Is your company prepared to navigate the complexities of ACA compliance in 2024?
If you're not sure, this article is for you!
When a company fails to meet ACA compliance requirements, the penalties for even the slightest misstep can be crippling. To avoid staggering fines, employers must carefully follow all ACA regulations. But, consider this a warning -- the complexity of the ACA makes this job easier said than done.
Here at Combined, we understand the challenges involved in ACA compliance and have helped a great number of employers avoid not only expensive violation penalties, but the endless effort involved in filing correctly.
And, guess what?
Our ACA and benefits specialists are ready and able teach you the tricks of the trade, so you can too!
In this article, we will take an in-depth look at ACA employer requirements involving:
ALE status
MEC criteria
Year-end reporting
By the end, you will learn the 3 best ways to foolproof your ACA compliance practices to protect your business from costly penalties.
A brief ACA overview – Why it matters to your business
The Affordable Care Act (ACA) was instituted in March 2010 in order to reform the American health care system. The goal of this comprehensive law is to make affordable health care available to more people.
The ACA attempts this by:
Requiring Applicable Large Employers (ALE) to provide their full-time employees access to Minimum Essential Coverage (MEC) that is both affordable and minimum value.
Subsidizing the cost of individual coverage for those who are ineligible to receive it from their employer.
To do this, the ACA has strict employer requirements that are even more strictly enforced.
This means major penalties for noncompliance.
The 3 best practices to make sure you are always ACA compliant
No employer wants to receive an ACA enforcement letter – less yet pay the steep price for having made compliance mistakes.
These 3 best practices can make sure you don’t have to.
Best Practice #1 – Determine Applicable Large Employer (ALE) status
The ACA defines an ALE as an employer that employed an average of 50 full-time and full-time equivalent (FTE) employees during the previous calendar year, based on IRS controlled group rules.
The ACA defines a full-time (FT) employee for the purpose of the ALE determination, as an employee who works 120 hours in a month. A Full-time equivalent employee (FTE) is an employee who works less than 120 hours in a month. To assess how many FTE employees you employed in a month, add the hours of all employees on payroll that worked less than 120 hours in a month and divide it by 120. The result is the number of FTE employees you employed in that month. Add the FTE employees to the FT employee count for each month in a calendar year, and divide by 12. The outcome is the number of FT and FTE employees you employed in a calendar year.
If the number of FT and FTE employees is at or greater than 50, you are deemed to be an ALE for the subsequent calendar year.Remember, that the ACA requires that you also take into account the FT and FTE employees employed by a sister or parent company (affiliated entities) in assessing how many employees you employ. Even if you employ only 15 FT and FTE employees but your parent company employs 100 FT and FTE employees, you are deemed to be an ALE as in aggregate you and your parent company employ more than 50 FT and FTE employees. As an ALE under the ACA, you are required to offer minimum essential coverage to at least 95% of your full-time employees, and that coverage must also be adequate.
Best Practice #2 – Offer Minimum Essential Coverage (MEC) to full-time employees
Under the ACA employer shared responsibility mandate, ALEs must offer MEC that is affordable and minimum value to at least 95% of full-time employees.
Failure to offer coverage or offering coverage that does not meet affordability and minimum value standards will result in a penalty.
Here is how you can measure whether the coverage you offer meets these requirements.
Do you offer the right coverage plan?
The MEC you offer must be:
- Affordable
- Minimum Value
The ACA offers the following guidelines for coverage criteria.
Is your coverage affordable?
The employee contribution to their health care plan premium determines whether coverage is affordable.
To meet this requirement for 2025, the employee contribution cannot exceed 9.02% of their annual household income.
This means that to be considered affordable, the lowest cost coverage you offer employees must fall at or below this contribution percentage.
3 Safe Harbors to prove affordability
The IRS provides 3 ways or Safe Harbors that you can use to calculate and prove the affordability of the coverage you offer:
1. Rate of Pay
This Safe Harbor uses an employee’s hourly rate of pay (for hourly employees) or monthly salary for salaried employees to determine affordability.
To calculate affordability using this method for an hourly employee:
Multiply their hourly rate of pay by the 130 minimum number of hours of work they need to complete in one month to be considered a full-time employee, then multiply this product by the 9.02% maximum contribution.
For coverage to qualify as affordable, this is their maximum monthly contribution.
For example:
If an employee’s hourly rate of pay is $25/ hour, your calculation would look like this:
$25/ hour X 130 hours = $3,250 X 9.02% = $293.15 is their maximum monthly contribution.
To calculate affordability using this method for a salaried employee:
Multiply their monthly salary by the 9.02% maximum contribution.
For coverage to qualify as affordable, this is their maximum monthly contribution.
For example:
If an employee’s monthly salary is $3,000, your calculation would look like this:
$3,000 X 9.02% = $270.60 is their maximum monthly contribution.
