
Evolving ACA Policies: How Recent Policy Changes Impact HR Strategy
As businesses gear up for the upcoming 2024 reporting season, understanding the Affordable Care Act (ACA) compliance updates is critical for employers. Although changes are fewer this year compared to previous years, the evolving regulatory landscape still demands attention to avoid fines and penalties.
Changes include the growing importance of electronic filing and updated affordability thresholds that affect strategic HR considerations.
Mandatory Electronic Filing
As of January 1, 2024, companies that file more than 10 information returns in aggregate (W2s, 1095C, Corrections, etc.) must file electronically with the IRS. Paper submissions are only allowed in extreme hardship cases and require IRS form 8508 to be submitted at least 45 days before the deadline. Paper returns are due by February 28, 2025, which means employers must complete Form 8508 by the second week of January to be eligible for the waiver.
This shift is meant to streamline IRS processes but it increases the burden on employers. Employers who have not yet transitioned to electronic filing should prioritize this change to avoid compliance issues.
ACA Reporting for Applicable Large Employers
Applicable Large Employers (ALEs) are required to submit Forms 1094/1095 C to the IRS by March 31, 2025, 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.
If an organization averaged more than 50 FT employees in 2023, health insurance coverage that falls within ACA guidelines (meets minimum value, minimum essential coverage, and is affordable to the employee) must be offered to employees in 2024 and reported on and submitted to the IRS in 2025.
Employers must remain aware of what constitutes FTE status to ensure they maintain compliance with ACA requirements. HR Service, Inc. provides an ALE calculator to help determine whether a company meets ALE status and is required to complete ACA reporting.
*Aggregated Applicable Large Employers: IRS determinations of ALE status include affiliated entities that are under common control, such as a parent company and a subsidiary. For additional information see the 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. The IRS considers the employer as the insurer in these cases and requires the 1094/1095 B form to show which employees and their dependents were covered by health insurance the prior year.
In 2020, the IRS extended a relief that is still in place. Penalties will not be assessed to reporting entities who fail to furnish a 1095 B form if the following conditions are met:
- The reporting entity posts a notice located prominently on its website stating that responsible individuals may receive a copy of their 2024 Form 1095 B upon request, accompanied by an email address and physical address for requests to be sent as well as a phone number to contact with any questions.
- The reporting entity furnishes a 1095 B Form upon request within 30 days of receiving the request.
For additional information on alternative methods of furnishing statements see the IRS 1095B Extended Relief instructions.
Self-insured or Level-Funded employers need to keep up with ACA reporting requirements to ensure they meet compliance regardless of the number of FT/FTE employees.
Affordability Updates
One of the core elements of ACA compliance is ensuring that the health insurance coverage offered to employees meets affordability thresholds. For 2024, this threshold has been adjusted to 8.39% of an employee’s household income, compared to 9.12% the previous year. This affordability calculation can be a challenge for employers.
Fortunately, the IRS provides three affordability safe harbors:
- W-2 Safe Harbor: Calculating affordability based on the employee’s W-2 wages.
- Rate of Pay Safe Harbor: Using the employee’s lowest rate of pay as of the first day of the coverage period and multiplying by 130 hours (IRS standard for a full-time month).
- Federal Poverty Level Safe Harbor: Utilizing the federal poverty level to determine if coverage is affordable.
For 2024, the affordability threshold under the Federal Poverty Level Safe Harbor is $105.29 per month, increasing to $113.20 in 2025. HR Service, Inc. provides a Safe Harbor Calculator to help ensure health plans meet one of the safe harbor requirements.
As employers analyze health plans, adjusting offerings to meet these thresholds will be key to avoiding costly penalties under the ACA’s “B” penalty provision for unaffordable coverage.
Good Faith Relief: No Longer a Safety Net
Employers will no longer have the luxury of relying on “good faith” relief for incorrect or incomplete filings. Since the removal of this provision in 2022, employers are now fully responsible for accurate ACA reporting.
Failure to comply could result in penalties under IRC Sections 6721 and 6722, with fines as high as $620 per form. Even minor errors, such as incorrect employee identification numbers or failing to meet submission deadlines, can lead to these penalties.
Despite the elimination of the good faith relief, there is still relief for “reasonable cause” requiring filers to establish that they acted in a responsible manner both before and after the failure occurred AND that there were significant mitigating factors leading to the failure. Keep in mind, there is no guarantee that this penalty relief will be granted.
