ACA Frequently Asked Questions

We’ve had many organizations ask questions about the ACA. We thought it would be helpful if we created this FAQ based on questions we have received from HR specialists, insurance brokers, and CPAs, among others.

What information does the ACA require to be filed with the IRS?

The ACA requires Applicable Large Employers (ALEs) to report on the 1094-C/1095-C forms information about the health care coverage if any, they offered to full-time employees. (For covered individuals other than employees, 1095-B forms can be used in lieu of 1095-C forms).

Are reporting forms 1094-C and 1095-C required to be filed with the IRS by non-ALE employers?

The 1094-C/1095-C schedules are not required for a non-ALE.  However, for a non-ALE that offers a self-insured health plan, the non-ALE will report on the individuals enrolled on the self-insured health plan on the 1094-B/1095-B Schedules. 

Who files the 1095-C schedules and for what types of employees?

The Applicable Large Employers (ALEs) are required to file and furnish 1095-Cs for each of their full-time employees. 

In addition, if an employer has self-insured coverage, the employer must report on all individuals who were enrolled on the self-insured health plan, including individuals who were not full-time employees, and non-employee individuals (e.g. spouses/dependents). The employer has the option to complete information about non-employee individuals using either Part III of the 1095-C or by using form 1095-B. 

What is an Applicable Large Employer?

If an employer has at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is an Applicable Large Employer (ALE) for the current calendar year, and is therefore subject to the Employer Shared Responsibility Provisions (also referred to as the ACA Employer Mandate) and the Employer Information Reporting Provisions, which requires ALEs to report annually to the IRS information about the health care coverage, if any, they offered to full-time employees. The IRS will use this information to administer ACA penalties for non-compliance.

A full-time employee for any calendar month is an employee who has on average at least 30 hours of service per week during the calendar month or at least 130 hours of service during the calendar month.

A full-time equivalent employee is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee. An employer determines its number of full-time-equivalent employees for a month by combining the number of hours of service of all non-full-time employees for the month, but do not include more than 120 hours of service per employee, and divide the total by 120.
To determine its workforce size for a year, an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year and divides that total number by 12.

What does MEC stand for?

MEC stands for Minimum Essential Coverage.  In the employment context, an example of MEC would be an employer-sponsored health plan.

What is Minimum Value?

Under the ACA, an Applicable Large Employer (ALE) member may either offer affordable Minimum Essential Coverage that provides Minimum Value to its full-time employees (and their dependents) or potentially owe an Employer Shared Responsibility Payment to the IRS.  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 health care plan offered to full-time employees. 

Are only full-time employees required to file 1095-Cs?

The full-time employees do not in and of themselves file the 1095-Cs (or 1095-Bs). Rather, it is the ALE that is required to file and furnish 1095-Cs for each of their full-time employees.  In addition, if the employer has self-insured coverage, the employer must report on all individuals who were enrolled on the self-insured health plan, including individuals who were not full-time employees, and non-employee individuals (e.g. spouses/dependents). The employer has the option to complete information about non-employee individuals using either Part III of the 1095-C or by using form 1095-B.

Are there other ACA reporting methods available to employers?

There are two alternative methods that are available to some employers.

The Qualifying Offer Method may be used as an alternative to completing the 1095-C forms if a fully insured employer can certify the following:

That one or more of its full-time employees for all calendar months during the calendar year in which the employee was a full-time employee for whom an Employer Shared Responsibility Payment could apply, that such employee(s) received a “Qualifying Offer.”

 A “Qualifying Offer” must:

  • meet Minimum Value for each such employee
  • meet affordability based on the mainland federal poverty level for each such employee
  • the offer of coverage must be made to the employee’s spouse and dependents.

(Note: such an employer fills in code 1A for line 14 for every such month even if not all months apply.  However, the alternative to furnishing the 1095-C form is not available if not all months apply.)  The alternative to furnishing the 1095-C form is a simplified statement that the employee received a Qualifying Offer for all 12 months of the year. (Also note, self-insured employers cannot use the alternative statement.)   See https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-reporting-of-offers-of-health-insurance-coverage-by-employers-section-6056 .

The 98% Offer Method may be used if the employer can certify that at least 98% of all employees for whom the 1095-C applies (i.e., full-time) was offered to the employee, spouse and dependents and that such coverage was affordable and met Minimum Value.  Note that the employer must still furnish and file the 1095-C form to all of its full-time employees (who were full time for at one or more months of the year) so the “reporting method” is still the same, i.e., furnish and file the 1095-C.  However, if the 98% offer method is used, the employer need not complete the full-time count portion of the 1094-C form.

It should be noted that the previously available transition relief which only applied for 2015 for reporting to the IRS is no longer available, i.e., Transitional Relief under the Qualifying Offer Method no longer applies.  This means that any mistakes in accuracy will no longer be an excuse for employers providing inaccurate information when filing their ACA information with the IRS.

Have you heard anything additional about the IRS' suggestion that when determining who is required to file electronically that the count of Forms 1095-C are combined with the Forms W-2?

Yes.  See proposed IRS rule seeking to expand the mandatory filing requirement by adding in language to cover the 250-return threshold to combine returns, including W-2s and 1095-Cs. 

See https://www.gpo.gov/fdsys/pkg/FR-2018-05-31/pdf/2018-11749.pdf.  

If you offer full-time employees initial offers and they decline, do they need a Qualifying Life Event for any following month?

If an ALE offers a full-time employee coverage for the plan year and that employee declines, the employer is covered as having made the offer for the plan year.  Of course, the employer should document the offer, including the timeframe for which the offer covers, e.g., the start and end date of the coverage.  Depending on the employer’s health plan’s related summary plan documents, if there is a Qualifying Life Event after an employee declines an offer of coverage, such as getting married, having a baby, or losing health coverage, typically the employee can accept the offer within a certain amount of time (e.g., 30 days) from the Qualifying Life Event. 

