In a previous blog, we reviewed the history and basic requirements of the employer mandate under the Affordable Care Act (ACA). As a refresher, the employer mandate requires applicable large employers (ALEs) to offer coverage to their employees that are affordable and provides minimum value. An employer is considered an ALE when they have 50 or more full-time, including full-time equivalents, employed at their business.
Coverage requirements and penalties.
These requirements are broken into two sections, commonly referred to as subsection (a) and (b) penalties.
Under subsection (a), an employer will owe a penalty payment if the employer fails to offer minimum essential coverage (MEC) to at least 95% of (or all but five, if greater) full-time employees and their dependent children in any given month, and any full-time employee enrolls through a public Exchange and qualifies for a tax subsidy. The penalty is multiplied by the total full-time employee count minus the first 30, regardless of how many employees were offered coverage.
- Penalty calculation = (full-time employee count – 30) X §4980H(a) penalty
If the employer satisfies §4980H(a) requirements, the employer may still owe a penalty under subsection (b) for any full-time employee who is not offered minimum-value, affordable coverage if that employee enrolls through a public Exchange and qualifies for a tax subsidy. This penalty applies on a per-employee basis rather than against the total full-time employee count.
- Penalty calculation = §4980H(b) for each full-time employee who is not offered minimum-value, affordable coverage who enrolls through a public Exchange and qualifies for a tax subsidy.
Penalties apply on a monthly basis. In other words, penalties will constitute 1/12 of the annual penalty for each month that the employer fails to satisfy §4980H requirements and a full-time employee is enrolled through a public Exchange and qualifies for a tax subsidy.
An employer will not be subject to both (a) and (b) penalties in any one month. If the (a) penalty applies, that is the maximum penalty that could be assessed. However, if the employer is in compliance with (a) requirements and fails to satisfy (b) requirements, there may be a penalty under (b).
Form 1094 & Form 1095.
Both Form 1094 and Form 1095 are filed with the Internal Revenue Service (IRS) to record the employer-provided health insurance coverage that is required under the ACA. But what’s the difference between these two forms?
Forms 1094 & 1095 Tips
Reporting of Minimum Essential Coverage (Insurance Carriers and Small Employers that Self-Insure)
Code §6055 requires health insurance providers of minimum essential coverage (such as insurance carriers and small employers sponsoring self-insured plans) to an individual during a calendar year to confirm certain coverage information to the IRS and to covered individuals.
The health insurance provider provides each covered individual with a Form 1095-B to report the coverage. The health insurance provider must also forward copies of all the individual Forms 1095-B it sent to covered individuals to the IRS. When the insurance provider sends all those Forms 1095-B, it also must send a transmittal form, or cover sheet, which is Form 1094-B.
Reporting of Employer-Sponsored Coverage (Applicable Large Employers)
Code §6056 requires ALEs to report to the IRS whether they offer their full-time employees and their employees' dependents the opportunity to enroll in minimum essential coverage under an employer-sponsored plan.
ALEs use Form 1095-C to provide all eligible employees (not just the participating employees) for their group health plan information about the health insurance coverage offered and the months of the year when that coverage was available. The 1095-C tax form will report on any employee who was eligible for an offer of coverage regardless of if they were actually offered or enrolled. This form will also report on any employee who was offered a Union plan or a non-eligible employee who enrolled in coverage.
The ALE must also send copies of all the individual Forms 1095-C sent to eligible employees to the IRS. When the ALE sends all those Forms 1095-C, it also must send a transmittal form, or cover sheet, which is Form 1094-C.
The IRS sets several deadlines for these forms. Employers should keep the following dates in mind for furnishing the appropriate forms:
- January 31 – Deadline to distribute forms to Employees
- February 28 – Last day to submit paper filings to the IRS
- March 31 – E-filing deadline to the IRS
Note: These dates may be adjusted by the IRS and Department of the Treasury; please stay tuned for any updates.
How PrimePay can ensure compliance.
At PrimePay, we are committed to making your business run more efficiently. Our ACA Compliance Navigator solution helps with variable hour employees, file and provide IRS Forms 1094/1095, and provides penalty exposure warnings and more. Sign up today!
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Disclaimer: Please note that this is not all inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding specific application of the information to your own plan.
Editor’s Note: This post was originally published in November 2019 and has been updated for freshness, accuracy, and comprehensiveness.