2022 ACA Reporting Refresher
It’s that time of year again as we prepare for the 2022 Affordable Care Act (ACA) Reporting season. From what we know so far, the IRS has not made significant changes this year, but let’s have a refresher on all things ACA Reporting and who is required to report to the IRS.
Applicable Large Employers
Applicable Large Employers (ALEs) are required to submit 1094/1095 C forms to the IRS in early 2023. ALEs are companies that average 50 or more full-time or full-time equivalent employees (FT/FTE). This is determined based on the previous year. For example, suppose your company averaged more than 50 full-time employees in 2021. In that case, health insurance coverage meeting ACA guidelines must be offered in 2022 and then reported on and submitted to the IRS in early 2023. HR Service has a calculator available to help determine whether or not your company is an ALE, which you can access here: ACA ALE Calculator Download.
Aggregated Applicable Large Employers or ALE
The IRS determination of an ALE also includes affiliated entities that are under common control, such as a parent company and a subsidiary. For additional information, please see the following example from the IRS: IRS Example of an Aggregated ALE.
ACA Reporting for Small Self-Insured or Level-Funded Employers
ACA reporting must also be completed by employers that average fewer than 50 FT/FTE employees but are self-insured or level-funded. This is because the IRS considers the employer as the insurer and therefore, the 1094/1095-B Forms must be submitted to the IRS each year to show which employees and their dependents were covered by health insurance the year prior. In 2020, the IRS extended a relief that is still in place. The IRS will not assess a penalty to reporting entities (including self-insured small employers) who fail to furnish a 1095-B to employees if the following conditions are met:
- The reporting entity must post a notice located prominently on its website stating that responsible individuals may receive a copy of their 2022 Form 1095-B upon request, accompanied by an email address and a physical address to which a request may be sent, as well as a telephone number those responsible individuals can use to contact the reporting entity with any questions.
- The reporting entity must furnish a 2022 Form 1095-B to any responsible individual upon request within 30 days of receiving the request.
For additional information, please go to the IRS Website here: 1095B Extended Relief – IRS.
Due Dates for 2023
Last year, the IRS permanently extended the due date to distribute the required forms to employees from January 31st to March 2nd. Employers may apply for a 30-day extension using the 8809 Form (IRS 8809 Form) to extend the paper and electronic submission deadline to the IRS by 30 days. Unfortunately, there are no extensions available for employee distribution.
2/28/2023 – Paper forms must be postmarked by this date if mailed to IRS (not recommended)
3/2/2023 – Forms distributed to employees
3/31/2023 – Electronic Filing to the IRS (required for 250+ forms)
Good Faith Relief Eliminated
In the same publication that extended the employee distribution due date, the IRS also eliminated the Good Faith Relief, which means that employers will now be penalized under Code Sections 6721 and 6722 for late, incorrect, or incomplete returns and will receive an IRS Notice 972CG (Notice of Proposed Penalty for Late/Incorrect Information Return). For employers with annual gross receipts of more than $5 million, the 2022 penalties are $280 per return furnished to the employee and $280 for the same return filed with the IRS, for a potential total of $560 per return. If mistakes on the forms are corrected within 30 days, the penalty may be reduced to $50 per return or $110 per return if corrected past 30 days but before August 1st. Penalty amounts are also capped per calendar year. If the employer disregards making any corrections, the penalty will be a minimum of $570 per return with no cap.
Despite the elimination of the Good Faith Relief, there is still relief for “reasonable cause” for which filers must establish that they acted responsibly both before and after the failure occurred and that there were significant mitigating factors with respect to the failure. That said, there is no guarantee that penalty relief will be granted.
Affordability and Safe Harbor Codes
ACA affordability is based on the lowest cost plan available to the employee for employee-only coverage. Because employers are not expected to know their employee’s household income, the IRS allows for three affordability safe harbors that ALEs can use to ensure that the annual affordability threshold is met. For 2022, the affordability calculation is set at 9.61%. In 2023, the affordability will be 9.12%. To determine affordability, covered employers may use one of the three safe harbors below:
- W2 earnings (safe harbor code 2F). The earnings found in Box 1 of the W2 are multiplied by 9.61%, with an adjustment for partial year coverage when an employee works only part of the year. The W-2 method uses the employees’ wages for the current year, which poses a challenge because the employer may not know if the coverage, offered was affordable until the end of the year.
- Rate of Pay (safe harbor code 2H). This IRS calculation requires the employer to take the employee’s lowest rate of pay as of the first day of the coverage period and multiply that by 130 hours (for the month, regardless of how many hours they worked) and then multiply that number by 9.61%. For example, Joe earns $15.00 an hour — $15 x 130 = $1950 x 9.61% = $187.40, which means the monthly premium for Joe cannot be more than $187.40 if it is to be affordable for him.
- Federal Poverty Level (“FPL” safe harbor code 2G). The FPL, as determined by the Department of Health and Human Services each year, is multiplied by 9.61%. For 2022 the FPL was $12,880 for mainland USA states, multiplied by 9.61%, for an amount of $103.15. This means that a premium of $103.15 or less per month for employee-only coverage meets FPL affordability. The IRS allows employers to use the published FPL rate in effect six months prior to the plan year. The FPL threshold for 2022 was $104.53, and before 2023 it will be $103.28.Please note to use the FPL safe harbor, it must apply to each employee in the same class of employees.