What if an employee is covered on their spouse’s plan? Is the employer supposed to track where they get their insurance from? Is the employer still responsible for offering coverage?

Under the ACA’s Employer Mandate, the employer is obligated to offer full-time employee coverage.  Presumably, if the employee already has coverage through a spousal plan, the employee would decline an offer from his or her employer.  The Employer Mandate obligation is to make the offer to the employee, and not necessarily to enroll the employee.  Of course, if the employee is in fact enrolled, you will need to track that as well.  The Employer Mandate does not require the employer to track where the employees have obtained coverage if outside of the employer. 

We have full-time summer students classified as "interns.” Are we required to offer them coverage within 90 days?

In general, if the “interns” were reasonably expected to be “full-time” at the time of their hire, they would be required to be offered coverage no later than 90 days from their start date.  However, the “interns” may qualify as “seasonal employees,” which are employees in positions for which “the customary annual employment is six months or less,” whereby “customary” means that “by the nature of the position an employee in this position typically works for a period of six months or less, and that period should begin each calendar year in approximately the same part of the year, such as summer or winter.”  If the interns are such seasonal employees, and the employer properly applies the Look-Back Measurement Method using, say, a six-month measurement period, these “interns,” who presumably work only through the summer, should remain in their “initial measurement period,” and hence are not required to be offered coverage within 90 days.  In short, you may not be required to offer coverage depending on the application of the Look-Back Measurement Method.  

What is the rule for Seasonal employees that may work 40 hours a week for 10 to 12 weeks per year?

A “seasonal employee” is an employee in a position for which “the customary annual employment is six months or less,” whereby “customary” means that “by the nature of the position an employee in this position typically works for a period of six months or less, and that period should begin each calendar year in approximately the same part of the year, such as summer or winter.”  If the employer properly applies the Look-Back Measurement Method using, for example, a 12-month measurement period, these “seasonal employees” would remain in their “initial measurement period” throughout their 10 to 12 weeks, and hence are not required to be offered coverage within 90 days. 

Will the ACA be simplified? Complying with law is daunting as there are so many ins and outs.

Any talk about simplifying the ACA you may have heard was probably in the context of various repeal proposals in Congress, all of which are no longer being considered.  With the ACA here to stay, having a trusted and knowledgeable outside vendor to prepare your ACA reporting is key to navigating the complicated ACA process.  A good vendor should have a deep knowledge of the ACA. The vendor also should be able to provide you with a description of how your information will be processed to develop a filing that will meet all ACA rules. You want to know if the vendor just provides software or if there are experts involved, experts who will be there to answer your questions and walk you through the process when necessary.  Finally, you should work with a vendor that will stand behind their work. You want a company that will be there by your side if you have to respond to an ACA exchange notice or IRS ACA audit. First Capitol can do all of that for you.

Can an employer correct previous years filings if they know they aren’t correct?

Yes. If you are aware of errors, you should correct promptly.  Error correction within a reasonable period of time from discovery is part of showing your good faith effort to the IRS in complying with the ACA. This is important to be eligible for good faith effort transition relief from penalties.

Can you cover the TIN error reconciliation process?

The Taxpayer Identification Number (TIN) error reconciliation process is a process to address TIN errors.  For example, if the IRS Affordable Care Act Information Returns (AIRS) system indicates that an employer’s filing is “accepted with errors,” a list is provided containing all of the employees with respect to whom a TIN error was noted.  This typically occurs due to mismatches in the legal names and social security numbers (i.e., TIN) of those employees.  This list should be cross-referenced with the employer’s HR/payroll records, which may be out of date.  The employer should be engaging in the TIN solicitation process to ensure names or Social Security numbers (SSNs) are up to date.  Employers filing 1095-C Schedules that contain incorrect TINs will not be subject to penalties if they comply with the TIN solicitation requirements.  See IRS Pub. 1586, p. 10 (identifying the TIN solicitation process for 1095-C Schedules modifying the process in Treasury Reg. 301.6724-1(f)).  Once the names and SSNs are corrected, the employer will want to use the corrected information for future 1095-C filings.  (The IRS does not require the filing of corrections to SSN or name errors alone without any corrections to the amounts identified in the 1095-C).

If there is a TIN error - how much time does the IRS provide the employer to correct?

If there is a Taxpayer Identification Number (TIN) error contained in a 1095-C Schedule, in general, the IRS indicates that corrections to the 1095-C Schedules (where the TIN errors would reside) should be filed as soon as possible.  However, if the correction on the 1095-C Schedule is only for an incorrect TIN and not correcting a money amount, the correction is not required.  See IRS Pub. 1586, p. 10.  Additionally, employers filing 1095-C Schedules that contain incorrect TINs will not be subject to penalties if they comply with the TIN solicitation requirements.  See IRS Pub. 1586, p. 10 (identifying the TIN solicitation process for 1095-C Schedules modifying the process in Treasury Reg. 301.6724-1(f)).

What happens when employees have changed their names with the Social Security Admin, but they are still filing with their original name? I often encounter "accepted with error" and make correction with the original/maiden name verified by TIN solicitation.

For purposes of the employer, if there is a mismatch in the name identified in the Social Security Administration (SSA) and the IRS in a 1095-C filing, the employer could receive an “Accepted with Error” notice from the IRS.   The employer should be engaging in the TIN solicitation process to ensure names or Social Security numbers are current. 

What happens if you overlooked some employees 1095s when sending to the IRS? Do you send a "corrected" 1094 with the 1095s?

Assuming “overlooked” means failed to submit 1095-C Schedules for some employees, the employer should submit “corrected” 1095-Cs (and furnish to the applicable employees) as soon as possible along with a 1094-C. (However, do not mark as corrected unless the 1094-C form itself is being corrected).

What kind of documentation is necessary for substantiating ACA reporting?

Supporting documentation may be found in Summaries of Benefits of Coverage and Enrollment Guides, Employee Handbook, Summary Plan Documents, Employee Premium Rate Sheets and/or Acknowledgement of Offer of Coverage.

