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With the 2020 ACA filing deadlines fast approaching, employers will be met with additional reporting challenges due in large part to the COVID-19 pandemic.
From determining full-time status to actually altering an employer’s ALE status, the pandemic completely upended the way the world carries out business. Employers that experienced strains dealing with closures, decreased demand, furloughs, layoffs, terminations, and the rehiring of employees should be made aware of how this will impact your 2020 ACA reporting.
These adjustments drastically impact employee measurement periods under the Look-Back Measurement Method and thus will make it more difficult to classify employees as ACA full-time, simply because employee periods are disjointed and disconnected.
Employers that have experienced these types of changes to their workforce should familiarize themselves with the ACA’s Rule of Parity.
The IRS defines the Rule of Parity in the following context, “For purposes of determining the period after which an employee may be treated as having terminated employment and having been rehired, an applicable large employer may choose a period, measured in weeks, of at least four consecutive weeks during which the employee was not credited with any hours of service that exceeds the number of weeks of that employee’s period of employment with the applicable large employer immediately preceding the period that is shorter than 13 weeks (for an employee of an educational organization employer, a period that is shorter than 26 weeks).”
Employers looking to claim the Rule of Parity when measuring an employee’s hours under the look-back measurement method should make sure that the following criteria are true:
- The employee’s break in service must be at least four consecutive weeks long
- The employee’s break in service must also not exceed more than 13 weeks long. For employees that work in an educational organization, the break in service cannot exceed 26 weeks
- The employee’s break in service should be greater than the period of employment leading up to the break
Below is an example of how the rule of parity would work as a result of a COVID-19 layoff.
John Smith is a variable-hour line cook at a local pizza parlor. John has been employed by the parlor for 2 years. John was determined to be a full-time employee under the look-back measurement method and was receiving health benefits from his employer during his corresponding stability period.
Due to COVID-19, John was laid off and no longer cooked at the pizza parlor. After his state made adjustments to the dining policy and lifted restrictions, John was rehired at the pizza parlor after 16 weeks. When John returned, the pizza parlor no longer treated him as a full-time employee. Under the ACA’s Rule of Parity, the pizza parlor was able to treat him as a new hire and started measuring his initial measurement method period.
However, if John had returned to the pizza parlor before 13 weeks, his employer would have to immediately offer him health coverage and continue doing so for the remainder of his stability period.
If your business has experienced situations like the above, you know first hand just how difficult it can be to keep track of employee hours and employment classifications. While 2020 is behind us, your organization needs to be sure employment changes are documented correctly in your annual ACA filings with the IRS.
To make ACA reporting for the 2020 tax year even more difficult, the IRS introduced a number of new codes for employers to use on Line 14 of the 1095-C Form. These new codes took effect for health plans that began in January 2020 and address a wide variety of situations relating to Health Reimbursement Arrangements.
These new codes essentially allow employers to reimburse employees for the cost of health insurance purchased from an exchange in order to satisfy the requirements of the ACA’s Employer Mandate.
For a breakdown on the new codes, check out our post, The New 1095-C Codes for 2020 Explained.
As a reminder to employers that are required to file with the IRS under the ACA’s Employer Mandate, ALE’s must file with the IRS by February 28 if paper filing and by March 31 if filing electronically.
Employers that fail to meet these deadlines or file incorrect information with the IRS may be subject to penalty assessments under the ACA’s Employer Mandate.
Under the ACA’s Employer Mandate, Applicable Large Employers (ALEs) organizations with 50 or more full-time employees and full-time equivalent employees) are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.
The IRS is currently issuing Letter 226J penalty assessments to employers identified as having failed to comply with the ACA’s Employer Mandate for the 2018 tax year. In addition to Letter 226J penalties for failing to file accurate information, employers that fail to meet the aforementioned deadlines could be subject to ACA penalty assessments in Letter 5005-A, which the agency is issuing for the 2017 tax year.
If your business needs assistance meeting their ACA filing deadlines this year, contact us to learn about ACA Complete. Our all-in-one service can keep track of your workforce’s employment periods, help establish affordability and file and furnish Forms 1094-C and 1095-C annually.
For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.