By Christy Abend
For many, the last days on the calendar signify the most wonderful time of the year, a time to reflect on the past year and plan for the future. For HR professionals, the end of a calendar year means Affordable Care Act (ACA) reporting season and the pressure of doing it right that comes along with it.
Preparation and organization can make filing before deadlines more efficient. Any improvement to operational efficiency will be essential since failure to file complete and accurate forms by their respective deadlines can result in penalties that add up quickly.
HR and benefits professionals who administer ACA programs must plan for meeting the ACA reporting deadlines or could be on a collision course with the unexpected notification of significant monetary penalties.
To help avoid a fiscal catastrophe, employers need to meet these deadlines:
For Tax Year 2022, Applicable Large Employers (ALEs) must provide Form 1095-C to applicable employees no later than March 2, 2023. (For ALEs, the IRS has granted an automatic and permanent extension of 30 days from the deadline of January 31, 2023 to provide Form 1095-C to employees.)
If filing Forms 1094-C and 1095-C by paper, forms are due with the IRS no later than February 28, 2023. If filing electronically, forms are due to the IRS no later than March 31, 2023.
As amounts are adjusted annually for inflation, HR professionals need to understand that reporting penalties continue to rise. Four critical penalties for ALEs in Tax Year 2022 to avoid include:
Failure to file an information return - $280 for each return for which such failure occurs. Total penalty during one calendar year cannot exceed $3,426 million for employers with gross receipts of over $5 million, or $1,142 million for employers with gross receipts of less than or equal to $5 million.Penalties increase to $570 for each return, with no annual maximum, if the failure to file was due to intentional disregard.
Failure to provide a correct payee statement - $280 for each return for which such failure occurs. Total penalty during one calendar year cannot exceed $3,4261.5 million for employers with gross receipts of over $5 million, or $1,142 million for employers with gross receipts of less than or equal to $5 million. Penalties increase to $570 for each return, with no annual maximum, if the failure to file was due to intentional disregard.
Failure to offer group health coverage to at least 95 percent of full-time employees (also known as the “A penalty”) - $229.17/month or $2,750 per employee per calendar year (minus the first 30 employees).
Offering coverage that is not affordable or does not meet ACA minimum value standards (also known as the “B penalty”) - $343.33/month or $4,120 per affected employee per calendar year, not to exceed the amount that would be assessed under the “A penalty”.
To help minimize stress and maximize efficiency and success, it’s important for HR teams to not only be aware of reporting deadlines and extensions, but also focus on data integrity and avoid common errors.
An annual internal ACA data audit can help you ensure vital data points are accurate. Inaccurate data can result in potential issues including incorrect forms and form codes. Regular internal audits can allow HR teams to identify problems and often quickly correct them.
Key data points include:
Employees’ legal name
Social security number
Date of birth
Address
Employment periods
Service hours
Rate of pay
Employee classification
Work Location
Health benefits measurement and eligibility periods
Simple information reporting mistakes can jeopardize ACA accuracy. Plan for the following to help limit your risk and increase the chance of reporting accurately and in a timely manner:
Employees with multiple employers: If an employee works for multiple employers within the same control group, hours used to determine benefit eligibility must be aggregated, and the information should be reported accurately and carefully.
Offers of coverage: Employers who use passive annual enrollment strategies risk misidentifying offers of coverage, offering to employees who may not qualify under the ACA measurement method used, or may miss offering coverage to newly eligible employees.
Form 1095-C: This form can be confusing and vital sections are frequently left blank when that is prohibited. Other common errors include invalid code combinations and misidentification of self-insured and fully insured plans.
For 2023, the affordability threshold is set at 9.12 percent (a decrease from 9.61 percent in 2022). Employers wishing to avoid an Employer Shared Responsibility Payment (ESRP) will need to adjust how much employees are charged for health coverage under the updated affordability threshold. ACA affordability is based on employees’ household income and the percentage indexes on an annual basis, adjusted for inflation.
For several years the Internal Revenue Service (IRS) showed leniency against penalties if employers reported incomplete or incorrect information provided the employer could prove they made a “good faith effort” to comply. However, beginning in plan year 2021, the IRS announced the end of “good faith relief.” The end of this grace period is an added incentive for ALEs to ensure timeliness and accuracy in reporting.
Accurate completion of forms and reporting of ACA obligations is more important than ever. Simple mistakes and failure to comply can trigger significant penalties as the IRS has stepped up with a more robust enforcement policy.
Equifax Workforce Solutions provides comprehensive Affordable Care Act management services for employers, brokers and partners. With significant expertise on your side, ACA reporting can be less costly and stressful. Learn how we can help your organization with your ACA requirements and reporting.
Companies across multiple industries around the country struggle to maintain their ACA process for several reasons that go above and beyond normal expectations. We call them complex employers. If you are one of them, the fines associated with failure to maintain your part of the Employer Shared Responsibility Provisions (ESRP) don’t have to be a cost of doing business. You can work within ACA regulations, and this ebook will help show you how.
The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel. Links to sources may be to third party sites. We have no control over and assume no responsibility for the content, privacy policies or practices of any third party sites or services.
About the Author
Job Title: Director, Product Management
Christy Abend has more than two decades working in the human resources and product management space, with a concentration in health and welfare benefits and a focus on employer regulatory alignment. Her background and interests facilitate her work on the ACA products offered by Equifax Workforce Solutions. She has a Bachelor of Science degree with a concentration in Human Resource Management from the State University of New York, Empire State College and also holds a SHRM-SCP certification as well as a Group Benefits Associate designation awarded by the International Foundation of Employee Benefit Plans and the Wharton School of the University of Pennsylvania.