If the question is specifically focused on payroll, supporting documentation could be a spreadsheet on which relevant payroll data was downloaded for use in determined full-time employee status.

How do employers determine who are full-time employees for ACA purposes?

In order to determine “full time” under the ACA for reporting purposes, the IRS has sanctioned two methods: Monthly Measurement Method and Look-Back Measurement Method

Under the Monthly Measurement Method, the employer determines if an employee is a full-time employee on a month-by-month basis by looking at whether the employee has at least 130 hours of service for each month.

The Look-Back Measurement Method can be particularly useful for variable-hour, part-time and seasonal employees who have hours that are not reliably predictable.  The Look-Back Measurement Method also allows for longer “limited non-assessment periods,” whereby an offer of coverage is not required, up to 13 and change months.  However, the Look-Back Measurement Method requires close monitoring and tracking, and clean, reliable data. It requires substantial attention and expertise to navigate the rules surrounding the Look-Back Measurement Method. 

Look-Back Measurement Period (MP) and Stability Period (SP), does that also apply if an employee was determined to be part-time during the MP?"

The application of the Look-Back Measurement Method (LBMM) does not depend on whether the employee is determined to be full-time or part-time.  As a general rule, if an employee was determined to be part-time during the measurement period, that non-full-time status applies throughout the stabilization period (associated with the measurement period).

If we have a variable workforce with employees that float in and out of full-time and part-time, how do we offer healthcare coverage?

For a workforce that an employer cannot reasonably determine the full-time or non-full-time status of an employee at the time of hire, the Look-Back Measurement Method (LBMM) makes a lot of sense to use.  Under the LBMM, each employee is measured during a measurement period, and the full-time (or non-full-time, e.g., part-time) status determined during that measurement period (MP) is applied prospectively during the associated stability period (SP).  So, for example, if you use a 12-month MP, say 1/1/17-12/31/17 and a 12-month SP, 1/1/18-12/31/18, and an employee is determined to be full-time during the MP, that employee should be offered coverage for the duration of the SP.  This is true even if the employee does not work full-time hours during the 1/1/18-12/31/18 time period. 

Can an employer change back and forth between measurements methods?

An employer may change the measurement method applicable to a category of employees, provided that the transition rules for employees who change between the Monthly and Look-Back Measurement methods, due to such a change by the employer, are applied to all employees impacted by the change. This is done for a transition period after the effective date of the change in method. 

For a change from the Look-Back Measurement Method to the Monthly Measurement Method (or vice versa), the status of each affected employee as of the date of the change is determined as if each of those employees had transferred from a position to which the original measurement method applied to a position to which the revised measurement method applied on the date of the change.

How can an employer prove that they offered coverage to an employee who declined to enroll?

One relatively simple way to show that an offer of coverage was made to an employee who declined coverage would be through a copy of a signed Acknowledgement of Offer.  The form should reflect the offer of coverage employee and a signature line for declining the offer. 

Can we utilize emails to document offering benefits?

Proper notice through email may require the employee’s consent.  Assuming that there is no consent issue, if an employer uses emails to make the offer and the offer properly describes the offer, it may be sufficient to show documentation of an offer.  The answer is not clear because the IRS did not specify what documentation would qualify as sufficient documentation of an offer of coverage, leaving us only with “reasonableness” as a guideline.   

What does it mean to continuously extend offers of coverage?

Continuous offer of coverage means an offer of coverage for every consecutive month of each reporting year. 

Is an employee eligible for a subsidy if we offer MV, and MEC?

For every month of a reporting year that an employee receives an offer of Minimum Essential Coverage (MEC) (for the employee and dependents) as well as coverage that meets Minimum Value (MV) and Affordability to the employee, that employee would not eligible for a subsidy.

If you have an employee that falls below the 30 hours worked a week on average due to FMLA leave do they have to offered coverage for the next upcoming year?

Assuming you are using the Look-Back Measurement Method (LBMM), you could exclude from the measurement period (MP) any unpaid FMLA (and any other special unpaid leaves, including unpaid leaves due to under Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), or on account of jury duty).  Here is a simple example:  Suppose you have a MP of 12 months (1/1/17-12/31/17) and a stability period (SP) of 12 months (1/1/18-12/31/18).  If an employee is on unpaid FMLA for 2 months during the MP, the calculation of that employee’s hours of service per month (which determines full-time status) would be averaged over 10 months instead 12 months.  If the employee is determined to be full time during the MP, the employee would be entitled to an offer of coverage during the SP, i.e., the next upcoming year. 

 

If after accounting for special unpaid leaves of absence, an employee is still determined to have averaged less than 30 hours of service per week over the applicable measurement period, such an employee would not be treated as full time for the corresponding stability period.

What is a PTC?

PTC stands for Premium Tax Credits.  PTCs are what an individual may receive from a healthcare exchange if he or she meets certain requirements, including income, and if he or she was not offered coverage that met Minimum Essential Coverage and Minimum Value and affordability requirements.

Will an employer be penalized for termed employees who received a PTC? What if the employer has high turnover and doesn’t offer coverage?

If the terminated employee is deemed full-time for that one month, which is defined as 30 hours of service per week (or 130 hours of service per month), and he or she is not in a limited non-assessment period, that employee could trigger a penalty.  In a high-turnover environment, the Look-Back Measurement Method, using 12-month measurement and stability periods, makes a lot of sense to apply in determining full-time status.  Among its benefits is the lengthy limited non-assessment period, which allows the employer to wait to offer coverage until over a year from the date of hire. 

What reporting years will the IRS issue Letter 226J penalty notices for?

Currently the IRS is sending Letter 226J to employers it believes did not comply with the ACA in 2015. We anticipate that the IRS will eventually send notices for the 2016 and 2017 tax years, perhaps by the end of 2018.

How long does an organization have to respond to IRS Letter 226J?