Employers need to build a robust audit process into their ACA compliance strategy to ensure filings are complete and correct. Consider investing in training for ACA teams to better understand the nuances of ACA coding and reporting, or look into outsourcing ACA filing to ensure all compliance requirements are met.
State-Specific ACA Requirements
In addition to federal requirements, several states, including California, New Jersey, Rhode Island, and Washington D.C., have state-level ACA mandates. Employers operating in these states must comply with both state and federal ACA reporting requirements to maintain compliance.
With states like California imposing penalties at the state level for noncompliance, employers must ensure they are meeting all local mandates.
2025 Due Dates
Employers required to complete ACA Reporting, must meet IRS deadlines to avoid fines and penalties:
- 2/28/2025 – paper forms must be postmarked by this date if mailed to the IRS. This option is only available for employers with less than 10 forms.
- 3/3/2025 – Deadline to distribute employee forms
- 3/31/2025 – Deadline for electronic filing to the IRS.
Employers may apply for a 30-day extension using the 8809 Form to extend paper or electronic submission deadlines. There are no extensions for employee distribution.
The process can be complicated and time-consuming making it essential for employers to prepare early to complete ACA reporting on time.
Common IRS Notices and Penalties
The IRS has increased both the types and frequency of the ACA-related notices they are sending to employers. HR Service, Inc. has seen an increase in 5699 letters showing the IRS believes an employer was an ALE and should have provided health coverage and completed the required reporting. The current 5699 letters seen are for tax years 2021 and 2022.
Other IRS notices seen include:
Letter 226-J – Initial letter to ALEs notifying them that they may be liable for an Employer Shared Responsibility Payment (ESRP). Most of the time, these are based on mistakes made either on 1094 C or as part of the coding on 1095 C. HR Service, Inc. can help clients respond to these letters.
Letter 227-M – Follow-up letter to the 226-J notice showing the IRS is still assessing a penalty under 4980H (a) or (b) after review. Employers are required to call the IRS to request a meeting or file a formal protest to go through the IRS Appeals Process.
Letter 5699 – This letter states that the IRS believes an employer who did not file ACA documents might be an ALE. This letter details the filing requirements and obligations. This letter is initiated based on a review of the W2 forms filed for the tax year. If more than 50 W2s are filed, the IRS may assume the employer is an ALE. Employers are required to respond stating whether they were an ALE, and if they are, the employer is required to complete the reporting with an explanation of why they were late.
Letter 5698 – This is a follow-up to the 5699 notice reminding the employer that a response is required or they may face penalties under IRC 6721 and 6722.
Letter 5005-A – This is the penalty notice if employers do not respond to Letters 5699 and 5698.
CP215 – This is the official bill from the IRS that comes after 5005-A.
Letter 916C – A notice from the IRS following 5699, 5698, and 5005-A that shows forms were not received or could not be processed.
Notice 972 CG – Notice of Proposed Penalty for late/incorrect information return sent when returns are filed after the due date, when incorrectly filed by paper, or returns are filed with an incorrect or missing TIN.
Letter 1865-C – This is to notify employers that the IRS is unable to process the submitted forms because they were incomplete, not in the correct format, or forms were missing. This letter requires resubmission by a certain date.
Penalties for 4980H (a) and (b) typically increase each year, but they actually decrease for 2025.
2024 Penalties:
- 4980H (a) = $2,970
- 4980H (b) = $4,460
2025 Penalties:
- 4980H (a) = $2,900
- 4980H (b) = $4,350
The “A” penalty is assessed when an 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.
Leveraging HR Support for ACA Compliance
There are many options available to provide needed reporting assistance, such as payroll providers, HRIS providers, benefit systems, and HR Service, Inc. We recommend employers work closely with their insurance broker to ensure employers have a provider they can trust.
For employers looking for comprehensive assistance, HR Service, Inc. offers ACA reporting solutions, including white glove service throughout the entire ACA reporting process. With the help of experienced specialists, employers can navigate these complexities and ensure full compliance with ACA regulations. As ACA requirements continue to evolve, it’s critical for employers to stay ahead of the curve. For personalized guidance and assistance with ACA reporting, learn more about the ACA services provided by HR Service, Inc.
**This information 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.
Written by: Holly Young, MA, SPHR, CAC, Senior Specialized Services Administrator, Senior HR Business Partner