Affordable Care Act increases many employers’ regulatory burden

The shared responsibility requirements for employers under the Affordable Care Act, otherwise known as the employer mandate, are laden with paperwork and fines.

The employer mandate starts, though, with the requirement to provide employees with affordable health coverage. Many employers are now required to file information returns with the IRS and provide statements to their full-time employees about health insurance coverage they offer.

For Affordable Care Act (ACA) purposes, employers are classified as either an applicable large employer (ALE) or a small employer not subject to the ALE rules. Employers with 50 or more full-time employees in 2014 are applicable large employers.

However, for those with 50 to 99 full-time employees, there is transition relief, and they aren’t subject to penalties for noncompli­ance in 2015 if they meet certain conditions. For this purpose, “full-time employees” means full-time equivalent (FTE) employees.

An FTE employee is one who works 30 or more hours per week. A part-time employee working 15 hours per week counts as half of a FTE employee.

Employers with fewer than 50 FTE employees are exempt from the employer mandate. However, they may offer coverage through the Small Business Health Options Program (SHOP). If the company offers coverage, the employer may be eligible for the Small Business Health Care Tax Credit.

As an ALE, an employer is required to offer health insurance to 95 percent of its full-time employees and their dependents up to age 26. In addition, the employer must report this information to the IRS on Form 1094-C and Form 1095-C, beginning in 2016.

Form 1094-C provides the following information:

  • Number of full-time employees
  • Total headcount
  • Whether minimum essential coverage was offered
  • Whether an applicable 4980H safe harbor was used

A Form 1095-C is prepared for and given to each employee, with a copy to the IRS. This form includes:

  • Proof of healthcare coverage
  • Employee’s share of the lowest cost monthly premium
  • Whether an applicable 4980H safe harbor was used

In addition, the employer must provide each covered employee with a written statement that includes the employer’s name, address and contact information, along with other relevant information.

Penalties for not complying with the employer mandate are steep. If a company does not offer health care to its employees, the fine is $2,000 per employee, minus the first 80 in 2015 and the first 30 in 2016 and following years. If the company doesn’t offer affordable coverage, it may be subject to a $3,000 fine per employee who purchases insurance through the marketplace exchange. But this penalty cannot exceed the penalty that applies if the employer offers no insurance coverage at all.

A plan is affordable if the employee’s contribution does not exceed 9.5 percent of household income. It provides minimum essential coverage if it covers an average of 60 percent of an employee’s medical expenses.

The fine for failure to file forms 1094-C and 1095-C is $200 for each delinquent or incorrect form. There is also a fine of $200 per employee for failure to provide the employee with the required written informational statements.

The world of health insurance is a changing world. A business that does not comply with the new rules will find itself subject to a series of very costly penalties. Your CPA can help you navigate the rocky waters of the ACA.

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