The response to Letter 226J is due 30 days from the date on the IRS notice.  The first page of the 226J letter identifies the response due date.

Will employers receive IRS Letter 226J if they offered to 95% of their full-time workforce? What if a full-time received a PTC?

It is hard to predict the likelihood of receiving an IRS Letter 226J.  We have seen employers of all sizes receive these notices and a wide range of proposed penalty assessments.  If you’ve offered Minimum Essential Coverage (MEC) to at least 95% of full-time employees and their dependents in 2015, presumably, you’d only potentially be tagged for “B” penalties (aka Section 4980H(b)), which are only triggered on a per Premium Tax Credit (PTC) employee basis.  Presumably, if you did not offer to 100% of all employees, there may be full-time employees who received a PTC and, thereby, potentially triggered a “B” penalty. 

Some employers did not receive notice prior to the IRS 226J letter, which identifies employees who received PTCs.  Without that advanced notice, the first the employer would hear about it would be receiving a Letter 226J. 

For informational purposes, there is statutory and regulatory language indicating that the 1411 certification notices must be issued by the U.S. Department of Health and Human Services (HHS) for a penalty to be assessed.  You can take a look at IRC 4980H, 42 USC 18081, 26 CFR 54.4980H-1(40); 45 CFR Section 155.410; Shared Responsibility for Employers Regarding Health Coverage (Fed. Reg. Vol. 77, No. 59 (March 27, 2012), p. 18357. 

Nevertheless, the IRS appears to have issued Letter 226J notices proposing penalties without the HHS (or an Exchange) previously having issued 1411 certification notices with respect to the employees who obtained PTCs (and thereby identified in Letter 226J).  If the IRS is challenged on this issue, as a practical matter, the IRS could potentially attempt to “cure” the potential defect by directing the HHS (or the applicable Exchange under the HHS) to issue the notice. 

As a practical matter, at the 226J response stage, it’s hard to see the IRS being receptive to such a challenge.  If an employer wants to challenge this issue, it may take a court challenge to resolve.

How does the IRS know what percentage of an employer’s full-time workforce received offers of coverage?

There are several ways the IRS can determine whether an employer did not meet the 95% offer of coverage to all full-time employees (and their dependents) threshold. 

First, and the most obvious, the IRS can rely on the employer’s representation, under penalty of perjury, that the percentage has been met. 

Second, the IRS can test an employer’s representation of percentage compliance by cross-referencing the employer’s 1094-C/1095-C schedules with the reports the agency receives from the healthcare exchanges that track the representations made by employees in their applications for Premium Tax Credits (PTCs).  For example, if an employer claims that it met the percentage compliance, but 10 of the 100 employees who were identified as full-time represented to the healthcare exchange that they did not receive such an offer, that would tell the IRS that the employer may not have met the 95%. 

Third, the IRS has announced that it is continuing to develop more sophisticated systems to determine non-compliance, and thus, the IRS may have other methods as well.   

Since we offer MV and MEC according to the ACA, and were at 98% should we put out a notice saying you don't qualify for a subsidy based on the coverage being offered?

If an employer is offering Minimum Essential Coverage (MEC) to 98% of its full-time employees and their dependents, as well as coverage that meets Minimum Value (MV) and is Affordable to the employee, then that employer would not be subject to any Section 4980H penalties.  However, that does not necessarily mean that all employees would not be eligible for subsidies.  Presumably, the employee to whom an MEC, MV and Affordable offer were made would not be eligible.  We are assuming that the notice would be limited to those individuals and whereby the notice covers a period that matches the period of the MEC, MV, and Affordable offer.  Obviously, the other 2% could still be eligible for a subsidy.  Additionally, depending on your waiting periods and the existence of non-full-time employees, there may be others who may be eligible for a subsidy. 

The U.S. Department of Labor (DOL) has issued a model notice, which explains to employees that they may not be eligible for subsidies through a healthcare exchange if the employer offers coverage that meets certain standards.  See DOL’s sample “Health Insurance Marketplace Coverage Options and Your Health Coverage”.

https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/model-notice-for-employers-who-offer-a-health-plan-to-some-or-all-employees.pdf

How does the IRS know if you are 87%, 97%, or 95%?

There are several ways the IRS can determine whether an employer did not meet the 95% offer of coverage to all full-time employees (and their dependents) threshold. 

First, and the most obvious, the IRS can rely on the employer’s representation under penalty of perjury that the percentage has been met. 

Second, the IRS can cross-reference the report it receives from the exchanges that track the representations made by employees in their applications for Premium Tax Credits (PTCs) through the healthcare exchange with the employer’s 1094/1095 Schedules to test an employer’s representation of percentage compliance.  For example, if an employer claims that it met the percentage compliance, but 10 out of the 100 employees who were identified as full-time represented to the exchange that they did not receive such an offer, that would tell the IRS that the employer may not have met the 95%. 

Third, the IRS has announced that it is continuing to develop more sophisticated systems to determine non-compliance, and thus, the IRS may have other methods as well.   

What information is available for employers that DO NOT OFFER any insurance and how that employer completes all the required filing? And how they monitor the workforce for full-time and FTE when you don't offer insurance.

If you are an employer that does not meet the definition of “Applicable Large Employer” (ALE), then the Employer Mandate does not apply to you, and you do not need to offer coverage to avoid IRC Section 4980H penalties.  However, if you are an ALE, then you do need to offer coverage.  If you are an ALE, but do not offer coverage, you still need to file the 1094-C and 1095-C Schedules and distribute the 1095-C Schedules to your employees.  If you are not offering coverage, there are specific codes that you will be inputting to reflect that.

The IRS may be aware of ALEs who failed to file.  We have seen notices that the IRS sent to employers who did not file any 1094/1095 Schedules inquiring as to whether they are ALEs.  The IRS appears to have the means to know whether an employer might be an ALE.  For example, the IRS has the W-2 count, and may be using that as a proxy for potential ALE status.  Moreover, the IRS receives information from the exchanges that tracks the representations made by employees in their applications for PTCs.  This information may be used as a proxy for potential ALE status.  If the IRS inquires of the employer, the employer will have to substantiate that it is not an ALE. 

