The Affordable Care Act (ACA), sometimes referred to as Obamacare, overhauled the U.S. healthcare system and made significant changes to the responsibilities employers have regarding their employees' access to health care. These regulations include specific reporting requirements.
"Applicable Large Employers" (ALE) are subject to some of the most significant changes under these laws. ALEs that fail to meet the new ACA requirements may be exposed to costly penalties, including fines for failing to comply with certain information reporting requirements. The following are five things corporate counsel should know about ACA ALE requirements in order to ensure their company is compliant and minimize their company's exposure to fines and other penalties.
1. Which Businesses Count as an ALE?
The ACA has two sets of provisions that apply only to ALEs: the employer shared responsibility provisions and the employer information reporting provisions for offers of minimum essential coverage. An important threshold question is whether your company is subject to the ACA ALE requirements set out by these provisions.
The ACA defines an ALE by the average size of the employer's workforce over the prior year. An employer with an average of fewer than 50 employees, including full-time equivalent employees, is not an ALE in the current calendar year. An average is determined by adding the total number of full-time employees to the total number of full-time equivalent employees over the entire year and dividing the total number by 12.
2. What Is a Full-Time Equivalent Employee?
The ACA defines full-time employees as an employee working an average of 30 hours a week. Full-time equivalent employees are calculated by adding the number of hours worked by part-time employees in a given month and dividing the total by 120. The result is the number of full-time equivalent employees for ACA purposes.
3. What Is the "Employer Shared Responsibility Provision?"
Under the ACA ALE requirements, a qualifying employer must offer affordable health care that provides a minimum level of coverage (as defined by the ALE) to full-time employees and their dependents. An employer may be subject to the payment of penalties under the employer shared responsibility provision if one or more of its full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges. These requirements are referred to as the employer shared responsibility provision.
4. What Is the "Employer Information Reporting Provision?"
An employer that qualifies as an ALE must provide the IRS and its employees with a statement regarding the health care coverage the employer offers its full-time employees. The IRS uses this information to administer the employer shared responsibility provisions and the premium tax credit. In addition, employees use this information to determine their eligibility for premium tax credits on their individual returns. Employers with 250 or more employees during the calendar year must file these documents electronically. These requirements are called the employer information reporting provision.
5. When Should an ALE File and What Penalties May Apply?
Under normal circumstances, an ALE should furnish its employees with statements by January 31st and file with the IRS by February 28th if filing paper documents, or March 31st if filing electronically. In 2016, however, the IRS has permitted an extension and requires that employees receive statements by March 21st, and complete paper filings by May 31st or electronic filings by June 30th.
Late filing of ACA disclosures can result in penalties of up to $260 per form, though this penalty may not apply to incomplete or incorrect forms if the employer has made a good-faith effort to comply with the reporting requirements. In addition, significant penalties may arise under the shared responsibilities provisions if the employer fails to offer minimum essential coverage to 95% of its full-time employees (70% in 2015) and at least one full-time employee received a premium tax credit for purchasing insurance coverage through an affordable insurance exchange.
Penalties may also apply if the ALE does offer minimum essential coverage and at least one full-time employee still received a premium tax credit for the purchase of insurance through a state insurance exchange. This can happen when:
- The employee is not among those offered coverage,
- The employer-offered coverage is not affordable, or
- The offered coverage does not provide minimum value.
More Information and Assistance
Many more questions may arise when considering your company's responsibilities under the ACA ALE requirements. A special report entitled Health Care Reform Information Reporting Requirements for Employers is available for free download from Checkpoint. The report provides a closer examination of premium tax credits, transition relief, aggregated ALE groups, and other issues related to the ACA ALE regulations.
In addition to this special report, Thomson Reuters Checkpoint hosts a suite of online products that provide research, guidance, tools, and news for attorneys and tax professionals. Checkpoint's resources can help provide ongoing guidance regarding the implementation and interpretation of the ACA ALE requirements.