Time is up! Now you need to ensure that you are in compliance with the Affordable Care Act (ACA).
One of the many significant provisions under ACA is the requirement that all applicable large employers (ALEs) are subject to the employer shared responsibility provisions (ESRP) which became effective January 1, 2015. An ALE is defined as an employer who employs 50 full-time equivalent (FTE) employees.
Under the employer shared responsibility provisions, an ALE must provide affordable and minimum essential coverage to its full-time employees and their dependents. These provisions are commonly referred to as the “employer mandate” or the “pay-or-play provisions.” An employer-sponsored health plan provides “minimum” value if the plan covers at least 60% of the total cost of benefits expected to be incurred under the plan. As it may be difficult for an employer to determine if a plan is affordable for an employee’s household, the employer can utilize three IRS safe harbors listed on the IRS website. These safe harbors allow employers to consider their employees’ W-2 wages, rate of pay, and rank within Federal Poverty Level (FPL) guidelines.
In order to ensure compliance with the employer shared responsibility provisions, ALEs are required to report certain health insurance coverage information to their full-time employees and to the IRS for the 2015 calendar year. Form 1095-C, Employer-Provided Insurance Offer and Coverage, and Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, must be filed with the IRS no later than February 28, 2016, (March 31, 2016, if you have more than 250 employees, which would require that both forms be filed electronically).
An employer is required to furnish Form 1095C to each of its full-time employees. Every employer must submit summary information using Form 1094-C when transmitting Forms 1095-C to the IRS. Together, these two forms are used in determining whether an employer owes a payment under the employer shared responsibility provisions.
If your company utilizes a payroll service to prepare your payroll tax returns, it is our understanding that many payroll companies now offer a separate service to prepare Forms 1094-C and 1095-C. Therefore, if applicable to your company, contact your payroll service now regarding employee tracking and preparation of these returns. DO NOT wait until December to begin this process!
The above information relates to employers with 50 or more full-time employees, but small employers (fewer than 50 employees) also are subject to the regulations governed by the ACA. If you are a small employer and you offer health insurance to your employees, you do need to ensure that coverage qualifies under the minimum essential and affordable guidelines. However, small employers are not required to file Forms 1094-C and 1095-C.
In addition, it is important to note that in the days before ACA, many small employers did not maintain group health plans but instead reimbursed the employees for a portion (or all) of their insurance premiums or directly paid the premium to the insurance company. As of January 1, 2014, these arrangements were no longer allowed under ACA as they are considered employer payment plans and thus considered group health plans. Consequently, these plans cannot be integrated with individual market policies to satisfy the requirements and market reforms under ACA and may be subject to an excise tax.
However, transition relief from the excise tax was granted by the IRS in February 2015. This relief excused small employers from the excise tax through June 30, 2015, as the IRS acknowledged that it may take time for small employers to cease these types of plans and shop around for new insurance. Therefore, if you have such an arrangement post June 30, you may be subject to a $100/day excise tax per applicable employee.
If a small employer cannot offer a group health insurance plan, it can increase an employee’s compensation in order to help curb the cost of insurance as long as the increase is not contingent upon purchasing health insurance.
ACA requirements are complex and arduous, and failure to comply can cost your company substantial taxes and penalties.
If you would like more information about compliance with ACA provisions or have other tax-related questions, contact the experts listed below at PYA (888) 420-9876.