For several years, Word & Brown has hosted a webinar series known as “Don’t Fear the Forms,” which is designed to help brokers aid their employer clients in preparing for annual reporting to the Internal Revenue Service as required by the Affordable Care Act (ACA).
Our most-recent series for 2019 reporting (due in 2020) recently wrapped up, and this article summarizes some of the valuable information shared during the webinar. You can also click here to listen to a recording of the webinar hosted by Rene Gonzalez and Bob Wojciechowski, from Word & Brown’s Compliance department.
Required ALE Reporting
The IRS requires annual ACA reporting by Applicable Large Employers (ALEs) – businesses with 50+ full-time and full-time equivalent employees subject to the ACA employer mandate.
Employers must report their compliance – or non-compliance – with the ACA’s employer mandate. These reports help the IRS determine whether any fees apply to the employer for non-compliance, and whether or not the employer’s employees are eligible for Premium Tax Credits on the Exchange (i.e., Covered California or Nevada Health Link) for affordability or lack of coverage offered reasons.
Employees must be given copies of the information reported on them by their employer to the IRS.
Determining ALE Status
Annually, in January, an employer must determine its group size status by review its employee numbers for each month during the preceding year.
Number of Full Time [FT] employees
+ Number of Full Time Equivalent [FTE] employees
The average of all 12 months’ results equals the employer size for the entire year, regardless of fluctuations during year.
If the number is 50 or more, the employer is an Applicable Large Employer, subject to the ACA employer mandate. The ALE status does not change for the entire year, regardless of fluctuations in the workforce during the year.
Please keep in mind that an ALE can be a single company or may consist of multiple companies that are combined together because of common ownership (such as parent and subsidiary entities or other related/affiliated entities), which the IRS calls a Controlled Group.
A “Controlled Group” or “Aggregate Group” may have:
- Separate Tax IDs
- Different groups of employees
- Different locations
- Different industries
It’s important to note affiliated businesses need not have the same health plan. A CPA, tax professional, or legal counsel can best determine common ownership. More information is set forth in Internal Revenue Code (IRC) Section 414, (b), (c), (m), and (o).
Other Employers Affected, Too
Beyond ALEs, all employers of any size with self-insured coverage or a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) must also file.
The IRS will not impose a penalty on self-insured employers and insurance providers/carriers for failing to furnish an employee with a Form 1095-B if the following criteria are met:
- The reporting entity must post a notice prominently on its website stating that responsible individuals may receive a copy of their 1095-B upon request, accompanied by an email address and a physical address to which the request may be sent, as well as a telephone number that responsible individuals can use to contact the reporting entity with any questions.
- The reporting entity furnishes a 2019 Form 1095-B to the requesting party within 30 days of the date the request is received.
Important Filing Dates
Employer reporting is required for all persons employed full-time for at least one full calendar month during 2019.
- Reporting is due to employees (using Form 1095-C) on or before March 2, 2020.
- If filing by paper (for employers with 250 or fewer forms), reporting is due to the IRS, using Form 1094-C and copies of all employees’ Forms 1095-C, on or before the last day of February (in 2020, that’s Friday, February 28, since the last day of the month is a Saturday).
- If filing electronically (required when 250+ forms are issued), reporting is due to the IRS on or before the last day of March. (In 2020, that’s Tuesday, March 31.)
Employer Mandate Penalties
If there is no offer by the employer of Minimum Essential Coverage, Penalty A – 4980H(a) – applies:
- $2,570 x all full-time employees, minus first 30 full-time employees
- Calculated on a monthly basis at 1/12 of $2,570 or $214.17 per month
This penalty shown is adjusted for 2019.
If coverage offered by the employer is unaffordable or does not offer Minimum Value, Penalty B – 4980H(b) – applies:
- $3,860 per FT employee receiving a PTC from Exchange
- Calculated on a monthly basis at 1/12 of $3,860 or $321.67/month
This penalty shown is adjusted for 2019.
Penalty B is generally triggered when a full-time employee gets a Premium Tax Credit through the federal or state exchanges.
An employer is subject to either Penalty A or B in a given month, but not both. Penalty B cannot exceed the amount the employer would have owed if it had been liable for Penalty A.
Safe Harbors and Employer Penalties
As noted before, an ALE must offer coverage that is affordable and provides Minimum Value. Affordability is based on three ACA Safe Harbors:
- Employees’ Rate of Pay: Hourly wage multiplied by 130 hours/month as of the first day of the plan year
- W-2 Box 1 income for the tax year: Generally as of the first day of the plan year
- Federal Poverty Level: The FPL used is as of six months prior to the plan year, since the FPL is not published until January each year.
Calculations are based on the lowest-cost, self-only coverage offered by the ALE that meets Minimum Value. Dependent cost is not factored into the calculation.
Affordability percentages in recent years have been 9.56% for 2018, 9.86% for 2019, and 9.78% for 2020.
The chart below summarizes the penalties for the 2019 tax year:
|Time of Filing||Penalty Rate||IRS Forms Due
|Not more than 30 days late||Per return||$ 50|
|Maximum – Gross receipts less than/equal to $5M||$ 194,500|
|Maximum – Gross receipts over %5M||$ 556,500|
|31 days late – August 1st||Per return||$ 110|
|Maximum – Gross receipts less than/equal to $5M||$ 556,500|
|Maximum – Gross receipts over $5M||$ 1,669,500|
|After August 1st||Per return||$ 270|
|Maximum – Gross receipts less than/equal to $5M||$ 1,113,000|
|Maximum – Gross receipts over $5M||$ 3,339,000|
|Intentional disregard||Per return||$ 550|
|Maximum – Gross receipts less than/equal to $5M||No Limitation|
|Maximum – Gross receipts over $5M||No Limitation|
Employer Reporting Extensions
An employer can use IRS Form 8809 to request an extension of time to file information returns. An automatic 30-day extension will be given without requiring either a signature or explanation. Forms must be filed by the above-noted deadlines.
Under certain hardship conditions, an employer could receive an additional 30-day extension. For example, California employers in areas impacted by fire. Refer to Form 8809 instructions for additional information.
For more information on employer reporting, you can access our webinar recording – including samples of related forms – by linking email@example.com, or call 866.375.2039.
Note: Information presented in this article should not be construed as legal or tax advice in any way. Regulations, guidance, and legal opinions continue to change. The presenters in our webinar gathered public information and attempt to present it in an easily readable and understandable format. Situations vary, and technical corrections and future guidance may vary from what is outlined here. No warranty of any kind is provided concerning this information. Brokers and clients should seek the advice of an attorney or tax consultant for additional guidance or specific information.