How To Calculate the ‘A’ Penalty to Employers Under the ACA

The ‘A’ penalties under ACA, which are expected to begin being adjudicated for the first time in the fall of 2016, are $2000 per employee per year (adjusted each year for inflation).  The ‘A’ penalty is applicable to an employer  who did not offer minimum essential coverage (MEC) to the appropriate percentage of their full time workforce.  For the 2015 reporting year this standard was 70% of your full time workforce and was included as a part of ACA transitional relief.  Beginning in 2016, this standard is raised to 95%.

This information is reported on the 1094-C which is submitted to the IRS.  The information on this form allows for this portion of the ACA penalties to be automatically implemented.  Below is a picture which we will walk through and the accompanying comments below the picture.

1094

A).  This is the column where you as an employer mark if you did (or did not) offer MEC to a high enough percentage of your full time workforce for the given month.  Keep in mind this penalty is often talked about as an annual penalty, but in practice it is implemented on a month by month basis.

B).  In this column you list the number of full time employees under the ACA rules for the month.

C).  Finally, you list if you are eligible for any type of transitional relief for the given month.


How Does It Work?

First we will begin with column A which is where the employer indicates if they did offer MEC coverage.  If the answer was yes for each month, then there is nothing to worry about and no penalties.  If however the answer was no to the month, then we will move on to the next step.

Column B is where you indicated the number of full time employees for the month.  This will be the number of employees for which you will be charged an A penalty.  Almost always when it comes to discussing these penalties the annual amount is used, but in practice it is actually implemented on a month by month basis.

For example in 2016 the total annual potential A penalty is $2,160 which is $180 per month.  The $180 per month is the amount used to determine your penalties.  Under the general ACA rules this ‘A’ penalty does not apply to the first 30 full time employees.  Therefore if an employer did not offer MEC to the appropriate percentage of employees for a given month and they had 250 employees, their monthly penalty would be $29,600  [(250-30) * $180 = $39,600].

Then finally in Column C we see if there is any possible piece of transitional relief available to help us with the penalties previously calculated.  These two potential pieces of transitional relief are known as ’50 to 99′ and ‘100+’ transitional relief.  If the 50 to 99 transitional relief applied to the given month, the penalty would not be due.  If the 100+ transitional relief was applicable, then employee deductible for calculating the penalty would be raised from 30 to 80, thus reducing the penalty due.


From this information the IRS is in a position where they can easily look to see if MEC was offered.  If not, then they would simply multiply the ‘A’ penalty by the appropriate number of full time employees and then send you a bill in the mail.  To dig more deeply into how the A penalty under ACA is calculated and the importance of measuring your variable hour part time workforce, take a look at this blog called, “Trouble Tracking ACA Hours? Better Figure It Out To Avoid The $2,160 ACA Penalty . . .

 

ACA Employer Mandate Penalties are Automatic

One item that employers are often quite surprised about is the fact that ACA reporting penalties are a good bit different than other penalties encountered elsewhere by employers.  For the most part, employers must be audited or somehow other discovered to have had a compliance issue in order to be penalized by the government.  When it comes to ACA reporting however, things are completely different.

Under ACA there are 3 different types of penalties you could encounter as an employer, so let’s go through each so you can see how they work.

1095 Forms to Employees and E-file to IRS

Penalty on providing forms (to the IRS via e-file and employees) on time.  Regarding your providing forms to employees, there is a $250 fine per form not provided by the deadline.  This penalty is not automatic and would generally be discovered upon an audit.  However the e-file aca penalty is automatic.  It is very simple for the IRS to know whether or not you as an employer e-filed by the deadline.  Keep in mind the IRS already has a tremendous amount of information at their disposal including information about your company, how many W2’s you are issuing, if you are a control group aggregated with other companies through your retirement plans, and on … and on.  By having this information and also being able to identify if you have e-file your 1095 forms, they are in a very good position to penalize you automatically.

 

‘A’ Penalties to Employers Under ACA

Next we will look at the ‘A’ penalties under ACA which are expected to begin being adjudicated for the first time in the fall of 2016.  The ‘A’ penalty is applicable to an employer  who did not offer minimum essential coverage (MEC) to the appropriate percentage of their full time workforce.  For the 2015 reporting year this standard was 70% of your full time workforce and was included as a part of ACA transitional relief.  Beginning in 2016, this standard is raised to 95%.

This information is reported on the 1094-C which is submitted to the IRS.  The information on this form allows for this portion of the ACA penalties to be automatically implemented.  Below is a picture which we will walk through and the accompanying comments below the picture.