Will the company receive a penalty for an employee not providing accurate information with regards to a spouse and/or child?

Potentially.  An employer filing 1095-C Schedules that contain incorrect TINs will not be subject to penalties if they comply with the TIN solicitation requirements.  See IRS Pub. 1586, p. 10 (identifying the TIN solicitation process for 1095-C Schedules modifying the process in Treasury Reg. 301.6724-1(f)).  The employer should be engaging in the TIN solicitation process to ensure names and SSNs are up to date.

Have you heard whether the IRS has notified any employers concerning incorrect codes being used in Part II of Form 1095-C yet?

Yes. The Letter 226J notice proposes penalty assessments based on the coding reported by the employer.  Inconsistency in the coding may result in penalty assessments. 

Have you seen an example of an ALE receiving a Letter 226J for the same employee they previously received (and responded to) a Marketplace Notice for?

We have not heard of an Applicable Large Employer (ALE) receiving a Letter 226J based, at least in part, on an employee for whom the ALE previously responded to a Marketplace Notice.  Indeed, the Letter 226J notice appears to be sent largely without any prior Marketplace Notice.  Presumably, if the ALE was able to defend against a Marketplace Notice to show that the employee(s) at issue should not have received any Premium Tax Credits, no ensuing Letter 226J should follow.  Our experience has been such that where our clients defended against a Marketplace Notice, no ensuing Letter 226J followed. 

Is it best to outsource for ACA compliance?

Yes, because most companies do not have the human resources needed to devote to ACA reporting let alone the technological and compliance expertise to properly conduct ACA reporting. 

Failure to do so properly can result in significant financial exposure.  These include steep penalties for:

  • Failure to offer coverage to at least 95% of the full-time workforce and their dependents, which requires the accurate determination of who is “full time” under the ACA definition. This can be very challenging for those companies who have related companies or have a variable/part-time workforce and/or high turnover, just to name a few complications.
  • If you do offer coverage to at least 95% of the full-time workforce, but failure to provide coverage that meets affordability and Minimum Value requirements.
  • Failure to report accurately and timely information on the 1094-C/1095-C forms, the latter of which must be furnished to full-time employees and other applicable individuals (e.g., dependents for self-insured employers), as well as be filed with the IRS.

Why should I have an outsourced ACA solution when my payroll vendor will provide an ACA full service at a fraction of the cost?

Be careful not to be misled by the phrase “full service.” It can mean different things to different people. 

ACA vendors provide services that lie along a continuum. There are companies with “full service” DIY software products on one end of the spectrum, and companies like First Capitol that offer full-service technology empowered by consulting expertise on the other end of the spectrum. The FCCI approach acts like an internal department of your company focused on addressing ACA compliance.

Vendors on the “full service” DIY software end of the spectrum will generally not perform or provide these 12 services. First Capitol does.

  1. Annual Aggregated Employer Analysis
  2. Annual Applicable Large Employer Analysis at the Aggregated Employer Group Level
  3. Annual Workforce Composition Examination, for purposes of determining optimal ACA FT determination methodology
  4. Annual Health Benefits “Plan Level” examination:
    1. Verification and documentation of Minimum Essential Coverage and Minimum Value
    2. Verification and documentation of Household Eligibles
    3. Verification and documentation of Waiting Periods
    4. Verification and documentation of Employee Health Insurance Premium Contribution Schedules
    5. Determination and documentation of “Line 15 Contributions Groups”, inclusive of adjustments that may be required to account for HRA’s, Flex Credits/Cafeteria Amounts, Wellness Plans, Fringe Benefits, Opt-Out Payments.
    6. Determination and documentation of Affordability
    7. Determination of line 15 for employers with individually structured employee contributions schedules
  5. Assistance in selecting the optimal measurement periods dependent on (a) data availability, (b) health plan details, (c) and workforce composition
  6. Employment Period reconciliation. (Reconciling accrued Hours of Service and Wages against raw Hire/Term dates to arrive at an accurate “ACA Employment Period” determination”).
  7. Supporting Documents Compliance Percentage %. (Visibility not just into the 4980H compliance percentage, but just as importantly, the percentage of the claimed offers of health coverage that can be substantiated in the event of a regulatory inquiry).
  8. Payroll Data vs Health Benefits data validation and reconciliation. (Average discrepancies between these data domains hover around 5-10%. Failing to reconcile data can lead to expensive IRC 6721/6722 penalties).
  9. Health insurance invoice auditing
  10. Pre-populated “Acknowledgement of Offer of Health Coverage” forms
  11. A dedicated Workforce Analyst that serves as a permanent ACA Project Manager, Data Expert, and Consultant, not just through the onboarding process, but also throughout the entirety of the ACA reporting cycle. For instance, FCCI offers:
    1. Proactive personal follow-up if anything looks out of order or if critical action items have not been resolved.
    2. Exceptionally quick responsiveness to technical/methodological ACA questions.
    3. A World-Class Net Promoter Score and an average score of 9.3 out of 10 on customer satisfaction.

     12. Exchange Notice and Appeals coordination and Audit Defense in the event of an IRS audit or other regulatory inquiry   

How often does the IRS ask to see your supporting information when you contest an IRS Letter 226J? Will the IRS accept my explanation for contesting without reviewing the submitted supporting documentation?

This really depends on the thoroughness of the statement that supports the ESRP response. With statements provided for our clients, the IRS has not followed up with supporting information requests. However, it may very well be because the statements submitted are very thorough in explaining the basis as to why the ESRP should not have been assessed against the client (including the applicable IRS rules and the calculation methodology) and expressly indicating that supporting documents are available for IRS review. In other words, the statement strongly signaled to the IRS that the client was right in challenging the proposed ESRP, and that following up with a request for supporting documentation would only show that the client was right. 

