This year, 2016, is the first for Affordable Care Act (ACA) reporting and audits; those who aren’t compliant will face penalties from the IRS. But, as with anything that requires forms and filing, demonstrating ACA compliance on paper is a complicated process.
And, because this is the first year for ACA reporting, employers may feel particularly overwhelmed by the process. The ongoing responsibilities of taxes are hard enough, given all the forms. But, in fact, staying compliant comes down to preparation and organization.
So . . .take a deep breath, and follow these steps to meet ACA requirements:
Step 1: Identify full-time employees.
The first step in ACA compliance is to determine who is a full-time employee. In 2016, companies with 50 or more full-time or full-time equivalent employees must offer minimum essential coverage to at least 95 percent of these full-time employees. But, how are full-time and full-time equivalent employees determined? Does the company’s definition align with the regulations?
To get a total number of full-time equivalent employees, use the IRS formula. Add up the hours that non-full-time employees are paid during a year and divide the total by 2,080. The answer is the number of full-time equivalent employees.
To complete the formula accurately, use technology to better track employee hours. Employees don’t always fill out timesheets correctly: They often include errors -- especially when it comes to overtime and holiday hours. HR software can automatically track hours to better manage employees and stay ACA-compliant.
Step 2: Track employer-mandate requirements.
Once full-time employees are identified, the next step is to track and document compliance with employer-mandate requirements. In other words, is there proof that coverage was offered to all eligible full-time employees?
Keep track of the dates that coverage was offered to each employee and when employees may have waived that coverage. Review 1094 and 1095 instructions to be sure that all information needed is readily available. Establish a process to track and organize this information in one place throughout the year to make ACA compliance easier.
Step 3: Report the cost of employer-sponsored group health plans.
Employers must complete an additional step when preparing tax forms to be ACA-compliant. Employers are required to report the cost of employer-sponsored group health plans on box 12 of the W-2 form to show workers the total cost of their individual healthcare in relation to the specific plan they use.
However, there are some exceptions. Employers who provide retired or former employees with healthcare coverage, but do not provide them a W-2, do not need to create that document just to report the cost of coverage. In addition, employers who give out fewer than 250 W-2 forms are not required to report the cost of coverage.
When reporting the cost of coverage is required, remember to include the total cost -- both the company’s and the employee’s contributions.
Step 4: Educate employees.
ACA compliance is confusing for employers, but it can seem even more complicated for employees unfamiliar with new laws and forms.
This year, employees will receive new 1095 tax forms from either their employer or their insurance carrier, and they need to know what to expect. Educate employees on these new forms: what information they will contain and the purpose of the form. Send them information to review before they receive the forms, and walk them through the process when the new forms arrive.
In addition to educating employees on new forms, employers also need to provide employees with the correct information about their benefits and coverage. Do employees need a summary plan description or a summary of benefits and coverage, and when do they need them? Review the requirements to provide employees with the right information at the right time.
With ACA kicking in this year, reporting may seem even more complicated and overwhelming. But, if you’re prepared and have the right information, the process doesn’t have to be so scary.
Are you ready to meet ACA compliance standards this year? Let us know in the comments below!