1094

A).  This is the column where you as an employer mark if you did (or did not) offer MEC to a high enough percentage of your full time workforce for the given month.  Keep in mind this penalty is often talked about as an annual penalty, but in practice it is implemented on a month by month basis.

B).  In this column you list the number of full time employees under the ACA rules for the month.

C).  Finally, you list if you are eligible for any type of transitional relief for the given month.


From this information the IRS is in a position where they can easily look to see if MEC was offered.  If not, then they would simply multiply the ‘A’ penalty by the appropriate number of full time employees and then send you a bill in the mail.  To dig more deeply into how the A penalty under ACA is calculated and the importance of measuring your variable hour part time workforce, take a look at this blog called, “Trouble Tracking ACA Hours? Better Figure It Out To Avoid The $2,160 ACA Penalty . . .

 

‘B’ Penalties to Employers Under ACA

The B penalties begin when you as an employer receive an exchange notice letter from the federal or state healthcare exchanges.  This process began for the first time in June of 2015 following employers E-Filing of ACA forms to the IRS. These notices communicate that certain employees indicated to be working for the employer received a subsidy for medical coverage under that exchange. In essence, this is the first time an employer is put on notice that they potentially will be subject to an ACA ‘B’ penalty for the employee of $250 per month (adjusted for inflation).

It is then up to the employer to respond to the exchange via an appeal to document that the employee was indeed offered qualifying, affordable coverage (if applicable). If the employer does not respond or issues an appeal that is not approved, they will then be issued a penalty bill due for payment. Employers only have 1 attempt to successfully appeal to the exchange notices.

After an employer responds the exchange then has 90 days to issue their decision.  At that point one of two things will happen:

  1. The employee will be forced to pay back the subsidy, or
  2. You as an employer will be sent a penalty bill for not providing coverage

So as you can see, when it comes to the ACA and employer penalties, things are a bit different that usual …

Trouble Tracking Part-Time ACA Hours? Better Figure It Out To Avoid The $2,160 ACA Penalty . . .

Many employers in the marketplace are still experiencing difficulties in measuring the hours of their part-time and variable hour employees to determine if they are actually full time under the Affordable Care Act (ACA) regulations.  Making this determination is critically important since as an Applicable Large Employer (ALE) beginning with the 2016 reporting calendar year, you must provide qualifying coverage to 95% of your full time employees in order to be considered compliant.

The penalty for not being compliant in 2016 is that you will be charged $180 per full time employee per month.  It is important to remember this penalty applies to all of your full time employees, and not just the ones whom you might have failed to offer coverage to.

How does this have anything to do with tracking of part time employee hours you ask?  Let’s take an example so you can see how it plays out in reality.  We will make the following assumptions of an employer:

  • 130 full time employees who are offered coverage
  • 50 part time employees who’s hours are measured to determine if they are eligible for coverage

In our simplistic example, we will assume that the employer offered coverage to all of their full time employees, 130 in total.  So you immediately are likely thinking that they should be in good shape since they have offered coverage to 100% of their full time employees.  Right? … Well, Maybe.

We will further assume that in the measuring of the hours of part time employees they did not extend an offer of coverage to any of these employees.  However, at a later date they determined that correctly applying the measuring rules under ACA would mean that 12 of these 50 total part time employees actually were indeed full time.

Oh … No ….  Now think about what percentage of coverage you offered as an employer.

130 offered coverage  |  Total full time employees 142  |  91.5% offer of coverage

So what happens now?  Your company now will owe a penalty in 2016 of:  112 X $2,160 = $241,920

(Why 112 you ask?  The A penalty isn’t paid on the first 30 full time employees.  Also, this is a simplified example.  In reality an employer would be charged the penalty at the rate of $180 per month per employee.  Therefore, if they did not make the appropriate offer for the entire year that would add up to $2,160 per employee for the year.  Otherwise, the penalty would only apply to each month in which appropriate coverage was not offered.)


Do I have your attention now? 

So you might not understand some of the complexities that come into play when measuring the hours of part time employees, so let’s talk about that.

The Affordable Care Act requires applicable large employers (ALEs) to offer appropriate and affordable health coverage to their full time employees who work 30 or more hours per week (130 hours per month). Employers are also required to measure the hours worked of part-time and variable hour employees to determine if they should be offered coverage as all other full time employees. There are two methods available to employers for use in measuring: Monthly Measurement Method, and the Look-Back Measurement Method.