We have also seen the IRS simply reject ESRP Responses (as opposed to requesting supporting documentation) where the ESRP Responses were supported only by conclusory client statements. (We did not assist in these ESRP Responses.)

What data is needed to perform a Penalty Risk Assessment?

To conduct an initial ACA penalty risk assessment, we would need to look at the client’s 1094/1095 schedules and may need to engage in an initial onboarding call to gather some basic information.

If an Exchange Notice is successfully appealed, will that prevent the IRS from issuing Letter 226J to employers?

If the Health Insurance Marketplace (aka the Exchange) confirms that it agrees with the client’s timely challenge of a notice (or multiple notices if applicable for a given reporting year), the Exchange would not be sending a notice to the IRS. While it is possible that there could be an error, the IRS would not send a notice.

How are extensions for responding to IRS Letter 226J requested?

We have seen extensions requested in writing and via telephone. Either way, if you get the extension, you should memorialize the extension in writing. 

Is there any other way to know if you have gotten a Letter 226J? We are relying on the mail and it is nerve racking.

If the IRS sent you a Letter 226J letter and you did not respond in a timely manner, the IRS will follow up with a demand letter. 

We are under 50 employees and are still filing. Is that a good thing to do? We just went all year last year at under 50.

There is no requirement that you do so, and all related entities as defined by the IRS rules for ACA reporting purposes, aggregated to less than the Applicable Large Employer (ALE) threshold. You will want to make sure you are properly grouping all related entities and properly counting full-time and full-time equivalent employees as required to determine ALE status.

If you don’t meet the ALE threshold, while you are not required to file information with the IRS, there is no prohibition from doing so. 

Will employers always receive a notice that an employee applied for coverage through the marketplace and received a tax credit?

Based on prior history, the answer appears to be no. We have seen IRS Letter 226J notices for the 2015 year without any prior notices from the Exchange.

Scenario: When hired, a person has quality coverage in the Marketplace and declines employer coverage, but their credit changes due to employment. Is employer risk mitigated by paying the employee the monthly difference?

An employer’s obligation to offer coverage does not change because the individual chooses to decline such coverage in favor of coverage through the Exchange. The key is that the employer make the offer, not that the employee accepts the offer.

 

We are not sure what is meant by “credit changes due to employment.”  If an employer offers a healthcare plan to an employee and their dependents, and the coverage to the employee is affordable and meets Minimum Value, then the employee would not be eligible for Premium Tax Credits (PTCs) from the Exchange. If the employee’s household income changes due to employment, that could affect the amount of an employee’s otherwise eligibility for PTCs. So, for example, if the employer did not offer the required healthcare coverage to a recent hire who has healthcare coverage on the Exchange, that employee’s eligibility for PTCs remains, but may get reduced in amount due to an increase in the employee’s household income through the wages from the employer. However, by virtue of receiving PTCs, regardless of the specific amount, the employer remains at risk of Section 4980H penalties. 

If a seasonal employee declines employer sponsored coverage due to the employee (1) favoring the coverage on the Exchange, (2) disliking the initial waiting period to get coverage on the employer sponsored coverage, and (3) desiring to maintain the existing coverage on the Exchange, will the employer’s risk of Section 4980H penalties be eliminated?

Regardless of whether an employee is seasonal or otherwise, if the employer offers a healthcare plan to an employee and their dependents and the coverage to the employee is affordable and meets Minimum Value then the employer’s risk of Section 4980H penalties with respect to that employee is eliminated. Please note that while waiting periods are permissible, they must comply with the 90-day cap starting from the date of hire. 

If an employee had coverage under the Marketplace when hired and declined the employer's coverage, does this eliminate the employer risk/penalties?

If at the time of hire, the employer offers a healthcare plan to an employee and their dependents and the coverage to the employee is affordable and meets Minimum Value then the employer’s risk of Section 4980H penalties with respect to that employee is eliminated. 

If we know of errors that occurred in 2015 or 2016, should we go ahead and correct now and send corrections in to the IRS?

Yes. The IRS has indicated that corrections should be submitted promptly.

What action does the IRS take against an employee who improperly received a PTC?

The IRS may respond to an employee who improperly received a PTC by clawing back the PTC through that employee’s tax return.

Are there companies that provide acknowledgement of offer systems, and if there are, do you have any recommendations? We operate 107 Quick Service Restaurants and have a very high turnover so tracking offers of coverage is a big task and a stumbling block for us.

Yes. ACA Compliance is one of the areas of First Capitol Consulting’s expertise. We have provided ACA compliance assistance to hundreds of clients since the inception of the ACA. First Capitol has our Humanefits platform that can track acknowledgment of offers. 

How long should an organization keep their documentation? 7-year rule?

That would be a good rule of thumb. One thing to note is the IRS’s statute of limitations does not begin if an employer never filed its 1094/1095 forms for a given tax year. So, theoretically, the IRS can pursue penalties for a given tax year indefinitely if the employer doesn’t file the 1094/1095 forms for that year.

We are merging and moving from form a small employer to a large employer. What is a good resource for determining the measurement period and monthly checking?

The ACA Times provides some useful resources. Please check them out at www.theacatimes.com

I received a letter from Covered California that specifies employees enrolled in their coverage. It says we have to share responsibility. BUT we have the waiver forms on my end. How can I appeal? What’s the correct process for this?

If you, as the employer, offered a healthcare plan to those employees and their dependents and the coverage to the employees was Affordable and meets Minimum Value, but you have proof (waivers) that those employees declined such coverage, you can appeal the letter with a written response including copies of those waivers.

 

Please note that you have 90 days from the date of the letter to appeal.  

 

The employer appeals process is handled through healthcare.gov. It is described at this link: https://www.healthcare.gov/marketplace-appeals/employer-appeals/

The appeals form is available on www.healthcare.gov/marketplace-appeals/appeal-form-instructions/

The Covered California notices do not have any information on how to appeal the notice. Do you have any information on how to do the appeal? Or an address where we can send an appeal letter?