2. W-2
This Safe Harbor uses an employee’s gross income, from Box 1 of their W-2, to determine affordability. The W-2 Safe Harbor uses the gross income from the current yea minus pre-tax employee contributions for medical, dental, vision coverage, HSA or health or dependent care FSAs, and 401(k) plans, so coverage affordability can’t be assessed until the year is over.
To calculate affordability using this method:
Multiply their annual salary as reported in Box 1 of the W-2 by the 9.02% maximum contribution then divide this product by 12 months.
For coverage to qualify as affordable, this is their maximum monthly contribution.
For example:
If an employee’s annual salary as reported in Box 1 of the W-2 Form is $60,000, your calculation would look like this:
$60,000 X 9.02% = $5,412/ 12 months = $451.00 is their maximum monthly contribution
3. Federal Poverty Line (FPL)
This Safe Harbor uses the FPL from the previous calendar year to determine affordability if a plan renews before July 1. If a plan renews after July 1, the employer can use the current year’s 100% of the Federal Poverty Level.
To calculate affordability using this method:
Multiply the FPL from the previous calendar year or current year, if applicable, by the 9.02% maximum contribution then divide this product by 12 months.
For coverage to qualify as affordable, this is an employee’s maximum monthly contribution.
For example:
If the FPL from the previous year was $12,000, your calculation would look like this:
$12,000 X 9.02% = $1,082.40/ 12 months = $90.20 is their maximum monthly contribution
For each of these Safe Harbor calculations, any value above the maximum contribution would not be considered affordable coverage and would not meet ACA coverage requirements.
Is your coverage minimum value?
In order to meet this requirement, you must offer employees a health care plan that covers at least 60% of the average total covered benefits cost.
This plan must also provide significant coverage for inpatient and physician services.
For example:
If an employee receives covered medical services that amount to $10,000, to meet minimum value the plan must pay at least $6,000 of this expense.
Best Practice #3 – Properly report health care coverage information to the IRS
All ALEs must follow ACA requirements when filing health care coverage information. If you fail to follow these guidelines, it will result in enforcement penalties.
The ACA requires that all ALEs use IRS Form 1094-C and Form 1095-C to file health care information for all eligible employees:
- Form 1094-C must be provided only to the IRS. It contains employer information including the employer identification number, the number of employees, and the number of 1095-C forms being filed.
- Form 1095-C must be provided to the IRS for each eligible employee. It details coverage information including the type coverage offered and the monthly cost of employee only coverage offered to FT employees.
The employer must also provide Form 1095-C to all eligible employees by an IRS-specified deadline – for the 2024 filing year this deadline is March 1st, 2025.
3 rules for reporting health care coverage
On-time reporting
The IRS requires that an ALE file by March 31st each year.
The penalties for failure to file in 2025, Forms 1094/1095-B or C for the 2024 calendar year with the IRS or failure to distribute those forms to covered employees and participants are are noted below:
- Complete and accurate filing submitted to the IRS on timely basis and copies of returns were distributed to employees and participants will receive no penalty.
- Complete and accurate filing submitted or if mistakes are identified, a new filing is submitted no later than 30 days from the filing date will receive a $60 penalty per return with a $664,500 annual maximum. A copy of the amended returns must be distributed to covered employees and participants.
- Complete and accurate filing submitted or an amended return is filed after 30 days but before August 1st will receive a $130 penalty per return with a $1,993,500 annual maximum.
- Complete and accurate filing submitted or an amended return is filed after August 1st will receive a $330 penalty per return with a $3,987,000 annual maximum.
- If returns are not filed and the IRS determines that the cause is ’s intentional disregard of filing requirements, the IRS will assess on an ALE, a $660 penalty per expected return, with no annual maximum cap.
Paper vs. electronic filing
The IRS has an outlined protocol for how an ALE must file:
- Employers filing fewer than 10 returns can report on paper. But, should they do so, the reporting deadline for these employers is February 28th, 2025.
- Employers filing more than 10 returns, MUST file electronically. For these employers, the electronic filing deadline is March 31st, 2025.
Accurate reporting
The IRS ended the good faith effort relief in 2021 so it is important that reporting is accurate and on the correct forms or it will not be accepted.
Next steps to complete ACA Compliance
The ACA is unarguably complex. Trying to stay in line with so many regulations – each with its own set of conditions, deadlines, and penalties – is an involved and overwhelming task.
By reading this article, you are now equipped with the 3 best ways to simplify it.
And, with these best practices in play, you are off to a great start toward ACA compliance.
Here at Combined, our ACA and benefits specialists have helped countless employers, just like you, capitalize on this solid start and take their ACA compliance process straight to the finish – the goal of achieving complete ACA compliance.
With knowledgeable experts and capable technology at the ready, we are eager to help you meet this goal.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.
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