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With the New Year around the corner, employers should begin preparing their ACA Forms 1094-C and 1095-C if they haven’t already begun to do so.
Each year, Applicable Large Employers (ALEs), organizations with 50 or more full-time employees and full-time equivalent employees, are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is affordable for the employee, or be subject to Internal Revenue Code (IRC) 4980H penalties. This information is entered into Forms 1094-C and 1095-C and is transmitted to the IRS in what is known as ACA reporting.
The information communicated on the Forms 1094-C and 1095-C effectively informs the IRS about the type of health insurance your organization offered to its employees for the relevant reporting year and how much it cost the employees. Providing inaccurate information could result in your organization being assessed hefty penalties by the IRS.
As you begin to generate your ACA forms to be reported to the IRS and furnished to your workforce, be sure to perform the following steps to minimize any potential penalty exposure:
Consolidate and validate HR, time & attendance, payroll, and health benefits data. Consolidating and validating the accuracy of your data will help prevent errors and will help assure data accuracy. Some examples of key data points to make sure are in alignment across various databases include employee names, SSNs, date of births, addresses, employment periods, hours of service, and wages. Ideally, this practice should be a monthly, ongoing one, but if you haven’t been diligent, now is the time to start compiling and validating the data. Doing so will help ensure an accurate and timely ACA filing with the IRS.
Monitor workforce composition at both the ‘Aggregated Employer Group’ and EIN level. This includes knowing the numbers of full-time and non-full-time employees, including full-time employees that are not in a limited non-assessment period. If using the Look-Back Measurement Method, monitor the number of employees under measurement for each month this year. Remember that different organizations with common ownership or certain kinds of operating relationships may need to be grouped as common employers in an “Aggregated Applicable Large Employer Group.” This means that if you own or are a partner in several business organizations, each with less than 50 employees, you may still be required to file ACA information with the IRS as an Aggregated ALE Group under ACA employer aggregation rules. Depending in part on the ownership interests, there may be additional filing considerations with the IRS.
Monitor compliance within the 95% offer of coverage threshold. The ACA’s Employer Mandate requires employers to accurately identify their full-time employees (and their dependents) and offer them Minimum Essential Coverage. A 5% margin of error is allowed each month. For any month that an employer strays outside of the 5% margin of error in 2020, the employer is exposed to an annualized penalty of $2,570 multiplied by the number of full-time employees (this is known as the “a” penalty).
Review full-time employees who are “missing” offers of health coverage for historical months. These employees can potentially trigger IRS 4980H penalties. If this number is unexpectedly increasing monthly, drill down as soon as possible to identify the cause.
Measure “IRS audit readiness” to identify any gaps in supporting documentation. In the event of a regulatory inquiry or IRS audit, the only facts that matter are those that can be substantiated with documentation. Review the documentation you have available for the 2020 tax year. Ideally, your organization should be monitoring the number and percentage of claimed offers of health coverage that can be substantiated with supporting documentation on an ongoing, monthly basis.
These steps should help your organization assess the status of your ACA compliance for the 2020 tax year, before filling with the IRS. If you find that after performing these steps, you’re missing information or unsure of something, it’s a sign that you should begin performing these practices on a monthly basis moving forward.
Truth is, performing these additional ACA compliance steps in-house could put a strain on an already limited workforce. The good news is that our ACA Complete solution will handle the monthly ACA compliance for you, in addition to record-keeping, supporting documentation, and annual ACA reporting. Contact us now to learn more.