Monthly Measurement Method

The monthly measurement method proves difficult in application since an employee must be offered coverage in any month which they worked over 130 hours, yet the employer might not know this until the end of the month. Many employers are unaware of this fact and apply the method incorrectly, measuring one month and then making the offer in the following month. This is an incorrect application of the rules.

Overall, the monthly measurement method leads to uncertainty and inability to predict employees as full time and can lead to unnecessary penalties. For that reason, most employers choose the Look-Back Measurement Method.

 

Look-Back Measurement Method

The Look-Back Measurement Method involves designating a period of months over which you measure the hours worked by an employee to determine if they are indeed full time. This period is called the measurement period. Following the measurement period, employers are given a short administrative period during which they can communicate and enroll any new employees on the plan. Finally, employees enter their stability period where they are guaranteed to maintain coverage regardless of the number of hours worked.

Administrating the look back method can be complex. However, by following our simple methodology you can easily track your employees and ensure you offer coverage to anyone who becomes a full time employee.

 

Example of the Difficulties

As an example let’s consider an employer in the Staffing Industry.  This employer hires a new employee and then put them on assignment.  Let’s further assume that assignment ends after 4 months.  The overwhelming majority of companies would continue to keep this person on their ‘books’ as an employee rather than go through the process of formally terminating them.  After all, they could go out on another assignment at any time.  However this methodology then causes the employees ACA reporting to be completely wrong, and as you likely know you as an employer are ultimately on the hook for penalties due because of incorrect reporting.

For Applicable Large Employers (ALEs), 2016 is the calendar year in which the prior rules of offer of coverage expired.  Specifically, I am referring to the fact that in 2015 ALEs only had to offer coverage to 70% of their ACA full time employees in order to avoid the ‘A’ penalty for not providing coverage.

The ‘A’ penalty for employers is a penalty of $2,160 per full time employee and you count all of your full time employees (not just the ones you didn’t offer coverage to).

 

 

E-File of ACA 1095 Forms … What Can Go Wrong?

Under the Affordable Care Act (ACA), Applicable Large Employers are required to report to the IRS the type and cost of the medical plans offered to their full time employees. For many employers, the creation of these forms can be done by an internal system or though a HRIS system which they use in their business. It is common however for these systems to not have the ability to transmit the data to the IRS electronically, which is known as E-File.

For this reason many companies look to outside professionals to assist them in this transmission of their forms 1094 and 1095 to the IRS through the IRS’ AIR system. The process would seem straight forward, however there are many areas in which employers are experiencing problems. These problems are expected to increase for 2016 reporting due to the fact that the ‘Good Faith Effort’ provision under ACA is expiring. In short what this means is that you as an employer will be responsible for the accuracy of your created ACA forms.

The reason this is a challenge for many E-File vendors is the simple fact that they truly don’t understand ACA reporting. The overwhelming majority of ACA E-File vendors are companies who transmit 1099’s to the IRS and entered the ACA business as an extension of their normal business practices. The challenge with this from an employers perspective is that these vendors do not fully understand the reporting in the first place and thus are not prepared to assist employers with ensuring they are reporting correctly.  This would include errors in their coding, incorrect forms, avoiding ACA penalties, who should actually receive a form 1095, etc.  A simple quiz of your ACA E-File software vendor will likely reveal exactly how much they understand about the reporting.

And don’t forget about ACA E-File compliance!  Yes, forms 1095 contain Protected Health Information (PHI) and thus requires you as an employer to maintain HIPAA and HITECH compliance.  This includes how you transmit the data to your vendor (must be securely, encrypted), entering into a Business Associate Agreement, etc.  Learn more about ACA E-File HIPAA compliance.

The most important thing to remember as an employer is that this is all YOUR responsibility, and you cannot delete any of the fines for being wrong.  Use this ACA reporting software quiz to help you make sure you have the right vendor for your organization.

 

2016 Changes to ACA Transitional Relief in Reporting

For 2015 employer mandate reporting under the Affordable Care Act (ACA) there were various pieces of transitional relief which changed the way in which data was reported to the IRS on forms 1094-C and 1095-C.  As we begin the 2016 ACA reporting season, it is important to understand what has changed to ensure your compliance with the reporting requirements.  This is specifically important because for 2016 the ‘Good Faith Effort’ provisions will be expiring.  This means that employers who reporting incorrectly will be penalized and fined.

