The Affordable Care Act first went into effect in 2010. Five years later, the Employer Mandate—known officially as the Employer Shared Responsibility Provisions, or ESRPs—took effect. In essence, the Employer Mandate is a list of provisions that large employers must abide by regarding offering health insurance to their employees. If they fail to meet these guidelines, they can face hefty taxes and penalties from the IRS.
There are reporting guidelines outlined by the ACA, along with their associated penalties for noncompliance. To learn more, read on for your guide to IRS ACA reporting.
What Are ESRPs?
The ACA requires all ALEs, or Applicable Large Employers, to offer their employees health insurance that meets three essential criteria.
- First, it must be considered affordable health coverage. The cost can’t exceed about 10% of each household’s income.
- Second, it must meet the Minimum Essential Coverage (MEC) requirement for all covered services and procedures.
- Third, it has to provide what’s known as “minimum value” to all full-time employees and their dependents. Generally speaking, the health insurance plan has to cover a minimum of 60% of the total costs of the benefits incurred with the plan.
Every year, ALEs must file both Form 1094 and Form 1095 with the IRS, which will document their compliance with the ACA. Any employer that doesn’t file these forms, or doesn’t provide affordable coverage with the MEC, will owe the IRS a tax penalty as outlined by the ACA.
In 2017, the first IRS notices from the 2015 tax year were sent to employers who violated various ACA aspects. Since then, the IRS has sent notices to ALEs annually and will continue to do so in the coming years. ACA penalties fall into four categories. Here’s a more specific description of each.
Penalty #1: “A Penalties” Under Section 4980H9(a)
Section 4980H(a) under the ACA covers what is known as “A Penalties.” These apply anytime an employer doesn’t offer enough full-time employees affordable and qualifying coverage. Those who violate this section will receive an IRS Letter 226J. The penalty amount is based on the total size of the employer’s population of full-time employees.
Penalty #2: “B Penalties” Under 4980H(b)
Known as “B Penalties,” violators of section 4980H(b) under the ACA will receive Letter 226J from the IRS. These penalties essentially serve as tax assessments designed to help recover any cost associated with ACA subsidies that individuals receive.
These penalties come into play when an employee goes to the public health exchange to receive a subsidy to buy affordable health insurance because their employer failed to provide them with qualifying, affordable coverage. Employers can face a maximum penalty of $3,120 for each employee who receives one of these subsidies for each tax year.
The employer bears the burden of proof for 4980H(b) penalties, and the tax agency will cross-reference various data from three primary sources, including the following:
- The IRS filing the employer makes
- An employee’s 1040, which shows their total income
- Reports from the public health exchange, which lists all the subsidies that are given for every Social Security Number
Penalty #3: 6055
The ACA requires all ALEs to file Form 1094-C annually—this form proves that ACA-compliant insurance is available to all full-time employees and their dependents. Any employer not following this ACA reporting requirement could be subject to a hefty IRS penalty.
Penalty #4: 6056
In addition, the ACA requires all ALEs to file Form 1095-C annually—this form applies to every self-insured individual enrolled in a health insurance plan. The insurer provides the tax agency with a 1095-B form, which is later given to the IRS.
Employers determined to be ALEs could then be penalized if they fail to report this information to the IRS.
Where the Reporting Must Go
The ACA requires all ALEs to file annual reports with the IRS and their full-time employees. Doing so ensures that the information is sent to both the federal government’s taxing agency and the specific individuals covered by their health insurance plans.
In recent years, there was a delay in penalty notices sent by the IRS to ALEs that violated 6055 and 6056. However, that period of “good faith effort” that was extended to ALEs by the IRS disappeared in 2018, meaning there is no longer any flexibility regarding these penalties.
Any ALE that receives a penalty notice from the IRS will have only 30 days by which they must respond, so staying on top of the notices you receive is extremely important.
Stay ACA Compliant with Beckham Insurance Group
We hope you enjoyed this guide on IRS ACA reporting! As you can see, remaining ACA compliant is very important for any employer termed an ALE. Failure to do so can result in significant IRS penalties that can significantly impact and harm your business’ bottom line.
If you’re in the Georgia or South Carolina region, working with Beckham Insurance Group can help you stay compliant with the ACA and remain that way. Contact us today to learn more and receive a free quote. Thank you for visiting our blog, and we hope to help you soon!