2023 ACA Reporting Requirements Update
It is that time of year to start thinking about Affordable Care Act (ACA) reporting. While there have not been a lot of changes since 2022, it’s important to keep up with all new ACA reporting requirements to ensure you meet compliance.
E-Filing Required by IRS beginning January 1, 2024
The most significant change to ACA reporting this upcoming year is the IRS requirement that companies who file more than 10 information returns in aggregate (the W2s, 1095 C, Corrections, etc.) must submit their forms electronically. HR Service, Inc. elected to only offer e-filing service in preparation for this new rule, but we expect that all employers will be required to follow this rule moving forward.
This means employers cannot mail the 1094/95 C forms to the IRS unless they receive a hardship waiver on IRS Form 8508, which must be filed 45 days prior to the due date of the return. Since paper returns are due February 28, 2024, employers must have this form filed by the second week of January to be eligible for the waiver.
ACA Reporting for Applicable Large Employers
Applicable Large Employers (ALEs) are required to submit their 1094/1095 C forms to the IRS by April 1, 2024, if filing electronically. 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, if your company averaged more than 50 FT employees in the prior year (2022), health insurance coverage that falls within ACA guidelines (meets minimum value, minimum essential coverage, and is affordable to the employee) must be offered in 2023 and then reported on and submitted to the IRS in 2024.
HR Service, Inc. 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
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 example from the IRS: IRS Definition of an Aggregated ALE (question 11).
ACA Reporting for Small Self-Insured or Level-Funded Employers
ACA reporting must also be completed by employers who average fewer than 50 FT/FTE employees and 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 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 2023 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 2023 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 under Alternative Manner of Furnishing Statements: 1095B Extended Relief – IRS
Due Dates for 2024
ACA Reporting requirements include specific dates to complete the different reporting or face potential fines and penalties.
- 2/28/2024 – Paper forms must be postmarked by this date if mailed to IRS (only permitted for employers that have less than 10 information forms in the aggregate)
- 3/4/2024 – Forms distributed to employees
- 4/1/2024 – Electronic Filing to the IRS (may be extended 30 days with Form 8809)
Employers may apply for a 30-day extension using the 8809 Form to extend the paper and electronic submission deadline to the IRS by 30 days. There are no extensions available for employee distribution.
Good Faith Relief Eliminated
The IRS eliminated the Good Faith Relief provision last year, which means employers may now be penalized under Code Sections 6721 and 6722 for late, incorrect, or incomplete returns and may receive an IRS Notice 972CG (Notice of Proposed Penalty for Late/Incorrect Information Return).
The 2024 penalties are $290 per return furnished to the employee and $290 for the same return filed with the IRS, for a potential total of $580 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.
Despite the elimination of the Good Faith Relief, there is still relief for “reasonable cause” for which filers must establish that they acted in a responsible manner both before and after the failure occurred AND that there were significant mitigating factors with respect to the failure. 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 2023, the affordability calculation is set at 9.12%. In 2024, the affordability will be 8.39%. 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 9.12%, 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 that was 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 actually worked, and then multiply that number by 9.12%.
- 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 9.12%. For 2023 the FPL safe harbor threshold for mainland USA in 2023is $103.15. Any employee-only premium that is equal to or less per month for health coverage meets FPL affordability. The IRS allows employers to use the published FPL rate in effect six months prior to the plan year.
HR Service, Inc. provides a safe harbor calculator on our website to help determine the best safe harbor for your needs and complete the calculations. This calculator is found towards the bottom of the page.
There are no changes to the 1094 B/C or 1095 B/C forms this year.
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, Inc. is able to 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. HR Service, Inc. is currently seeing numerous IRS 5699 letters the IRS sends out if they believe that an employer was an ALE and should have provided health coverage and completed the required ACA reporting requirements. We are currently seeing 5699 letters for tax year 2021.
HR Service, Inc. is also seeing a fair share of 1865 C letters for the 2022 filing year. These letters are going to clients who did not file electronically in 2022 and in which the IRS is claiming that all the forms can’t be processed or that some are missing. It has been our experience these notices are sent in error, but this is a good reminder of why we recommend e-filing.
Below is an overview of the Letters/Notices the IRS is sending out.
Letter 226-J – Initial letter the IRS sends to ALEs to notify them that they may be liable for an Employer Shared Responsibility Payment (ESRP). HR Service, Inc. can help clients respond to these letters. Most of the time, these penalty letters arise from mistakes that have been made either on the 1094 C or as part of the coding on the 1095 C.
Letter 227-M – A follow-up letter to the 226- J letter in which the IRS says, after review, they are still assessing a penalty under 4980H (a) or (b). Once an employer receives this letter, the IRS requires the employer to either call them to request a meeting or file a formal protest and go through the IRS Appeals Process.
Letter 5699 – A letter that states that the IRS believes that an employer, who did not file ACA reporting documents, might be an ALE. The letter will detail the requirements and obligations for filing. This letter is initiated when the IRS cross-references the number of W2 forms that were filed for that particular year.
If there were more than 50, the IRS may assume that the employer is an ALE and therefore must comply with ACA reporting requirements. The employer is required to respond to the letter, indicating whether they were an ALE or not. If the employer was an ALE, they must file the forms and explain why they are filing late.
Letter 5698 – Failure to respond to Letter 5699 will trigger this letter, which reminds the employer they have not responded, and they need to do so immediately, or they will be assessed a penalty under IRC 6721 and 6722.
Letter 5005-A – The penalty notice following Letters 5699 and 5698. This letter focuses on the failure of ALEs to distribute 1095-C forms to employees and to file 1094-C and 1095-C forms with the federal tax agency by the required deadlines.
CP215 – The actual “bill” received after the 5005-A. The 5005-A is not a request for payment, and the employer still has a chance to respond to the IRS before penalties are applied.
Letter 916C – A notice from the IRS, typically following 5699, 5698, and 5005A, that indicates the IRS either did not receive the forms submitted or they were unable to process the forms that were submitted. The letter will recommend filing the forms electronically.
We’ve also seen this letter follow a CP215.
Notice 972 CG – Notice of Proposed Penalty for Late/Incorrect Information Returns are sent when returns are filed after their due date, when returns were filed on paper but exceeded the 250 returns threshold that requires electronic filing, or when returns were filed with an incorrect or missing TIN.
Letter 1865 C –The purpose of this letter is to let the employer know the IRS is unable to process the 1094/95 B or C forms because the forms are incomplete or not in the required format OR the 1094 B or C was missing. The letter asks the employer to resubmit the forms by a certain date.
Employee Shared Responsibility Payments
The penalties for 4980H (a) and (b) increase each year.
- 4980H (a) = $2,880
- 4980H (b) = $4,320
- 4980H (a) = $2,970
- 4980H (b) = $4,460
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 particular 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.
ACA Reporting Solutions
Many options are available to provide needed assistance to meet ACA reporting requirements, such as payroll providers, HRIS providers, benefit systems, and HR Service, Inc. When working with HR Service, Inc., employers will receive white glove service throughout the entire process.
Our ACA Reporting Specialists have been trained in the IRS requirements and regulations, especially when it comes to the ACA coding involved.
We recommend employers work closely with their insurance broker to ensure you have a provider you can trust. If you would like full-service assistance with someone to take care of complex ACA reporting requirements for you, contact HR Service, Inc. at (833) 685-8400 x 1.
Prepared by Holly Young, MA, SPHR, CAC
Senior Specialized Services Administrator
Senior HR Business Partner
**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.**