Here is a quick overview of the pieces of Transitional Relief which no longer apply moving forward as of the 2016 ACA reporting season:

  • 2015 Qualifying Offer Transitional Relief
    • This changes line 22 (B) of form 1095-C
    • This also changes form 1095-C line 14 in that no longer can code 1I be used
  • 2015 MEC Coverage Transitional Relief Expired
    • During 20105 reporting, on form 1094-C an employer would indicated in part III if they offered Minimum Essential Coverage based upon a standard of this MEC coverage being offered to 70% of their full time population
    • For 2016 reporting, this standard has increased to 95%
  • 4980H Transitional Relief Still Applies in Certain Circumstances
    • For 2015 reporting the ACA reporting rules allowed for two pieces of Transitional Relief commonly referred to as ’50 to 99′ and ‘100+’ Transitional Relief.  These were indicated on line 22 of form 1094-C and then again as appropriate in section III of the form 1094-C.  Specifically they were designed to eliminate or reduce penalties for certain employers who qualify should they be subject to employer mandate penalties.
    • For the most part these are expiring for 2016 reporting.  However, for employers who maintain a non-calendar year plan, they can continue to use these pieces of Transitional Relief until the end of their 2015 plan year.

There are also a number of other various changes which are important to understand.  If you would like to go more in-depth to fully understand the reporting differences between 2015 and the proposed instructions by the IRS for 2016 ACA reporting, visit the recorded webinar section of our website.  Specifically the 2016 ACA Reporting – Planning For The Updates and New Forms by clicking here.  In this recorded session we cover the following topics:

  • New deadlines for 1095-C form distribution
  • New E-filing deadline
  • No more ‘Good Faith Effort’ clause
  • Transitional relief changes
  • New codes for line 14 of form 1095-C
  • New MEC coverage guidelines
  • How to determine if you are an applicable large employer (ALE) and need to report

ACA 1095 Reporting Deadlines, For 2016

As an Applicable Large Employer (ALE) there are several deadlines which must be met in order to correctly comply with the Employer Mandate rules under ACA.  These dates have changed from 2015 into 2016 as shown below, which is causing employers the need to get started early for their 2016 ACA reporting.


Forms 1095-B and 1095-C due to employees

  • 2015 Deadline:  March 31st, 2016
  • 2016 Deadline:  January 31st, 2017

 

Forms 1094-B, 1095-B, 1094-C and 1095-C due to IRS if mailing forms*

  • 2015 Deadline:  March 31st, 2016
  • 2016 Deadline:  February 28th, 2017

 

Forms 1094-B, 1095-B, 1094-C and 1095-C due to IRS if e-filing forms

  • 2015 Deadline: June 30th, 2016
  • 2016 Deadline: March 31st, 2017

 

*Only available for employer with fewer than 250 forms.

ACA Part-Time Hourly Tracking for Staffing & Hospitality Industries

Employers in these and other similar industries have had an extremely difficult time complying with the ACA requirements regarding reporting and the measurement of employee hours worked to ensure coverage is offered appropriately.  As these employers know, operating a company in the staffing and hospitality industry is unlike any other business.  They have highly specific needs that very few people fully understand.

It was specifically for this reason that we launched StaffACA.com.      Staff ACA is an Affordable Care Act (ACA) reporting company with specific expertise in industries who’s workforce is somewhat non-traditional.

Through our experience in working with these employers, we ultimately found the fundamental issue that is causing 90%+ of all the problems. For most organizations, the issue comes down to how they calculate employee hire and termination dates. Simply put, the ACA rules regarding how to calculate these dates do not match up with the manner in which these type of organizations operate their businesses.

As an example let’s consider an employer in the Staffing Industry. Further, this employer hires a new employee and then put them on assignment. Let’s further assume that assignment ends after 4 months. The overwhelming majority of companies would continue to keep this person on their ‘books’ as an employee rather than go through the process of formally terminating them. After all, they could go out on another assignment at any time. However this methodology then causes the employees ACA reporting to be completely wrong, and as you likely know you as an employer are ultimately on the hook for penalties due because of incorrect reporting.

This is only one simple example, but it goes to show the ultimate problem of how non-traditional workforces operate their businesses in a manner that makes ACA compliance and reporting extremely difficult.

Learn more at StaffACA.com

New 2016 ACA Reporting Codes on Form 1095-C

The draft regulations for 2016 ACA reporting have been released and with those instructions have come two new codes for consideration in part II of the form 1095-C.  Specifically these are for line 14 of the form 1095-C, the offer of coverage, and they introduce a new concept to the reporting of a conditional offer of coverage.

