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How Employers Can Avoid ACA Penalties

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How Employers Can Avoid ACA PenaltiesObama Care also known as the Affordable Care Act (ACA) is here to stay, at least for now. The ACA requires employers to offer health insurance coverage to full-time employees and their children. The coverage must provide a minimum value which means the plan’s share of the total allowed costs are at least 60%. In addition, the health insurance offered must be affordable to the employee.

Affordability means that the cost of the insurance does not exceed 9.5% of the employee’s wages for the year for lowest self-only coverage offered. This article discusses an overview of the mandate and how it affects employers. Because of the complexity of the mandate, there are delays in its implementation. There are also exceptions and planning opportunities to reduce costs and penalties.

How The ACA Affects Employers

Many employers are required to comply with the mandate either in 2015 or 2016. The mandate affects employers differently depending on the average number of full-time employees (or full-time equivalent employees). An employee who works an average of 30 hours a week or 130 hours per month is regarded as full-time.

To prevent employers from cutting hours to avoid being subject to the mandate, full-time equivalent employees are added. To calculate the full-time equivalent employees, the total number of part time hours worked by part-time workers is divided by 30. The result is added to the total of full-time workers to determine whether the mandate applies.

Example: The employer has 40 full-time employees and 20 part-time employees working 15 hours each, the total part-time hours (300) divided by 30 ( number of hours considered full time) equals 10 full time equivalent employees (300/30 = 10). In this case the employer has the equivalent of 50 (40 + 10) full-time employees and is subject to the mandate.

Which Employees Are Eligible For Coverage?

Employers that employ 50 or more full-time employees or equivalents are considered Applicable Large Employers (ALE). The Act requires ALE employers with 100 or more full time employees (or equivalents) to offer health care benefits beginning in year 2015.

ALE Employers with between 50 and 99 full time employees (or equivalents) must meet the requirement beginning in year 2016. For smaller employers, those with fewer than 50 full-time employees (or full-time equivalent employees), participation is optional.

Almost all employers regardless of size are required to give each employee a statement informing the employee of the new Health Insurance Marketplace and its services, the availability of a tax credit for purchasing a qualified health plan through the Marketplace, the possible loss of the employer’s contribution to the plan if a health plan is purchased through the Marketplace.

The notices are required to be given within 14 days of the employment date. Employees hired prior to October 1, 2013 were required to be given notices as of that date.

Reporting Requirements

On an annual basis, compiled information must be reported to the Internal Revenue Service by February 28 of the following year. A separate Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, needs to be completed for each covered employee. The form requires the employee’s name, names of covered children, Social Security Numbers of both and details of the health coverage offered including the period of coverage.

The Internal Revenue Service will use this information to administer the Employer Shared Responsibility provisions. A copy of the completed Form 1095-C must be given to the employee. Employers with 100+ employees must first file the Forms by February 28, 2016 for year 2015. Employers with 50-99 employees must first file by February 28, 2017 for year 2016. Employers filing more than 250 or more Forms 1095-C must file electronically. Substantial penalties may apply for failure to report.

What Happens If You Don’t Comply

An employer who offers no health coverage but has one employee receiving a tax credit or cost sharing reduction from a state exchange will owe an Employer Shared Responsibility payment of $2,000 for each full-time employee in excess of 30 (with a transitional relief of up to 80 for year 2015 only).

Example: An employer with 100 employees does not offer health insurance and one employee receives a tax credit or cost-sharing reduction. The employer is assessed $40,000 for 2015 (100 – 80 = 20 X $2,000) and $140,000 (100 – 30 = 70 X $2,000) after 2015.

For an employer that offers coverage for some months but not others during the calendar year, the payment is computed separately for each month. This is referred to as the “A” payment or penalty.

What Penalties Are Involved?

An employer who offers health coverage that is considered inadequate or unaffordable for one or more employees who receive tax credits or cost sharing reductions from a state exchange will owe an Employer Shared Responsibility payment of $3,000 for each employee receiving the assistance.

Example: An employer with 100 employees offers coverage but has two employees who receive individual tax credits or cost-sharing reductions will be assessed $6,000 (2 employees x $3,000.). This is referred to as the “B” payment or penalty. The employer will pay the lower of the “A” or “B” penalty amount.

Careful planning and timely considerations must be made to address the compliance issues. Waiting may cause unnecessary stress by creating an eleventh hour scramble to compile the required information for timely reporting.

This is a guest post by Thomas Donahue 

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