As the countdown to 2016 approaches, employers must begin to grapple with new annual reporting responsibilities related to the Affordable Care Act (ACA). In short, the IRS wants to know if, and what type of, health insurance, employers offered to full-time employees during 2015. The purpose is to determine whether employers and individuals owe the government money (i.e. whether penalties should be assessed) and who qualifies for tax credits.
There are two essential takeaways: 1) Now is the time to take action. 2) It’s complicated…very complicated! While your benefits advisor can provide more details, here’s a look at some significant highlights for companies and organizations with 50 or more full-time and full-time equivalent employees.
1. Act Now
Don’t let filing deadlines mislead you into thinking you can delay taking action until next year. Proper compliance involves a lot of detailed prep work. In addition, while many companies plan to contract with third parties to manage the reporting process, some experts suspect these services may become inundated with business, and they are beginning to raise their prices.
Let’s take a look at key deadlines:
- Feb. 1, 2016: Employee Statements are due. (Technically, the annual is Jan. 31, but in 2016 that day is a Sunday, so the regulations instruct employers to file on the next following Monday).
- Feb. 29, 2016: IRS reporting is due for paper filings. (Again, the deadline is actually Feb. 28, which also falls on a Sunday next year).
- March 31, 2016: IRS electronic reporting is due. (Employers issuing 250 or more individual statements must file electronically).
2. The Devil is in the Details
Proper compliance involves filling out the correct form with the appropriate information at the right time. There are different forms for Employee Statements and IRS reporting. Companies with 50 or more full-time and full-time equivalent employees have separate requirements than those with fewer such employees. Other variables include whether a company is self-insured, the type of insurance offered and eligibility of each employee during each month of 2015. For example, if a part-time employee with no benefits became a full time employee with health insurance and was then terminated with COBRA coverage, the information required to be reported for that individual would change at least twice during the year.
Corporate ownership issues also impact the process. Among the considerations that could affect the way a company files include whether it is part of a controlled group of companies.
In addition to full-time employees, employers must include information about the following employee classifications, which are all coded differently:
- Non-eligible employees
- Variable hour employees in measurement period
Finally, an employer must be sure to design its plan offering and recordkeeping systems properly to be certain to be compliant with its ACA obligations, as well as to collect and report the correct data. Employers need to be sure they have properly addressed applicable large employers (ALE) status, which classes of employees receive an offer of coverage, whether their plan designs are affordable and provide the required minimum value and other critical ACA concerns. Once an employer has addressed these issues, it can focus on the right reporting solution.
3. Consider Utilizing a Third-Party Administrator
By now, the complexity involved in this type of reporting should be obvious. That’s why many companies are turning to external vendors for help. Frankly, the cost is usually fairly reasonable considering the value provided. Ask your benefits advisor for recommendations – some may have negotiated proprietary pricing for their clients.
The source typically most prepared to handle your ACA reporting requirements would be your existing payroll service provider. And, because of the need, new ACA reporting companies are being established. It is essential to ask questions to determine the scope of services provided – even with an established vendor. Among the factors to address with your representative:
- Do your ACA reporting services include sending the required filing to the IRS and distributing forms directly to employees? If not, can this be an added service?
- Do you already have all of the required information elements, or do we need to provide additional information?
- Please confirm your organization takes responsibility to determine the proper codes to be included on the form. If not, what is the process to complete this?
- What is the timing for you to file the information?
- Are there additional costs for this service, and if so, please confirm the cost structure.
- If our employees have questions regarding the forms, do you provide call center services so they can speak to a representative?
4. Be Aware of Compliance Penalties
Employers will face penalties of up to $250 per return and employee statement for failure to comply. There is an annual cap of $3 million for entities with gross receipts in excess of $5 million; or a $1 million annual cap for those with not more than $5 million in gross receipts.
There is some good news, however. The IRS will not impose penalties in 2016 if an employer files incomplete or incorrect forms, as long as it demonstrates a good faith effort to comply. However, this exception does not apply to untimely filings or employee statements. Also, if a third party administrator helps with filing, this does not relieve employers of related liabilities.
For more information about ACA reporting requirements, contact your benefits advisor.