A conditional offer of coverage is an offer of coverage that is subject to to certain conditions which would impact the availability of coverage for the spouse of an employee.  One example of a conditional offer of coverage would be if an employer offered health coverage to an employee and their spouse, unless the spouse was otherwise eligible for another group health plan sponsored by another employer.

Code 1J

Code 1J is used on line 14 of form 1095-C when an employee was offered coverage for all days of the month which:

  • Provided minimum essential and minimum value to the employee, and
  • Provided at least minimum essential coverage to their spouse that was a conditional offer, but
  • Did not provide coverage to the dependents of the employee

Code 1K

Code 1K is used on line 14 of form 1095-C when an employee was offered coverage for all days of the month which:

  • Provided minimum essential and minimum value to the employee, and
  • Provided at least minimum essential coverage to their spouse that was a conditional offer, but
  • Did provide coverage to the dependents of the employee

IRS releases 2016 Updates to ACA Reporting

As compared to the 2015 reporting rules which employers followed, there are a number of changes and updates for 2016.  Many of these are simply because of the fact that transitional relief is going away from its use in 2015.  Others are the expiration of ‘accommodation rules’ which the IRS used in this past year to assist employers with their first year of reporting.

2016 ACA Updates Webinar & Open Q&A Sessions.  Learn more & Register…

Here are a few of these changes:

  • Updates in how you determine if you are an ALE and need to report – a different calculation
  • Good faith effort reporting for 2015 is no longer in force – and therefore industry experts are expecting significantly more penalties for this upcoming years reporting.
  • In 2015 for reporting employers had transitional relief in terms of offering coverage and penalty reduction.  These were referred to as ’50 to 99 Relief’ and 100 + Relief’.  This transitional relief is expiring.  However, employers can continue to apply this relief for the remaining months in the 2016 calendar year of their 2015 plan year.
  • ALE must cover 95% of their full time employee population in order to avoid the ‘A’ series of penalties.  In 2015 this was 70%.
  • For 2015 the IRS offered an extension for providing 1095 forms to employees as well as E-filing extensions.  These are no longer in force.  Therefore, employers must provide the 1095 forms to employees no later than January 31st, 2017.

There are several other changes as well. Join us for one of our scheduled open Q&A sessions.

2016 ACA Updates Webinar & Open Q&A Sessions.  Learn more & Register…

 

ACA Reporting: TIN Corrections Update

Across the nation, employers have breathed a sigh of relief as June 30th came and went. ACA reporting for 2015 was over and all could go back to normal… Until the TIN errors were presented.

A TIN error is a discrepancy in the employee data that was presented to the IRS in a company’s ACA XML. The discrepancy could be an incorrect social security number. The discrepancy could be the name of an employee is not the same as on their social security card. If you are a self-funded company, the TIN could be a dependent with discrepancies that will need to be corrected.

All of this can be a bit daunting and extremely overwhelming if your company is quite large. Not to mention the error report does not indicate which of the discrepancies has occurred. But rest assure, we are trying all we can to get the most up to date explanations from the IRS to make any corrections needed.

On July 19th, the IRS held a TIN corrections webinar. They were able to clarify a few of the reoccurring questions that we have gotten from our clients. They are as follows:

 

  1. (Q) When is the deadline to make corrections?
    • Within the webinar, the speaker said: “we will be expecting corrections to be made well into 2017”. So there was not a date set that we can give out to clients. However, this does give employers a bit of ease due to the deadline not being around the corner. We would suggest that any corrections be made as soon as you can to give time to start 2016 ACA Reporting!

 

  1. (Q) Do you have any document that we can you to send to our employees that need correction?

 

  1. (Q) When I go to the employee about the corrections, they say all the data is correct. What do I do?
    • This is a very common question we get daily. Due to 2015, being the initial filing, they are allowing employers to use “Good Faith Effort Relief”. The relief is for reporting the most accurate and complete information to the IRS. The down side to the relief, there is not a guideline to what is good faith. Our rule of key is three. If you try to ascertain the corrected information and are unable three times, document the attempts.

 

  1. (Q) I have gotten all my corrections; how do we submit the information to you for filing.
    • We have provided each client with a TIN corrections form. The employee and/or dependent data can be placed within the document. If there are special directions for change, (ie. Taking an employee data out of the filing) you are allowed to write notes in. When completed, you will upload the corrections to your sharefile. If you do not remember your password, please contact support.

 

  1. (Q) Do we need to submit all corrections at one time?
    • Yes. When making corrections to the IRS, you get one try.

The 2015 reporting season was a huge success for us at ACA Reporting Service and for all of our clients. So congratulations all around are in order!