This article is a guide for ACA compliance and reporting that covers updated regulations, upcoming deadlines, penalties, and administration tips for both small and large employers.
The Affordable Care Act (ACA) was created with the intent to make health insurance more accessible and less expensive to more Americans across the country.
This legislation included federal labor laws requiring ACA compliance, which impacts companies in every state. Although small businesses and large employers may be required to comply with ACA as part of the employee benefits administration process, the majority of rules and regulations are required for employers with over 50 full-time equivalent (FTE) employees. This is the most commonly known part of ACA, that is, the employer mandate or requirement for these larger companies to provide access to health insurance for employees.
When it comes to ACA compliance for a small business, which the Internal Revenue Service (IRS) considers a business with 49 or fewer employees as a small business. Full-time employees include full-time equivalent employees.
Although coverage is not required to be provided by employers, small businesses may be eligible to buy coverage through the Small Business Health Options Program (SHOP).
The ACA reporting requirement for small businesses is that the employer must withhold and report an additional 0.9% on employee wages or compensation that exceeds $200,000.
Employers may also be required to report the value of health insurance coverage that they provide to each employee, on each employee’s Form W-2.
It is important to note though that employers who provide self-insured health coverage to employees must file an annual return reporting certain information for each employee they cover.
Any employers who have fewer than 25 full-time employees (or full-time equivalent employees), provide employees with a qualified health insurance plan option, and cover at least 50% of those employees’ premium costs, may be eligible for the Small Business Health Care Tax Credit. The tax credit can be up to 50% of the premiums paid by the small business.
Generally, an Applicable Large Employer (ALE), under ACA regulations, is any employer with 50 full-time employees. This also includes full-time equivalent employees. ACA compliance for an ALE is a bit more complex than it is for small businesses.
The IRS has also provided resources to help determine if your business is an ALE.
Depending on the state, employers with only 100 or fewer employees may be eligible to purchase insurance through SHOP. Otherwise, all employers with 50 or more employees are covered.
Just like small business owners, ALE’s must withhold and report an additional 0.9% on employee wages or compensation that exceeds $200,000. Applicable Large Employers may also be required to report the value of health insurance coverage that they provide to each employee, on each employee’s Form W-2.
It is important to note that just like small businesses, ALEs who provide self-insured health coverage to employees must file an annual return reporting certain information for each employee they cover.
The most important component of ACA reporting that Applicable Large Employers need to file is an annual information return and share the information with employees. This return reports whether or not the employer offered health insurance to employees, and if so, what health insurance was offered.
ALEs must either offer affordable minimum essential coverage that provides minimum value to full-time employees (including dependents of employees) or they may owe an Employer Shared Responsibility Payment.
Important to note for employers who are self-insured: Employers may be required to pay a fee to help fund the Patient-Centered Outcomes Research Trust Fund.
The updates to ACA in 2023 included the IRS issuing final regulations regarding ACA reporting, including the fact that the good-faith transition relief (detailed below) has ended.
What this means for employers, is that they will now need to meet the stated deadlines in order to avoid hefty penalties for non-compliance (see below).
The IRS also included, within the new regulations, the original proposed 30-day extension to furnish ACA reporting forms 1095-C to individuals. The IRS has since made this extension permanent and as such, the deadline for for furnishing Tax Year 2023 form 1095-C to employees is March 1st each year.
The following dates are the key 2024 federal ACA deadlines for the 2023 tax year that employers to know:
The following dates are the key 2023 federal ACA deadlines for the 2022 tax year that employers to know:
The ACA “Good-Faith Relief” is no longer available to employers, starting with the 2021 filing year.
The “Good-Faith Relief” used to allow employers who reported incomplete or incorrect info on their returns to show they made a good-faith effort to file and furnish correctly and on time. This included missing or inaccurate taxpayer-identification numbers (TIN). However, the 2020 reporting year was the last year that such relief was offered to employers.
In essence, the IRS has decided that there are no more excuses for improper filing. As a result, modern, cloud-based ACA management software has become not only more popular among employers, but all the more necessary to stay compliant with ACA regulations.
It is important for Applicable Large Employers to remember that there is no time limit for the IRS to assess penalties on employers that do not comply with the employer shared responsibility provisions (aka “pay or play”) for a given year.
As a result, the IRS could assess such penalties many years after the violation occurred. This is why it is crucial that employers keep all records, employee data, and documents pertaining to ACA compliance and ACA management.
Employers should be aware that IRS penalties have increased for 2024.
However, for 2025, the IRS has announced that there will be decreases for penalties.
For the 2024 tax year, the 4980H(a) penalty amount also known as the hammer penalty, is $247.50 a month per employee, which, annualized is $2,970 per employee.
For the 2024 tax year, the 4980H(b) penalty amount is $372 a month per employee, which, annualized is $4,460 per employee. This penalty is also known as the “Employer Shared Responsibility Penalty for failure to offer coverage that meets affordability and Minimum Value (MV)”. It is assessed on a per-violation basis as well.
The 2023 tax year penalty for not filing correct ACA information returns by the mandated deadlines is $290 per return. If an employer misses the late filing deadline (August 1st, 2024) the IRS can assess the Failure to File penalty per return not filed accurately and/or timely.
The 2023 tax year penalty is also $310 per return and doubles for intentional disregard, just like the failure-to-file penalty when it comes to failing to furnish Form 1095-C to employees by the deadline.
There are several practices that employers can employ in order to manage ACA compliance.
Employers should always keep an eye out for IRS feedback on their filings so that if something goes wrong they know immediately.
Generally, there are four kinds of filing feedback an employer may receive from the IRS:
Proper ACA management starts with ensuring that any IRS-ACA logic codes are compliant. This is something that many types of ACA management software can do.
Simply put, a modern, cloud-based ACA management solution is the easiest path to ACA compliance. When thinking about purchasing an ACA management solution, employers should keep a few things in mind.
Features to look for in ACA management software:
Just like anything else done online or any other kind of information stored on the internet, it is important to keep ACA reporting information safe.
Employers can help maintain cyber security by:
ACA reporting and compliance can be tricky, but employers who are proactive in managing ACA as a whole will have a much easier time, especially when coupled with a benefits administration or ACA management solution.
Want to learn more about other federal, state, and local labor laws or requirements for employers? Check out more articles on the Employer Insights Blog or subscribe for updates. Or, for easier and more "risk-free" compliance, employers may want to consider a labor law poster service.