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ACA reporting is required by all organizations that meet Applicable Large Employer (ALE) requirements. The reporting must also be completed by employers who average less than 50 FT or FTE employees but are self-insured or level funded. The employer is considered the insurer in these instances and therefore the 1094 and 1095 B Forms must be submitted each year to show employees and any dependents that were covered by health insurance.
An ALE or Applicable Large Employer is any organization with 50+ full-time or full-time equivalent employees. To determine if your company meets these requirements, you can download our free ALE calculator.
The most common penalties received are Section 4980H (a) and (b), also known as penalty A and penalty B. These penalties 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 full-time employees that meets ACA requirements of 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. If even one employee receives a premium tax credit and the employer does not correctly mark the box that states they offer MEC, they will receive the penalty.
The B penalty is assessed when a MEC plan is offered but does not meet minimum value or affordability requirements. 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.
Letter 226-J is an initial letter the IRS sends to ALEs to notify them that they may be liable for an Employer Shared Responsibility Payment (ESRP). Employers receive these letters if the IRS believes there was a failure to offer MEC or a failure to meet minimum value requirements. Employers are likely to see one of these letters if an employee files for a premium tax credit.
Letter 227 includes a series of letters based on a review of an employer’s ESRP liability. These letters are a follow-up to the 226- J letter providing an acknowledgment that a response to 226-J was received, giving an update on the ESRP status, and offering the next steps to close the review or contest it.
Letter 5699 gets sent if the IRS believes that an employer met the requirements as an ALE for a tax-filing year but did not file ACA reporting documents. This letter is triggered based on the number of W2s filed for the tax year in question. If more than 50 W2s were filed, the IRS may assume the employer is an ALE under the full-time equivalent regulations and 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 a reason for filing late.
Letter 5698 gets triggered if the employer fails to respond to Letter 5699. This letter reminds the employer they have not responded, and they need to do so immediately, or risk penalties based on their W2 filings.
Letter 5005-A is 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 acts as the official “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 comes as a notice from the IRS indicating a claim or request is incomplete and cannot be processed. The letter will recommend filing the forms electronically.
Notice 972 CG is a proposed penalties notice 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 1865C - letter sent to inform an employer that 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 that the employer resubmit the forms by a certain date.
The interesting thing we have found with this notice to some of our previous clients is 1) They receive multiple versions of the letter that say different things. 2) The fax or phone number is either missing, not working, or goes to a source who does not clearly identify themselves as IRS. 3) General delays with IRS operations erroneously sent penalty notices to clients who filed as requested. 4) The IRS sends out these letters even to clients for who we have 100% confidence that all the forms were submitted correctly and timely.
The Affordable Care Act (ACA) was enacted to ensure affordable health insurance is available for more people in the United States. The law provides subsidies, called premium tax credits, to lower insurance costs for households with income between 100% and 400% of the federal poverty level.
Rhode Island and Washington D.C. have enacted requirements on the state level for all levels of health coverage. California and New Jersey have requirements for self-funded coverage only. Massachusetts has its own form for filing.
Each of these states have enacted individual mandates. This includes employers in the state and employers with employees in the state.
The IRS has set the 2023 rate at 9.12%.
Minimum Value (MV) – An employer-sponsored plan provides minimum value if it covers at least 60 percent of the assumed cost for the standard population to cover the benefits provided. This is the equivalent of a bronze-level plan.
Minimum Essential Coverage (MEC) – MEC refers to types of coverage that satisfy the ACA’s individual mandate. This typically involves insurance policies that provide major health coverage. ALE-qualified employers must offer MEC to at least 95% of their full-time employees.
Affordability – Affordability deals with providing plans with premiums that are affordable based on one of three safe harbor calculations. Under the employer-shared responsibility affordability safe harbors, employers are allowed to use Form W-2 wages, an employee’s rate of pay, or the federal poverty line.