ACA Creates New Compliance Requirements
Author: Jeff Bodkin
As year-end planning for tax compliance begins to take shape, many organizations are focused on provisions of the Patient Protection and Affordable Care Act (ACA) first taking effect for calendar year 2015. To refresh, the ACA was signed into law March 23, 2010, with the goal of providing more Americans access to affordable, quality health insurance. To achieve this goal, the following ACA provisions are now in effect:
- Subsidies are available for eligible individuals who purchase health coverage from a qualified health insurance exchange
- Non-exempt individuals will be penalized for failing to maintain minimum essential coverage
- Large employers face penalties for failure to provide ACA-compliant coverage to full-time employees
To monitor compliance with these provisions and assess applicable penalties, Internal Revenue Code (IRC) Section 6056 requires organizations meeting the definition of an applicable large employer (ALE) to report ACA information to the IRS. Calendar year 2015 reporting is due in early 2016, but employers must track monthly data beginning with January 2015. Self-insured organizations not meeting the ALE criteria will have a reporting obligation under IRC Section 6055.
Applicable Large Employers
Reporting requirements begin by establishing whether the organization is an ALE as defined by the ACA. The ALE designation occurs when an organization, or controlled group of organizations, employs an average of 50 or more full-time employees, including full-time equivalent (FTE) employees, during the prior year. Typically, an employer would look to its average full-time employees, including FTEs, for all 12 months of 2014 to determine its potential ALE status. However, a transition rule for 2015 allows an employer to use any consecutive six-month period during 2014 to measure its workforce size, rather than the full 12 months of 2014.
A full-time employee has, on average, at least 30 hours of service per week during the calendar month or 130 hours of service during the calendar month. An employer determines its number of FTEs for a month by combining the number of hours of service of all non-full-time employees for the month, without including more than 120 hours of service per employee, and dividing that total by 120. While employers must consider part-time employees for the ALE determination, they may not be assessed an ACA penalty for failing to provide coverage to a part-time employee.
A reporting exception exists for employers with seasonal workforces. Under this exception, an employer has no filing requirement if the 50 or more full-time employee threshold, including FTEs, is exceeded for 120 days or fewer during the prior calendar year, and the employees in excess of 50 who were employed during such 120-day period were seasonal workers. The term “seasonal worker” refers to workers who perform labor or services on a seasonal basis as defined by the Secretary of Labor, e.g., retail workers employed exclusively during holiday seasons.
Once ALE determination has been made, the organization can identify the specific IRS forms necessary to report coverage information. The reporting requirements and applicable forms are different for fully insured and self-insured organizations:
Key Compliance Dates
- Employers must submit Form 1095 to recipients by February 1, 2016, since the required January 31 submission date falls on a Sunday.
- All reporting for calendar year 2015 must be submitted to the IRS by February 29, 2016, if filing paper forms, or by March 31, 2016, if filing electronically. A 30-day IRS filing extension will be granted by completing Form 8809.
Note: Electronic filing is mandatory if submitting 250 or more Forms 1095.
Failure to file or late filing could subject an employer to a penalty of $250 per form, up to a maximum annual penalty of $3 million. Establishing a compliance solution to report the necessary information is critical for affected employers to avoid penalties. Additional information on ACA compliance is available on our new ACA compliance webpage.