The employer appeals process is handled through healthcare.gov. It is described at this link: https://www.healthcare.gov/marketplace-appeals/employer-appeals/

The appeals form is available on www.healthcare.gov/marketplace-appeals/appeal-form-instructions/

The address is on the form.

Please note that you have 90 days from the date of the letter to appeal.  

What would be the proper codes for Lines 14 and 16 for an offer of employer sponsored health coverage for the plan year that is only available for enrollment during open enrollment periods unless there is a qualifying event.

Lines 14 and 16 on the 1095-C form is where the 1 and 2 series codes would be identified and is done on a month-to-month basis. We would need additional facts about each employee to provide the specific proper code (whether the offer was a qualifying offer, whether the offer was made to the employee, spouse and/or dependents, whether the offer met Minimum Value, whether the offer was affordable to the employee and under which safe harbor, the full-time or non-full time status of the employee, whether the employee was in a limited non-assessment period, whether the spouse was offered conditionally, etc.). 

 

The coding rules are detailed in the IRS Instructions. See e.g., https://www.irs.gov/pub/irs-pdf/i109495c.pdf (for the 2018 year). If the employee is an ongoing employee, the fact that the offer for coverage throughout the plan year is made only at the time of open enrollment or qualifying event would not change the fact that the offer remains an offer for each month of the plan year. If the employee is a new employee, that employee would need an offer within the waiting period.  

In regards to FT counts. If the organization is part of an Aggregated ALE Group, is the FT count based on the individual company or based on the Aggregated total of FT employee in order to meet 90% level?

If part of an Aggregated ALE Group, the FT count for purposes of determining whether the “at least 95%” of the FTs and their dependents (for reporting years other than 2015) is determined for each individual company EIN (Employer Identification Number). In terms of the 30 allocated reduction of FTs, that is ratably allocated among the group.

A former employee elected COBRA after employment with the company was terminated. However, that former employee then became an independent contractor with the company and continues with that COBRA coverage. Does that former employee require an offer of coverage under the ACA Employer Mandate?

The former employee is not required an offer of coverage by the company because the former employee is not an employee. There is an issue as to whether that former employee, who is now an “independent contractor,” will be deemed an employee notwithstanding the “independent contractor” status.  Assuming that the former employee will be treated as an “independent contractor,” and not as an “employee,” then the company is not obligated to make an offer of coverage.   This is true regardless of the hours worked by the former employee as an “independent contractor.”

After responding to and contesting a 226J letter, how long does it typically take for the IRS to respond?

The times vary, but the IRS typically responds within 90 days.

Have all penalty forms for 2017 been sent out by the IRS?

The IRS 2017 penalty notices under the Employer Mandate have begun to be issued, but that process does not appear to be complete.  More are still to come.

Can you provide an example of a submission acceptance notice? Is a screen print from the AIR system showing an accepted transmission sufficient?

A screen print from the technology system used to submit the filing to the IRS AIRS portal that shows the filing Receipt ID, Acknowledgement Status, and filing date and time should be sufficient.

Have you heard of any specific employer mandate type reporting in states that are creating individual mandates?

Not yet.

New Jersey has issued information for employers on third-party reporting to support the state’s new individual healthcare mandate.

California has also enacted its own individual mandate to take effect on January 1, 2020.  In connection with the state’s individual mandate, California intends for certain employers to report to the California’s tax agency, the Franchise Tax Board.  The specifics of the reporting have not yet been finalized.

Here are links to some helpful information on this topic:

https://acatimes.com/california-passes-new-state-wide-healthcare-individual-mandate/

https://acatimes.com/new-jersey-issues-employer-guidance-on-state-level-aca-reporting/

How do we contest penalties in 226J if we have employees who worked over 30 hours a week, but were ineligible for Health Coverage benefits under the terms of our plans?

There are various grounds to challenge the penalties proposed in the Letter 226J.  Without more facts, it is hard to identify what particular grounds might apply.  For example, let’s assume that an Applicable Large Employer (ALE) has employees with over 30 hours of service per week and were not offered coverage.  If the ALE nevertheless offered minimum essential coverage to at least 95% of its full-time employees (and their dependents), and these employees who were not offered coverage fall within that remaining 5%, there would no IRC Section 4980H(a) penalty.  With respect to an IRC Section 4980H(b) penalty, if those employees fell into “limited non-assessment periods,” then, notwithstanding no offer of coverage, those employees would not be able to trigger any IRC Section 4980H(b) penalty.  We are certainly happy to discuss all of the specific facts that apply to your company’s situation to identify the potential grounds to challenge the Letter 226J.

We are in an industry with high turnover/hourly rate employees so in order to avoid look back period determinations, we offer coverage to all new hires regardless of their status (part time/full time). What are your thoughts on that strategy?

Industries with high turnover/hourly rate employees are good candidates for the Look Back Measurement Method (“LBMM”). This method allows the employer to potentially provide for more than a one-year “initial measurement period” which would allow an employer to not offer coverage for that more than one-year period. This can be very helpful for high turnover industries, where employees often don’t even last a year.  The rub with the LBMM is that it requires vigilance on a monthly basis to keep track of full-time status and when offers of coverage become due. Failure to timely offer coverage will wipe away the value of the initial measurement period!  We can manage that time-consuming process for you. 

Some employers choose to avoid implementing the Look-Back Measurement Method for fear of the complexity involved, but this can result in adverse effects to the organization and employees in two ways:

  • The organization ends up incurring unnecessary healthcare expenses that impact the bottom line, because they offered health coverage to individuals who enrolled on their health plan that they did not “need to” from an ACA Employer Mandate perspective.
  • Part-time employees who did not require an offer of health coverage from their employer but who were offered health coverage nonetheless are prevented from being able to obtain Premium Tax Credits from their state or federal exchange to obtain potentially better coverage than offered through the employer sponsored plan. This can have a negative impact on the employees and their dependents.

