Practical Challenges of ACA Compliance in 2015
Posted on 02.17.15
By Mark D. Balderson, Tax Senior Associate
In preparation for the mandatory information reporting requirements of the Affordable Care Act (ACA), effective with the 2015 tax year, employers need to take an aggressive approach in preparing for reporting, managing employee benefits information, and retaining all healthcare exchange and IRS communications beginning on January 1, 2015. An employer classified as an Applicable Large Employer (ALE), determined by having 50 or more full time employees, are governed by the ACA in that the IRS can impose additional penalties and fees for non compliance with the reporting requirements of the ACA under IRC Section 4980H. Self-insured employers must also report on minimum essential coverage provided. Finally, keep in mind that this required information must be reported by any entity that has a Federal Employer Identification Number (FEIN), including “disregarded entities”. Filing of this information using the designated forms is required for 2015, however, the IRS has posted the final forms and instructions that can be used by employers and insurers to voluntarily report the information on health coverage for 2014.
The IRS will use the submitted information to enforce the individual shared responsibility penalties and determine an individual’s eligibility for the premium tax credit. Form 1095-B (Health Coverage) and transmittal Form 1094-B are used by providers of minimum essential health care coverage to report all the information relative to that coverage to the IRS and to the employees which it covers, as required by IRC Sec. 6055. Form 1095-C (Employer-provided Health Insurance Offer and Coverage) and transmittal Form 1094-C are used by employers to report information about offers of and the enrollment in the health care coverage to the IRS and to employees, required by IRC Sec. 6056.
Beginning with January 1, 2015, employers should start tracking employee hours of service for purposes of determining full time employee status in 2015. What’s at stake if you don’t comply and file the necessary forms in 2015? A very large penalty assessment can apply for not offering any coverage or for providing insufficient coverage. Two methods can be used to determine whether an employee is full time under the ACA, a monthly measurement method and a look back measurement method. To determine which method is most appropriate for your business, you need to first determine if your internal payroll or human resources department is going to monitor employee hours or if you company is better served by outsourcing the information reporting to a third party vendor. Examples of outsourcing vendors would be your benefits administrator, tax/accounting provider, tax information reporting firm, or payroll vendor.
President Obama’s most recent 2016 budget estimates $8 billion in revenues to be generated from penalties imposed on employers for non compliance with the ACA. The IRS anticipates employer communications and penalty notices to start arriving in the summer of 2016 and a strict 90 day window will be enforced to rebut any notices received or full payment will be expected.
So do not wait, establish best practices as soon as possible to maintain your data and necessary records managing employee eligibility. Remember, the employer mandate provisions only apply to employers with 50 or more full time employees for 2015, including full time equivalents (FTEs), which is determined by your employee count in the 2014 tax year. If you are an employer that is right at the threshold of 50 employees, I would exercise extra caution in that you could be a prime candidate for penalty assessment by the IRS trying to determine you as an ALE. This is where clean and precise data management and record retention will be crucial in substantiating the position that you did not surpass the full time employee threshold.
Please do not hesitate to contact your Keiter advisor to aid you in this process and to establish compliance with the strict provisions of the ACA or contact firstname.lastname@example.org | 804.747.0000.
Mark is a Tax Senior Associate at Keiter. Mark applies his tax experience to provide the insights needed to help his clients manage and grow their businesses. Read more of Mark’s tax insights on our blog.