Tips for Helping Clients Avoid ACA Employer Penalties
As 2022 comes to an end, employers are beginning to prepare for their required annual Affordable Care Act (ACA) reporting to the Internal Revenue Service (IRS). Now is a good time to consider how your clients operating businesses of different sizes are impacted by reporting rules and the ACA employer mandate.
A part of the Employer Shared Responsibility provisions, the ACA Employer Mandate has been in effect since 2014. It requires Applicable Large Employers (ALEs) – those with 50 or more full-time or full-time-equivalent employees (FTEs) – to offer affordable, minimum value coverage to all full-time employees and eligible dependents.
Full-time employees, according to the ACA, are those who average either 30 hours of service per week, or 130 hours of service per month.
For your client to calculate FTEs, add the hours of service for all of employees working less than an average of 30 hours a week (or 130 hours a month in a given month). Then divide the total hours by 120 to get the FTE count for that month. For part-time employees providing 121-129 hours of service, use a maximum of 120 hours in this calculation.
Add this number to the count of your client’s regular full-time employees for each month.
Average all 12 months’ results. If the result is an average of 50 or full-time employees plus FTEs, then your client’s business is an ALE subject to the employer mandate.
The employer needs to do the calculation on or around 1/1 each year, using all 12 months of the preceding calendar year. Your client cannot use any 12 consecutive months; he/she/they must use January through December.
For tax year 2022 (reported in 2023), employers considered ALEs in 2022 must tell the IRS about their offers of coverage to eligible employees that year. They do this using IRS Forms 1094-C and 1095-C. Copies must be furnished to employees by March 2, 2023. Forms must be filed with the IRS by February 28, 2023, if submitting via paper – or by March 31, 2023, if filing electronically. ALEs with 250 or more forms are required to file electronically.
An Applicable Large Employer may have to pay a per-employee, per-month fee, for non-compliance if the business:
-Does not offer job-based coverage [Minimum Essential Coverage (MEC)] to at least 95%+ of FTEs.
-Does not offer coverage of minimum value – a plan with at least 60%+ actuarial value (meaning a plan that pays for at least 60% of covered benefits).
-Does not offer coverage that is affordable. To satisfy affordability, the lowest-cost plan offered by the ALE (based on the self-only rate) must not exceed 9.5% (as adjusted) of an employee’s pay or the Federal Poverty Level (FPL). Affordability percentages apply on a plan year basis – 9.61% for 2022 and 9.12% for 2023.
If your ALE client does not offer coverage, as required, a penalty may be applied if any eligible employee obtains alternative Individual and Family Plan (IFP) coverage on a state Exchange – like Covered California or Nevada Health Link – using a Premium Tax Credit (PTC) to pay for it.
The IRS can impose a penalty under two circumstances, as follows:
ACA Penalty “A” penalty (under Section 4980H(a) of the Internal Revenue Code)
̶ The ALE fails to provide MEC to of its FT employees + their dependents during a month.
̶ This penalty for tax year 2023 is $2,880/year for all employees, minus the first 30 employees. It is assigned on a monthly basis of 1/12th of $2,880, or $240.00/month per employee — minus the first 30.
ACA Penalty “B” (under Section 4980H(b) of the Internal Revenue Code)
̶ The ALE fails to offer coverage that is “affordable,” and/or fails to offer “minimum value” coverage.
̶ This penalty for tax year 2023 is $4,320/year for each employee in receipt of a Premium Tax Credit (PTC) from the Exchange. It is not applied to all employees in the organization; it is only assessed per employee receiving a PTC. Like penalty A, it is assigned on a monthly basis of 1/12th of $4,320, or $360.00/month.
For information on other safe harbors, such as the Federal Poverty Line. W-2, or Rate of Pay, refer to the FAQs for the ACA on the IRS website – or download the Word & Brown Affordability Guide from our online Insurance Forms Library).
Word & Brown offers ACA Calculators to help you determine whether your clients are subject to the ACA’s mandate – and to determine forecast potential penalties. You can access and download the calculators on our website, including these offerings:
-Group Size Calculator
-Full-Time Equivalent Calculator
-Employer Penalty Calculator
-ACA IRS Employer Reporting Calculator
-Medical Loss Ratio Rebate Calculator
Final Tips on Avoiding ACA Penalties
When you’re meeting with your clients, be sure to consider the following to help them avoid current plan year or future ACA penalties:
-The employer must calculate its group size on or around 1/1 each year. If the business has fewer than 50 full-time employees, including FTEs, the employer is not an ALE subject to the employer mandate (and related penalties) for the new year. Ideally, the employer should consult a CPA.
-Sign into our website and utilize our Group Size Calculator.
-If your client’s business is an ALE, be sure coverage offered to all full-time eligible employees.
-Be sure coverage offered to employees and dependents is fully compliant.
-Document your client’s offer of MEC to all full-time eligible employees. (Note: the maximum waiting period is 90 days. Coverage must be in effect by the 90th day of employment. Most employers elect a waiting period that is “first of the month following 30 days of employment” or “first of the month following 60 days of employment” to satisfy this requirement.)
Help If You Need It
Our Compliance team is comprised of experts eager to help you with any questions you and your clients may have regarding ACA penalties – or another facet of the ACA. Don’t hesitate to reach out via email (ComplianceSupport@wordandbrown.com) or telephone (866.375.2039).
Your local Word & Brown representative can also assist you – or may be able to refer you to other team members and resources for help.
If you’re not yet working with Word & Brown, it’s easy to get started. Register using our online form. You can also contact one of our Word & Brown offices by phone or email.
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