Though the Affordable Care Act has been largely in effect since 2014, there are some changes coming in the new year that as a human resources company, we want you to be aware of. Let's walk through a brief overview of what you can do to avoid an ACA-related penalty.
Establish Eligible Full-Time Employee
If your company — including any commonly owned entities — employed 50 or more full-time individuals on average in the previous year, you are considered an Applicable Large Employer (ALE).
You'll need to determine what types of employees your company includes:
- Employees that work 30 or more hours per week are considered full-time and MUST be offered health insurance coverage.
- Employees that never work 30 or more hours per week are considered part-time and do NOT need to be offered health insurance.
- There is a third category of employees who do not fit neatly into the options above; the IRS refers to these individuals as "Variable Hour Employees." These employees are those who, if based on the facts and circumstances at their start date, cannot be determined if he/she is reasonable expected to work at least 30 hours per week on average. If you have variable hour employees, you need to make sure you:
- Have established a corporate measurement period and are actively measuring VHEs to determine eligibility.
- Are measuring new hires in an initial measurement period to determine eligibility.
- Offer these individuals coverage for an established stability period IF they are deemed full time.
- If your payroll software does not help you with measuring, contact Cornerstone for human resources assistance.
Provide Minimum-Value Coverage at an Affordable Rate
Starting in 2019, employers will not incur a penalty if the required contribution for employee-only coverage does not exceed 9.86 percent of the employee's annual household income. The IRS has three safe harbors your human resources team can use to gauge affordability.Federal Poverty Level
Here, affordability is based on the FPL for a single individual. Employer-provided coverage is considered affordable if the cost for employee-only coverage does not exceed 9.86 percent of the FPL for a single person. As long as the lowest-cost, lowest-benefit plan meets this minimum requirement, you're meeting the FPL safe harbor.
Rate of Pay
This is a good choice for hourly employees. Using rate of pay (which factors in the lowest hourly rage in your organization) means you know that you are compliant for the year from day one.
W-2 makes more sense for those with salaried employees, those who always work more than 130 hours per month, or those employees who earn commissions or tips. While you'll have to estimate the year's W-2 wages for each employee, this allows you to charge more for eligible employee coverage and still be compliant.
Report Plan Details to IRS Each Year
Applicable Large Employers must provide information to the IRS as well as their full-time employees regarding whether or not they offer health plan coverage to their full-time employees.
Based upon the information the IRS receives, penalties may incur. For 2018, the penalty for non-compliance is $270 per form, per day, up to a maximum of $3,275,500. If you are an ALE and do not offer insurance to 95 percent of your full-time employees and just one employee gets subsidized coverage on the exchange, you are subject to a penalty. Likewise, you are also subject to a penalty if you are an ALE and do not offer affordable coverage to your full-time employees and a single employee gets subsidized coverage on the exchange.
Other ACA Updates to Note
Through recent tax reform legislation, the ACA’s individual mandate has been repealed. Effective for the 2019 tax year, individuals are no longer penalized if they lack health insurance coverage through their individual tax return.
The Cadillac Tax on high-cost health coverage is still delayed. Starting in 2019, individuals are no longer required to pay a penalty for not complying with the mandate. While they're still required to get coverage, they will not incur a fine for not doing so.
Watch our ACA Refresher webinar for more details on avoiding penalties, including information on how to fill out the forms required by the IRS and your full-time employees. Worried about staying up-to-date with all the frequently changing laws and regulations? Our compliance consultants can work with you year-round to keep you compliant with every changing regulation. If you'd like assistance with staying ACA compliant, contact a Cornerstone Consultant today.