Changes brought by the Affordable Care Act (ACA) continue to roll in. For affected employers, these changes could mean higher expenses and will add filing responsibilities with the IRS.
Background: The ACA has a language of its own, with many new terms employers must learn. For example, “applicable large employer,” or ALE, is defined as an employer having at least 50 full-time employees or the equivalent.
For 2015, because of transitional relief for qualifying employers with 50 to 99 full-timers or the equivalent, generally only ALEs with 100 or more full-timers or the equivalent are subject to the shared responsibility, or “play-or-pay” provision. This is the requirement to offer a certain level of affordable health insurance to full-time employees and their dependents at a shared cost or be at risk for penalties. But in 2016, play-or-pay will begin to apply to all employers having 50 to 99 full-timers or the equivalent.
Looking toward Next Year
As we get closer to 2016, many employers need to plan for some changes and new responsibilities related to the ACA. Here are two 2016 ACA changes affecting ALEs:
Change #1: Increased play-or-pay penalties. ALEs subject to play-or-pay in 2015 that don’t offer “minimum essential coverage” to 70% of full time employees may be subject to a penalty. Penalties are triggered if at least one full-time employee purchases health coverage individually through a state or federal health care marketplace and receives a federal premium tax credit or subsidy. For 2016, the percentage of employees that must be offered minimum essential coverage increases to 95%. Internal Revenue Code Section 4980H spells out the penalty provisions for employers that fail this test.
The IRS has estimated the annual per-employee penalty for ALEs that don’t offer minimum essential coverage and have at least one full-time employee receiving a tax credit or subsidy to be $2,080 for 2015 and $2,160 for 2016. In 2016, an employer can exclude up to 30 full-time employees when calculating this penalty.
Employers that offer minimum essential coverage may still be subject to a penalty if the coverage is considered unaffordable and/or doesn’t meet certain minimum value requirements and at least one full-time employee receives a premium tax credit or cost-sharing subsidy. The annual per-employee penalty for employers in this situation is estimated by the IRS to be $3,120 for 2015 and $3,240 for 2016, but only full-timers who received a credit or subsidy are counted when calculating the penalty. In addition, the penalty is capped at what the penalty would be if the employer didn’t offer minimum essential coverage.
Change #2: Filing Forms 1094-C and 1095-C. In 2016, ALEs — including those eligible for play-or-pay transitional relief — must file two forms with the IRS that provide information about the number of employees in 2015, whether they were enrolled in a health plan, the employees’ share of costs and much more.
Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, will work like a Form W-2, with copies going to the IRS and to full-time employees. Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, will function like a Form W-3 filed by employers with the IRS.
For calendar year 2015, the forms are due by February 29, 2016 (or March 31, 2016 if filing electronically). This is the first year the forms are required. (For calendar year 2014, filing was voluntary.)
The IRS will use the information provided on the forms to enforce provisions of the ACA and apply penalties. In order to file Forms 1094-C and 1095-C on time, employers must compile a great deal of data. This is also necessary to determine whether employers qualify for the play-or-pay transition relief.
Don’t Go it Alone
As you can see, ACA changes are ahead. The rules governing ACA compliance are complicated and we will continue to see additional modifications. Given the complexity of ACA compliance and the potential cost for missing the mark, it’s wise to seek professional guidance. Consult with your payroll, benefits and tax professionals for more information about the law or for assistance filing Forms 1094-C and 1095-C.