Former President Obama signed the Patient Protection and Affordable Care Act (now commonly referred to us “ACA” or “Obamacare”) in March of 2010. Despite various attempts to “repeal and replace” the ACA, it is still the “law of the land,”although it was certainly “hurt” with the elimination of the individual mandate to purchase health insurance. What should employers know now about the ACA?—–Here are some key concepts and “takeaways”:
ARE YOU A LARGE EMPLOYER?
Only “applicable large employers” (ALE’s) are subject to the various provisions of the ACA, to include requirements to provide insurance or pay penalties, AND also requirements to annually report information to employees and the IRS. ALL EMPLOYERS SHOULD DETERMINE IF THEY ARE LARGE EMPLOYERS AS DEFINED IN THE ACA LAW. A large employer is an employer who averages 50 or more “full-time equivalents” (FTE’s), calculated monthly, for the course of a calendar year. What is an FTE?——Every employee who is hired to work 30 or more hours per week is an FTE, PLUS all remaining “below 30 hours per week employees” have their monthly work hours totaled, with that monthly sum divided by 120 hours——-If an employer has 40 employees who are hired to work 30+ hours per week, and that core workforce is supplemented by another 30 part-timers who average 15 hours of work per week, 30 employees X 15 hours per week X 4 weeks= 1,800 hours worked per month, divided by 120= 15 more “full-time equivalent” (FTE) employees. In this example, this employer has 55 FTE’s and is calculated to be a “applicable large employer” as defined by the ACA. EVERY EMPLOYER SHOULD DETERMINE IF THEY ARE A LARGE EMPLOYER SINCE SUBSTANTIAL PENALTIES EXIST FOR NOT REPORTING AS A LARGE EMPLOYER TO THE IRS.
SO YOU ARE A LARGE EMPLOYER—-WHAT DOES THAT MEAN?
If you determine that you are an “applicable large employer,” you have at least 2 obligations, the omission of either could generate very costly penalties imposed by the IRS. Large employer obligations are:
- Large employers must “offer” ACA compliant insurance to all their “full-time employees” (different than FTE’s) OR be exposed to IRS penalties for not offering ACA compliant insurance. Two types of penalties exist, which revolve around the type, if any, of insurance you offer to your employee-group. The Section 4980 “A” penalty can be imposed on all your full-time employees if an employer does not “offer” health insurance which meets “minimum essential coverage” requirements (so called MEC insurance)—-MEC only insurance is typically not overly expensive nor overly robust—-it’s primary purpose is to avoid imposition of the “A” penalty, which can be substantial since it is a penalty levied on all an employer’s full-time employees, even if only one employee gets a subsidy from the insurance marketplace. The second and generally less severe penalty is the “B” penalty, which is imposed only on full-time employees who actually obtain a subsidy for personal insurance on the government exchange, based on their “offered” insurance being either “unaffordable” to the employee OR not meeting “minimum value” insurance coverage standards (many of the MEC coverages are not robust enough to meet “minimum value” standards to avoid the “B” penalty); AND
- Large employers must also prepare and file annual ACA reports, providing IRS form 1095-C forms to every employee who was a full-time employee for at least one day during the year, AND a Form 1094-C summary form which contains information which the IRS needs to help calculate employer penalties due to not providing health insurance which meets ACA standards. NOTE—–no penalty is ever triggered unless at least one employee obtains personal health insurance on a government exchange which also is “premium subsidized” based on the employee’s income level and household size
ALL EMPLOYERS SHOULD DETERMINE WHETHER THEY COULD BE PENALIZED AND WHAT THE COSTS WOULD BE TO AVOID ANY POTENTIAL PENALTIES. ALSO, ALL LARGE EMPLOYERS MUST COMPLY WITH THE ANNUAL ACA REPORTING REQUIREMENTS FOR 1094/1095-C FORMS. Do not confuse the insurance company required “B” reporting forms with a large employer’s requirement to file the “C” forms!!
HOW TO LEARN MORE/CONSULTANTS AND EXPERTS
Outside/3rd parties who can help you determine IF you are a “large employer” and what your responsibilities are as an ALE, include the following:
- Payroll companies file the majority of “large employer” ACA reports with full-time employees and the IRS. AccuPay has filed hundreds of large employer ACA forms over the past few years—-ask you payroll company how the ACA applies to you;
- Group insurance/benefits consultants should be able to tell you whether you are a “large employer” or not—–and whether you are in compliance with “large employer” insurance and reporting requirements. If you offer group health insurance, your company will file the “B” forms, BUT those are in addition to any large employer reqruirements to file the “C” forms—so when you talk to them make sure to ask about “large employer “C” forms!!;
- Your attorney, CPA firm, financial planner may be able to help you, BUT we have found that most of the “large employer” advice/guidance comes from payroll companies and benefits consultants; and
- The IRS has some excellent educational materials “online” about the Affordable Care Act, who is a “large employer”, and insurance/reporting requirements of large employers—–simply “Google” ACA and IRS
BIG TIME STAKES
It is imperative that every employer make an effort to determine if they are a “large employer”, and, if so, what that means as to compliance. Most employers will clearly have either below 50 or above 50 “full-time equivalents”, BUT AccuPay works with a large number of employers with 35-100+ employee groups, some of whom are “large” and some of whom are “not”. You must actually “count” your FTE’s—-which includes both full-time and part-time employees (and remember that “full-time” is defined by the ACA as 30 hours, not 40. The ACA statute and IRS regulations impose substantial penalties on “large employers”, BOTH as to not “reporting” annual information, and also on not offering ACA compliant insurance as a large employer. AccuPay has helped several employers determine how to minimize the impact/cost of the ACA on them, along with helping them determine whether they are “applicable large employers”. We generally provide ACA advice/consulting in collaboration with the employer’s benefits/group insurance consultant
We do not yet know how aggressive the IRS will be in imposing penalties for either not offering insurance or not reporting annual forms on time. We have heard that most of the IRS “226J letters”, which are proposed penalty assessments for not offering insurance during the initial penalty year of 2015, have been incorrect—-although “scary” since several of those letters have proposed penalties in the millions of dollars. ALL EMPLOYERS SHOULD KNOW THEIR EXPOSURE TO BOTH TYPES OF PENALTIES AND SHOULD ENGAGE CONSULTANTS TO HELP THEM DETERMINE THEIR STATUS PURSUANT TO THE AFFORDABLE CARE ACT.If you have any questions about how the ACA could apply to your organization, do not hesitate to contact Larry Shaub,CPA or Lisa Reed, SPHR of AccuPay at firstname.lastname@example.org—–Larry and Lisa both have considerable experience as to all aspects of the ACA.
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