Time’s up! Are you ready for ACA reporting season?

A 2023 survey by Trusaic found that 1 in 4 organizations are audited by the Internal Revenue Service (IRS) for ACA non-compliance.

Affordable Care Act (ACA) reporting season is here again, that time when U.S. employers must prepare to comply with ACA reporting and furnishing deadlines for the 2023 tax year. If you haven’t completed your filing duties yet, the clock is ticking.

There are several important deadlines to know to comply with ACA reporting requirements:

Employers that operate in certain states must also grapple with additional state requirements.

The threat of substantial and escalating penalties face employers that fail to meet these deadlines. These risks aren’t theoretical: a 2023 survey by Trusaic found that 1 in 4 organizations are audited by the Internal Revenue Service (IRS) for ACA non-compliance.

How we got here

The Affordable Care Act was designed to increase the affordability and accessibility of health care for millions of Americans. Since 2015, it has required all Applicable Large Employers (ALEs) — or those with an average of at least 50 full-time employees — to offer their full-time workforce qualifying health care coverage. ALEs are obligated to meet employer shared responsibility provisions (ESRP), more commonly known as “employer mandates,” by offering affordable health insurance to full-time workers and their dependents. The insurance offered must also meet minimum essential coverage (MEC).

At the same time, the law requires that ALEs must file and furnish certain health information every year to the IRS as required by the ACA’s employer mandate. ALEs must provide every employee who was full-time for any month in 2023 with a Form 1095-C, “Employer-Provided Health Insurance Offer and Coverage.” This information must be reported for all 12 months of the calendar year for every employee.

The cost of non-compliance

The financial and legal consequences of late, inaccurate, or non-submission of forms are at an all-time high. Employers that fail to comply with IRS filing deadlines for 1095-C, or furnish incorrect forms, may incur significant penalties. For 2024, these penalties have increased to:

The maximum penalties differ depending on the size of the business. However, there is no maximum penalty for intentional disregard. Additionally, penalties for failing to file accurate information are $310 for each return for which the failure occurs.

Viewed individually, these penalties might seem rather nominal. However, they are all compounded based on the size of the employer. For instance, an ALE with 300 full-time employees that completely disregards 1096-C filing requirements this year can be penalized $189,000. When you factor in the financial liability tied to the Employer Mandate, this number could balloon even further.

The employer mandate penalty risk

Employers that don’t offer MEC to at least 95% of their full-time employees and their dependents for any month in 2024 and have at least one full-time employee who receives a Premium Tax Credit for purchasing coverage through a state or federal ACA marketplace may be subject to the “hammer penalty.” The hammer penalty, or 4980H(a) penalty, is $247.50 or $2,970 annualized per employee. This applies across the entire workforce when the 95% threshold isn’t met.

On the surface, these numbers again may seem negligible. However, if that 300-employee ALE referenced earlier has one employee receive a PTC for 12 months, the penalty would be $801,900. The penalty applies across every full-time employee and affects all 300 full-time employees, minus a 30-employee exemption, even if only one employee receives a PTC.

A second penalty — 4980H(b) — can also be imposed on employers that don’t offer coverage that is affordable and provides minimum value. The penalty in 2024 is $4,460 for each employee who receives the tax credit and purchases Marketplace coverage. Unlike the 4980H(a), the IRS issues 4980H(b) penalties on a per-violation basis. In other words, if an employee has inadequate coverage and seeks assistance from a state or federal marketplace, a penalty may be assessed.

Although it may have a higher potential, this penalty is applied less frequently as it does not follow the “pass/fail” criteria set for the 4980H(a). Employers cannot receive both penalties for the same tax year. If an organization is found in violation of both requirements, the amount is capped at what could be assessed under 4980H(a).

Streamlining compliance with technology, support

The complexities of ACA reporting continue to confound many organizations. Human resources professionals tasked with handling ACA compliance struggle with a thorny process that is difficult to manage and is often fraught with potential for error. Trusaic’s survey indicated employers find IRS requirements burdensome, citing challenges ranging from a lack of rule clarity to complicated tracking requirements. If you live in one of the various jurisdictions with its own ACA filing requirements and associated penalties for non-compliance, such as California, Massachusetts, New Jersey, Rhode Island or Washington, D.C., these challenges are amplified even further.

Related: ACA compliance: 3 ways brokers can help manage the complexities

Employers can help ease their compliance burden by engaging with a solutions provider that offers both ACA reporting software and expert support. Look for tools that can ensure data quality and regulatory compliance through analytics and monthly monitoring. Full visibility into your penalty risk and a monthly accounting of potential penalty exposures can help you identify small errors before they compound.

It’s clear that the IRS is continuing with its efforts to enforce the ACA, and with the issuance of penalties for failing to distribute Forms 1095-C to employees and to file Forms 1094-C and 1095-C by the required deadlines. Missing an ACA filing or furnishing deadline has the potential to turn into an extremely costly mistake. Staying on top of the filing and furnishing deadlines is one way to help your company or client remain in compliance.

Maxfield Marquardt is Senior Counsel/Director of Regulatory Affairs for Trusaic.

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