As the Affordable Care Act (ACA) matures, the levels of compliance and record-keeping are changing, and the cost of non-compliance is rising dramatically as well. Unless you are completely aware of the requirements and responsibilities and have systems and support in place to achieve compliance, your business could be blindsided with potentially huge penalties.
The honeymoon period is winding down for the full application of the ACA — for 2016 the ACA’s reach is now expanded to companies with as few as 50 full-time employees and many employers are largely unaware of the multiple challenges faced in being compliant with the ACA and the serious long-term financial risks involved with non-compliance. The ACA contains nearly 20,000 pages of regulations and has added almost two dozen taxes. By the sheer volume and breadth of regulation, employers will need help to become, and remain, compliant with the law.
The basic premise of the ACA is the mandate for the employer to provide healthcare to its full-time employees. Since the mandate now applies to businesses with 50 or more full-time employees, many of these newly vulnerable businesses have had little to no exposure to the ACA. A crucial point in compliance with the ACA is understanding the terms that are used to define the law. As a business owner, your understanding of what makes a full-time employee is probably very different from the Federal Governments definition as written in the ACA.
The ACA uses the employee category of full-time equivalent employee (FTE) in a complicated calculation to determine whether your business falls under the ACA mandate. The calculation includes a host of employees, such as part-time employees, seasonal employees, leased employees, employees terminated during the year, employees covered under a collective bargaining agreement and others. In addition to the lower FTE threshold, health care must be offered to at least 95% of FTE to avoid penalties, which is up from 70% in 2015.
Non-compliance with the ACA mandate carries hefty fines and penalties should just one full-time employee receive a premium tax credit on the Marketplace. The penalty for failure to provide coverage that is not ACA compliant and/or is not affordable is $3,000 in 2016. Any potential fines per employee will only be charged for employees that enroll in the Health Insurance Marketplace and qualify for a federal tax credit. As a final note, any penalties are treated as a non-deductible excise tax to the employer.
To summarize, passing these four checks will help avoid any penalties under the law:
- Does the employer have 50 or more full-time employees plus FTE employees as defined by the ACA calculations?
- Does the employer offer minimum essential coverage (MEC) to at least 95% of its ACA employees?
- Does the plan provide at least 60% minimum value?
- Affordability – Would any full-time employees pay more than 9.5% of the current year for lowest cost self-only coverage, using the Box 1 W-2 Wages, Hourly rate of pay x 130, or Federal Poverty Level?
In passing these tests, there should be no penalty liability for the employer. However, that doesn’t preclude the possibility of an employee error or even attempted fraud causing the IRS to generate a notice that one of your employees has enrolled in the Health Insurance Marketplace. That’s why your company’s record keeping must be impeccable. If you have done everything required by the law, you need to be able to prove it if confronted with an IRS notice.
The forms that will ease the burden of proof are IRS 1094-C and 1095-C. They behave much like the IRS 940 and 941 withholding forms. The 1095-C form is for each employee, showing their health insurance status and generally a copy is provided to the employee at year-end. The 1094-C is the summary listing of employee coverage.
Compliance issues regarding the ACA can be very complex and somewhat confusing. Retaining the help of a professional in the field is the best course of action to help ensure your company’s compliance. Please Contact Us for more information on how we can guide you and your company through the maze of regulations.