The IRS has broadened their enforcement of Affordable Care Act provisions to “applicable large employers” (ALEs) by sending out many more 226J letters to employers, which propose assessments of “employer shared responsibility payments” (ESRP) to “large” employers who do not offer group insurance coverage to their employees OR who offer insurance coverage which does not meet so called “minimum value” and “affordability” requirements of the ACA statute. Similarly, the IRS has also been sending out more “5699 letters” to employers who the IRS feels may be “ALE’s” but who do not file the required annual 1094/1095-C forms with the IRS. ALSO, the IRS has been increasing both the ESRP “penalty” amounts each year, which are almost double what they were when they began in 2015, and the penalties for not filing the required reports have also increased significantly over the years. These increased enforcement actions are the result of better “matching” of ALE “large employer” status with the number of W-2 forms filed by the employer AND matching of ACA reporting of insurance offers with marketplace enrollments by individuals who are employees of ALE employers. WE EXPECT THIS MATCHING PROCESS TO GET EVEN BETTER WITH ARTIFICIAL INTELLINGENCE/AI.
DO YOU KNOW WHETHER YOU ARE AN APPLICABLE LARGE EMPLOYER/ALE?—-AccuPay can help you determine this with our payroll records
DO YOU KNOW IF YOUR GROUP INSURANCE OFFERS/DESIGN MEET MEC AND MV/AFFORDABILITY STANDARDS?—-AccuPay and your benefits broker can help determine the answers to these questions
THE STAKES ARE HIGH SO MAKE SURE YOU KNOW THE ANSWERS TO THE ABOVE QUESTIONS!!!
COMMON REASONS FOR ACA NON-COMPLIANCE BY EMPLOYERS INCLUDE THE FOLLOWING:
- We have fewer than 50 full-time employees and thus ACA does not apply to us—-NOTE—all employees, to include part-timers, “count” when determining an employer’s “full-time equivalents” (FTE’s)
- Our insurance company handles that for us—–That could be true, but we often find that the insurance company is helping the employer with the ACA “B” forms, and not filing the “C” large employer forms-–We always ask the employer to contact their insurance agent and ask “are you filing our “C as in Carol” forms OR just the “B as in boy” forms?—Oftentimes, the answer is that the large employer “C” forms are not being filed.
- All of our federal EIN’s have under 50 FTE’s —–ACA statute requires that “members of a controlled group” be treated as a “single employer” for measuring ALE status for ACA compliance—As such, a group of smaller employers with “common ownership” needs to be reviewed to determine if it is an ALE when employees of the various controlled group members are viewed together as a single employer
- We can not afford to offer health insurance to our employees——Strategies do exist to help “large employers” be compliant with the ACA requirements, to include annual reporting, at costs much less than offering high quality group insurance to employees.
- We are not subject to ACA, perhaps in the future—-we generally find that these employers have never counted their FTE’s and thus have no idea of their status per the ACA—–“sticking one’s head in the sand” is not an effective ACA strategy—-IRS penalty amounts are increased for intentional disregard of the law, and the IRS is auditing a larger number of employers than in early ACA years.
2 TYPES OF IRS PENALTIES FOR ACA NON-COMPLIANCE—THEY INCREASE EVERY YEAR!
IRS penalties exist if an “applicable larger employer” (critical to determine if you are an ALE!!) does not provide annual IRS Form 1095-C forms to their “full-time employees” by March 2nd of each year (March 1 for a leap year) and/or does not file an annual Form 1094-C with the IRS by March 31st of each year (the annual IRS Form 1094-C is filed with copies of all employee 1095-C forms included in the annual filing). These REPORTING PENALTIES are generally $680 for each full-time employee—If a “large employer” has 20 full-time employees and 100 part-timers, this ACA reporting penalty would be 20 X $680, or $13,600 for the reporting year—-Large employers should file their ACA forms every year to avoid ACA “lack of reporting” penalties.
The IRS also imposes “penalties” if a “large employer” does not “offer” ACA compliant group health insurance to full-time employees (these are technically called “employer shared responsibility payments”, or ESRP’s. These penalties range from $3,780 (“A” penalty) to $5,670 (“B” penalty) per year per full-time employee (as a general rule, an employer is not assessed an ESRP “type A penalty” on the first 30 full-time employees.) Strategies exist to mitigate the potential ESRP penalties based on the group insurance design developed by benefits consultants.
BOTTOM LINE—IRS PENALTIES FOR NOT COMPLYING WITH THE AFFORDABLE CARE ACT CAN BE MASSIVE—THEY CAN ALSO BE MITIGATED BY PROPER PLANNING AND USE OF EXPERTS
IS THE AFFORDABLE CARE ACT CONSTITUTIONAL?
Some employers previously did not comply with the ACA on the grounds (and hope) that it would be deemed unconstitutional, and thus it would go away. The original Affordable Care Act was signed into law on March 23, 2010, and the Supreme Court upheld its legality on June 18, 2021. ACA is the “law of the land” and employers need to understand the details of how it works and applies to them.
HERE ARE THE ONLY OPTIONS LEFT FOR EMPLOYERS AS TO THE AFFORDABLE CARE ACT
Make a determination of whether you are a “large employer” by counting your full-time equivalent employees (our previous PayDay articles on ACA explain how to make these counts). If you do not have an average of 50 or more FTE’s per month for a calendar year, you are not subject to the ACA statute as to either ACA reporting or insurance requirements (NOTE—-self-insured “small” employers do have some minimal annual reporting requirements). IF YOU ARE CLOSE TO THE 50 FTE THRESHOLD, REVIEW YOUR COUNTS EACH YEAR TO DETERMINE IF YOU HAVE GROWN TO BECOME A LARGE EMPLOYER AND SUBJECT TO ACA STARTING THE FOLLOWING YEAR. If you are a “large employer” as defined by the ACA, develop your strategy for complying with ACA with your benefits consultant and your payroll/HR services company. Compliance with ACA requires both payroll and medical insurance information.
The other option is similar to a decision to not file your income tax returns—-simply ignore the ACA as if it does not exist, do nothing, and deal with the ACA statute and potentially massive IRS penalties if ever audited.
SOME EDUCATIONAL ACA RESOURCES
AccuPay has written previous PayDay’s about the Affordable Care Act, to include how to “count” your FTE’s to determine if you are an ALE (applicable large employer). Included here is the PayDay we wrote on July 19, 2018, titled “ACA—What Employers Should Know” and our follow-up PayDay written on June 18, 2021 titled “Supreme Court Upheld Legality of ACA—What to Do?”
You can also find our previous ACA articles at the blog at our website, along with many other educational articles about payroll and HR.
If you have any questions about your status under the ACA, to include “how to count” your FTE’s, feel free to email larry@accupay.com.
This PayDay is for educational purposes only and does not constitute tax and/or legal advice. Any links to external resources are for educational purposes only. AccuPay is not affiliated with nor receives any renumeration from any outside sources. Please consult with your tax and/or legal advisor before applying any suggestions made here or through external links.