More Information on Safe Harbors
Per the IRS – These safe harbors are all optional. An employer may choose to use one or more of these safe harbors for all its employees or for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category. “The final regulations clarify that reasonable categories generally include specified job categories, nature of compensation (for example, salaried or hourly), geographic location, and similar bona fide business criteria. However, an enumeration of employees by name would not be considered a reasonable category.” In addition, an affordability safe harbor code should not be entered on line 16 for any month the ALE member did not offer Minimum Essential Coverage (MEC) to at least 95% of its full-time employees and their dependents.
The IRS has only published the 2022 forms as drafts. Based on the draft forms and instructions, there does not seem to be any changes this year. Draft forms and instructions can be found here: 2022 Draft 1095 C, 2022 Draft 1095 B, 2022 Draft 1094 C, 2022 Draft 1094 B. However, the IRS is quick to point out that you should not rely on draft forms.
In addition to the federal ACA reporting requirements, the following states have individual mandates requiring their residents to purchase and maintain qualifying insurance coverage or pay a state tax penalty: California, Hawaii, Massachusetts, New Jersey, Rhode Island, and Washington, DC. Currently, HR Service can file with the following states: CA, NJ, RI, and DC.
Current IRS Letters/Notices and Penalties
The IRS has recently increased both the types of ACA-related letters/notices they are sending to employers as well as the frequency. Currently, they are sending Letter 226-J for the 2019 tax year, and Letter 5005-A with late penalties for the 2018 tax year. More penalties are coming, and earlier tax years are also fair game as there is no statute of limitations on ACA penalties. Please find a detailed description of the ACA letters here https://www.hrserviceinc.com/aca-reporting/.
Employee Shared Responsibility Payments
The penalties for 4980H (a) and (b) increase each year.
- 4980H (a) = $2,750
- 4980H (b) = $4,120
- 4980H (a) = $2,880
- 4980H (b) = $4,320
The A penalty is assessed when the employer does not offer health insurance to at least 95% of their FT/FTE employees that meets ACA requirements or minimum essential coverage. This penalty is assessed on all FT employees for each month the employer did not meet ACA requirements, minus the first 30 employees.
The B penalty is assessed when a medical plan is offered but does not meet minimum value (referred to as MEC plans) or affordability. These penalties are only assessed on the employees who did not receive a qualifying offer and who went to the Marketplace to enroll in medical coverage and received a premium tax credit.
The 2022 penalties are $280 per return furnished to the employee and $280 for the same return filed with the IRS, for a potential total of $560 per return if the forms are not filed correctly.
If mistakes on the forms are corrected within 30 days, the penalty may be reduced to $50 per return or $110 per return if corrected past 30 days but before August 1st. Penalty amounts are also capped per calendar year. If the employer totally disregards making any corrections, the penalty will at least be $570 per return with no cap.
Minimum Value (MV) – An employer-sponsored plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan and provides substantial coverage for inpatient care and physician treatment.
Minimum Essential Coverage (MEC) – types of coverage that satisfy ACA’s individual mandate, typically insurance policies that provide major health coverage.
ACA Reporting Solutions
Many options are available to provide needed reporting assistance, such as payroll providers, HRIS providers, benefit systems and HR Service, Inc. When working with HR Service, you will receive white glove service throughout the process. Additionally, our ACA Reporting Specialists have been trained in the IRS requirements and regulations, especially when it comes to the ACA coding that is involved.
Please note: Because of the most recent IRS letters being generated and sent to employers, HR Service will submit all filings to the IRS electronically as to ensure receipt. Likewise, any corrected forms or responses to IRS letters that require additional submissions will also be made electronically.
We recommend you work closely with your insurance broker to ensure you have a trustworthy provider. If you would like full-service assistance with someone taking care of complex ACA reporting requirements for you, contact HR Service, Inc. at (833) 685-8400 x 1.
ACA Family Glitch – New Ruling October 11, 2022
How does this impact employer-sponsored insurance?
It shouldn’t impact it. What this new ruling does is take into consideration the total household income when a person applies for health coverage on the marketplace. The affordability requirement for employee-only coverage has not changed, nor have any of the requirements (offer MEC, MV, and to employee plus dependents) It will not change anything about the upcoming ACA reporting and we will know more next year if there are any changes to reporting for 2023.
Highlights of New Rule
- The new rules will be used to determine whether anyone in the household qualifies for a premium subsidy starting in 2023
- If a family has to pay more than a certain percentage of household income (9.12% in 2023) for the employer-sponsored plan, they will potentially be eligible for premium tax credits in the marketplace.
- There will be a separate affordability determination for the employee (based on self-only coverage), and for family members (based on the total cost of family coverage). So depending on how an employer subsidizes the cost of family coverage, it’s possible that coverage could be considered affordable for the employee but not for family members. In that case, the family members would potentially be eligible for a premium tax credit in the marketplace, but the employee would not.
- Nothing will change about the ACA’s employer mandate. Large employers will still have to provide affordable, minimum-value coverage to their full-time employees, and offer coverage to those employees’ dependents. There is no mechanism for triggering the penalty based on an employee’s family members receiving premium tax credits in the marketplace.
- Premium tax credits currently ensure that households don’t have to spend more than 8.5% of household income to buy the benchmark plan, but that’s only applicable to the marketplace premiums. Premiums for other coverage are not factored in, as described here with regards to households with one spouse on Medicare and the other on a marketplace plan.
Prepared by Holly Young, MA, SPHR, SHRM-SCP –Senior Human Resources Business Consultant and ACA Specialist
**The information herein should not be construed as legal or tax advice in any way. You should seek the advice of your attorney or tax consultant for additional or specific information.**