Understanding ACA Reporting – Helpful Tips and Links to Keep Your Sanity!

Dealing with ACA reporting can be a huge pain… If you’ve dealt with fulfilling your forms 1094-C and 1095-C requirements, you know exactly what I mean.

In the best case, it takes a ton of time and headache… In the worst case, you could be facing some substantial fines and penalties for not complying.

For these reasons, among many others, HR managers and C-Level directors are turning to ACA reporting and compliance vendors to get their yearly reporting completed and submitted. As with many things however, if you don’t understand what you’re asking these vendors to do, you might be in trouble before you begin…

As Guy Kawasaki says…

Don’t ask people to do something you wouldn’t.

To the above, I might add, …Don’t know how to do…

With this in mind, our post today will cover the basics of ACA reporting:

  • What are forms 1094-C and 1095-C

  • Who needs to file?

  • How to make reporting easy

  • Safe Harbors

Short on time? Cut to the chase and get your free ACA checklist below: 

 

Get compliant with this ACA checklist.

 

First, what are forms 1094-C and 1095-C?

As you’re well aware, the Affordable Care Act was introduced in an attempt to “to give more Americans access to affordable, quality health insurance and to reduce the growth in U.S. health care spending.” (read more @ http://obamacarefacts.com/obamacare-facts/)

To accomplish this goal, the ACA first set out to insure that businesses with 50 or more full time employees (also called Applicable Large Employers, or “ALEs”) offer health insurance to their employees. Referred to as the employer mandate, or “employer shared responsibility provisions“, these are guidelines for determining if your company must “Play or Pay”.

The good news is this: If you already offer health benefits that meet “Minimum Essential Coverage” limits to your employees, you don’t need to worry about Play or Pay.

Note: If you’re unsure about whether or not you’re an ALE, stay tuned next week. We’ll be diving deep into the world of ALE FTE calculations… Riveting huh? Hope to see you there!)

Moving right along, the ACA mandates that all Applicable Large Employers follow 2 new reporting requirements, taking effect for 2015.

  1. Code 6056 requires ALEs to provide an annual report to each full-time employee, showing the health plan offering from the company to the employee. (or lack thereof).

  2. Code 6055 requires all employers, regardless of size, that provide coverage that meets MEC guidelines (Minimum Essential Coverage), to provide an annual statement to each covered employee, as well as past covered employees.

To accomplish all of the above, the IRS provides forms 1094-C and 1095-C to enable employers to meet the demands of Code 6056 and 6055. For more on code 6056, click here. For 6055, click here.

Now that we know who needs to report, and what forms to use, how does it actually work on a practical level?

Glad you asked!

First, Applicable Large Employers, or ALEs will populate a form 1095-C for each employee who worked on a full-time basis for any month during the calendar year. To make this possible, you’ll first need to gather a list of any employees who have worked on a full-time basis at your company during the calendar year. More specifically, you need to know who became eligible for benefits, and how long they were eligible for those benefits.

Next, you’ll need to send the 1095-C forms to applicable, full-time employees… Whether they had coverage or not! Also, if your health plan is self-funded, even non-full-time employees will need to receive a 1095-C.

Lastly, you’ll need to fill out your company’s 1094-C, and submit it to the IRS, along with copies of each employee’s 1095-C.

Here are some important dates to keep in mind when dealing with your forms:

  • Jan 31 – 1095-C sent to employees

  • Feb 29 – 1094-C sent to IRS + copies of 1095-C, paper filing

  • Mar 31 – 1094-C to IRS + copies of 1095-C, electronic filing

Although, for the tax year 2015, these deadlines were extended, we do not forsee any future extentions.

Note: Small employers (those with less than 50 FTE’s), who use a self-insured approach to cover their employees, will use forms 1094-B and 1095-B. These forms are very similar to forms 1094-C and 1095-C, and merely suit this scenerio. Being that it is very uncommon for small businesses to self-insure, we’ll leave this out of today’s post. For more info on these forms, click here for the IRS instructions.