We have a one-year measurement period for "on call only" employees. Does this still meet the requirements?

Until further guidance is issued, an employer of employees who have on-call hours are required to use a reasonable method for crediting hours of service that is consistent with IRC Section 4980H. The IRS Final Regulations specify that: “It is not reasonable for an employer to fail to credit an employee with an hour of service for any on-call hour for which payment is made or due by the employer, for which the employee is required to remain on-call on the employer’s premises, or for which the employee’s activities while remaining on-call are subject to substantial restrictions that prevent the employee from using the time effectively for the employee’s own purposes.” 

We assume that the reference to the “one-year measurement period” means that you are using the Look-Back Measurement Method (LBMM).  To the extent that an ALE member seeks to apply different measurement and/or stability periods for different categories of employees, the IRS Final Regulations require the employee categories to be reasonable and consistent.  The IRS Final Regulations provide examples including (a) salaried versus hourly, (b) employees in different locations, (c) collectively bargained employees and non-collectively bargained employees.  It is not clear from the IRS Final Regulations that on-call versus non-on call would be permissible employee categories.

A one-year (12 month) Standard and Initial Measurement Period is the maximum permissible measurement period length under the ACA Employer Mandate.

Is there a way to tell which states have additional employer mandate obligations?

Your regulatory compliance manager will need to determine that.  States like California has its own “individual mandate” in place, and along with that “individual mandate,” California will be requiring employers to provide employer mandate type reporting to state, in addition to that required by the IRS.  To the extent that states have not yet imposed such additional obligations, the trend is towards moving in that direction.

Here is some helpful information on this topic:

https://acatimes.com/will-2019-be-the-year-for-statewide-individual-health-insurance-mandates/

https://acatimes.com/california-passes-new-state-wide-healthcare-individual-mandate/

 

https://acatimes.com/new-jersey-issues-employer-guidance-on-state-level-aca-reporting/

What if employees are full-time and became part-time wherein they only work 20 hours per pay period. Can they still be enrolled in the insurance and will not affect the ACA rules and get penalized?

If an Applicable Large Employer (ALE) has employees who had more than 30 hours per service per week, but then their hours decreased such that they were working less than 30 hours of service per week, whether the ALE needs to continue to offer coverage depends on which method the ALE was using to measure the hours.  If the ALE was using the Look Back Measurement Method, and if those employees were full-time (at least 30 hours per week) during the measurement period, it doesn’t matter whether those employees had lesser hours during the stability period.  Such employees will be required to be offered coverage to avoid penalties to the ALE.  Of course, if an employee who is non-full-time during the measurement period is nevertheless enrolled in coverage during the stability period, there is no employer mandate penalty.  An employer can always offer coverage even if not obligated to do so.

Is the six-month look-back period based on the initial hired date or do we use the rehired date?

With respect to rehire dates, there are certain rules under the Look Back Measurement Method (LBMM) to determine whether the initial hire date or the rehired date counts.  For non-educational organizations, the “rehire” date is treated as an initial hire date if the gap in employment is at least 13 weeks.  If the gap is a result of special unpaid leave rules, e.g., jury duty, USERRA or FMLA, then the gap does not count.  Accordingly, if the gap is at least 13 weeks and not due to special unpaid leave, then the employee is treated as a new hire, and his or her initial measurement period is based on the “rehired” date.

How do you handle when employees cut back hours and become part-time from full time? Do we cancel insurance?

If you are using the Look Back Measurement Method (LBMM), the fact that an employee’s hours are reduced during the stability period cannot change his or her full-time status determined during a measurement period.  If you are using the Monthly Measurement Method, and assuming your policies and plan documents otherwise permit, you are not required to offer coverage if the employee is determined to be non-full-time.   

When you have variable-hour employees, and you do the proper 60-day look back for when they are hired, what is the criteria for moving throughout the year to figure out if they become full time? We were told to do six-month look back to calculate whether they become full time. Is this a safe method?

The Look Back Measurement Method (LBMM) does not allow for a 60-day measurement period.  The shortest is three months and the longest is 12 months.  Under the LBMM, during the measurement period, you would look at the employees’ hours of service. If, during the measurement period, an employee averages to less than 30 hours of service per week or 130 hours of service per month, then that employee need not be treated as full-time during the stability period associated with that measurement period.  The LBMM is a tricky method, but can be beneficial for variable-hour employees, who often turn over prior to the end of their initial measurement periods.  Under the LBMM, if employees terminate during their initial measurement period, the failure to offer coverage is not penalized under IRC Section 4980H.

We appealed an employee's Advanced Premium Tax Credit (APTC) determination by the State of Washington. The State of Washington specifically stated that if we did not appeal the determination that would not be used to determine any penalty by the IRS. That does not seem correct.

Whether an employer appeals an employee’s APTC determination or not, the employer can still challenge the IRS assessment when it issues the Letter 226J.  That may have been what the State of Washington meant.  So, if any employer does nothing in response to an APTC determination, the employer gets another “bite of the apple.”  That said, if an employer can resolve the issue at the state exchange level to conclude that the APTC determination was in error, then no Letter 226J should result from that APTC determination.  Accordingly, it makes sense to address at the state exchange level if possible. 

Is there anything different that self-ensured plans need to do on the 1095 for reporting? We recently found out that dependent information is required on the 1095-C. Is there anything else that companies who offer self-ensured plans need to know?

An employer with a self-insured plan has additional obligations to report even if the employer is not an ALE.  As you aptly noted, these additional obligations include dependent information in Part III of Form 1095-C and completion of the accompanying 1094-C.  Of course, if the employer is an ALE, all of the information that an ALE must provide is also required. 

What is Letter 5005A?

Letter 5005A is a penalty notice from the IRS that, along with Form 886A, assesses penalties under IRC Sections 6721 and 6722, which are the penalty provisions for failure to file forms 1094-C/1095-C and for failure to furnish Form 1095-C to applicable individuals.

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