Under the Affordable Care Act (ACA), self-insured companies that provide health insurance to their employees and large businesses must submit information returns to the IRS reporting on individual health insurance coverage and offers. Every employer must consider the size of their workforce and type of medical benefits offered to determine what ACA reporting rules apply. However, the rules are complex and require diligence from time to time. This Compliance Update is a reminder of the required ACA reporting rules and alerts employers to new rules that require electronic filing of ACA forms prospectively and ends the ability for virtually all employers to file by paper for reporting due in 2024 (for the 2023 year). For ACA reporting purposes, employers are advised to review their ACA reporting process and requirements and evaluate whether they will need to electronically file their ACA forms in 2024. Below is an outline of key reporting provisions.
Employer Workforce Size and Self-Insured Employers
The size of the employer workforce determines what ACA reporting rules apply to that employer. An employer’s size is generally determined by the number of its ACA full-time employees (FTEs), including full-time equivalents:
1. If an employer has 50 or more FTEs, including full-time equivalent employees, the employer is an Applicable Large Employer (ALE) and needs to issue statements to employees and file an annual information return, reporting whether and what health insurance the employer offered employees for the reporting year.
2. Certain affiliated employers with common ownership or employers that are part of a controlled group are considered part of an aggregated group. In this case, the employer must aggregate, or combine, employees to determine workforce size and whether they are an ALE subject to ACA reporting.
3. Regardless of size, all employers that provide self-insured health coverage to employees must file an annual return, reporting certain information to IRS for each covered employee and must provide the same information to covered individuals.
Final Forms/Instructions for 2023 ACA Reporting
The IRS has released final ACA forms and instructions for reporting for the 2023 year:
Timing for 2023 ACA Reporting
ACA Electronic Filing Requirements for Reporting in 2024
In years prior to 2024, employers had the option to file their ACA reporting forms by paper if they were filing fewer than 250 returns. However, starting in 2024 all employers filing 10 or more returns or statements in the aggregate for a calendar year must now file their ACA forms electronically. This ends the option to file Forms 1094/1095 by paper for virtually all employers, and therefore some smaller employers may need to engage with an ACA reporting vendor in order to be prepared to complete their 2024 filings via the IRS AIR system. This system requires a special coding format for transmission so it is generally not something that a typical employer would use on their own without the support of an ACA reporting vendor. For more information regarding electronic filing, see IRS Publications 5164 and 5165.
It is expected that this new electronic filing requirement may dramatically increase the electronic filing mandate for small businesses. Note too that non-ALEs with a self-insured health plan will no longer be able to file on their own and will need to engage with a third-party that offers ACA reporting services in order to file the 2023 forms electronically in 2024. The new rules provide that the IRS can continue to grant exceptions to the electronic filing requirements in cases of undue hardship, generally determined by the amount by which the cost of filing the return electronically exceeds the cost of filing by paper. Employers must timely submit IRS Form 8508 to apply for an electronic filing hardship waiver. If granted, the waiver is valid only for that one year. The IRS can assess significant penalties for failure to file electronically. For more on the waiver and associated filing penalties, see page 4 of the Forms 1094-C and 1095-C Instructions.
IRS ACA Reporting – Enforcement Efforts
We have seen with each passing ACA reporting year that the IRS has increased its capacity and efficiency for identifying ACA non-compliance and issuing penalties. Since “good faith relief” is no longer available to employers who report incomplete or incorrect information on their information returns, there is even more need for employers to focus on constant monitoring and diligence related to tracking, preparing, furnishing, filing, and defending the employer’s ACA compliance position. Many employers question how diligent the IRS will be in enforcing penalties associated with the ACA employer mandate that went into full effect in 2015. Simply put, employers can be subject to review and penalties indefinitely as there is no statute of limitations on prior years. Accordingly, employers should continue to carefully review and confirm their submissions to the IRS to be sure the reporting is complete and defensible and that it matches the offer of coverage information and appropriate employee status for each month of the year.
Employers should also be on the lookout for IRS ACA reporting enforcement letters, and if received, they should be prepared to promptly review and respond. In some cases, the IRS sends a letter asking the employer to confirm its status as an ALE, and also to confirm whether reporting was submitted. In other cases, the IRS will send a Letter 226J after considering the employer’s reporting alongside the list of employees who received subsidized coverage from a public Exchange/Marketplace. Employers that fail to file, file late, or file incorrect/incomplete forms with the IRS could receive a letter proposing a penalty and offering an opportunity to appeal. We recommend that employers work with tax advisers/counsel when responding to these IRS letters.
As always, Conner Strong & Buckelew will provide alerts and updates as new information becomes available. Please contact your Conner Strong & Buckelew account representative toll-free at 1-877-861-3220 with any questions. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.