Before moving on to our solution, please know that this is by no means an exhaustive description of ACA reporting. Here’s a link to the IRS Q & A page dealing with 1094-C and 1095-C’s… And here’s a link to “What’s Trending” on the IRS ACA page.

How to make ACA reporting easy: Systematize

To make 1094-C and 1095-C reporting easier, we recommend that you seek an ACA Reporting Service to help. Ideally, the reporting service will tie into your payroll system, and/or your benefits administration system.

Why?

Data needs to come from both payroll, and your health plan records… It’s this unique combination of data that can make ACA reporting difficult. Add a healthy dose of turnover to your organization, employees coming on and off of benefits eligibility, HIPPA and HITECH regulations … and Walla! We have ourselves a potential ACA reporting fiasco!

Luckily, there are ways to do this right, and get on with your life. Ideally, this involves a reporting service that pulls all your employee data from your benefits administration system and/or your Payroll system, making the process easier and less likely to contain errors.

Stumped on where to start? Talk with one of our friendly folks today, or click the link at the end of today’s post and get your compliance strategy (including reporting) organized!

Safe Harbors:

The IRS grants 3 safe harbors that employers can use to safeguard against unforseen circumstances. We’ll briefly cover these 3 safe harbors, and outline the kind of business that would benefit most from using each particular method. The 3 safe harbors are:

  1. Federal Poverty Level

  2. Rate of Pay

  3. Form W-2

Federal Poverty Level:

Coverage is affordable if the employee’s share of cost for employee-only coverage is not more than 9.66% (in 2016) of the FPL for a single individual. FPL, or Federal Poverty Level, is typically updated each January by the Secretary of Health and Human Services.

For 2016, basing our math off of $11,880 in minimum yearly earnings, this would be approximately $95.63 or less, per month. (To find this, we take 9.66% X $11,880 / 12). If the FPL safe harbor applies to your company, your coverage offer is affordable for all employees.

If it doesn’t, we’ll move on to our next safe harbor:

Rate of Pay:

For hourly employees, coverage is affordable if the employee’s cost for employee-only coverage does not exceed 9.66% of the employee’s hourly rate of pay, multiplied by 130. (For more, see #19 – here on the IRS website.)

For salaried employees, coverage is affordable if the employee’s cost for employee-only coverage does not exceed 9.66% of the employee’s monthly salary. Note: montly salary is determined at the beginning of the coverage period and this safe harbor is not available if the monthly salary is reduced during the year.

The Rate of Pay safe harbor is generally not a good idea if your employees are “tipped”, or for employees that work solely based on commissions.

Form W2:

Coverage is affordable if employee’s annual cost for employee-only health insurance does not exceed 9.66% of the employee’s wages, as reported in Box 1 of Form W-2. This is calculated after the end of the calendar year, after Form W-2’s are available. To use this safe harbor, the employee’s share of contribution, for your company’s base plan (not necessarily the plan the employee is on), must remain a consistent amount or percentage of all Form W-2 wages during the year.

Being that many companies employ workers on a commission, bonus and/or tip-heavy manner, this can be the ideal safe harbor in many cases. For example, Box 1 includes taxable wages, bonuses, tips, and other compensation, but does not include non-taxable employee benefits like pre-tax 401K contributions, cafeteria plan contributions etc… Restaurants, commissioned sales teams, and other “performance based” occupations with limited or no base-pay often turn to the Form W2 safe harbor.

To summarize your options for safe harbors: Your company’s unique needs and goals need to be factored in to determine your ideal Safe Harbor(s). For more insight on Safe Harbors, or any other compliance related issue, don’t be shy! Reach out to us at: hello@sciandassociates. We love helping you solve problems, put in the right solutions to manage your business, and to see you thrive!

Thanks for reading today’s post!

To learn more, download your Free 5 page ACA guide by clicking the link below:

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About the author: Nolan Waterfall
Nolan is partner, and head of marketing at SCI, where he enjoys educating owners, C-level executives, and HR managers, on the in's and out's of all things compliance, technology, and benefits strategy. Nolan loves reading, anything outdoors, and spending time with his wife Joanna.

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