and to providing valuable benefits to your employees.

As you navigate the world of ACA reporting, don't hesitate to seek expert advice when needed. With the right approach and resources, you can turn ACA reporting from a daunting task into a manageable part of your business operations.