As IRS enforcement of the ACA continues to ramp up, organizations would be wise to implement a monthly compliance process, if they haven’t already.
Employers that implement a monthly ACA compliance process will likely avoid penalty assessments altogether, and in the event, they do receive one, they will be better positioned to respond to IRS inquiries as well as uphold compliance with the responsibilities of the ACA’s Employer Mandate.
Under the ACA’s Employer Mandate, Applicable Large Employers, or employers with 50 or more full-time employees and full-time equivalent employees must:
- Offer Minimum Essential Coverage to at least 95% of their full-time employees (and their dependents) whereby such coverage meets the Minimum Value
- Ensure that the coverage for the full-time employee is affordable based on one of the IRS-approved methods for calculating affordability
If your organization is administering a monthly ACA compliance process, you have likely already identified and corrected any potential issues within your ACA compliance, such as missing offers of coverage.
ACA monthly compliance process reduces risk
If a full-time employee misses an offer of coverage for February, for example, that employee would theoretically pose ACA penalty risk for every month thereafter, until an offer of coverage is made to that employee. If the employee missing the offer of coverage obtains a Premium Tax Credit (PTC) from a state or federal health exchange, then the IRS will subsequently issue a Letter 226J penalty.
Now, if your organization only looks at its ACA data at the end of the year, you would not be able to catch a missing offer of coverage like this. And failing to catch this error could result in significant ACA penalties being assessed by the IRS. Each month an employee misses an offer of coverage increases your overall penalty risk substantially.
Conversely, if your organization is administering a monthly ACA compliance process, you can address the penalty risk situation by making the offer of coverage as soon as possible, preventing further penalty exposure. While the penalty exposure for the first month the offer was missed, you can confidently move forward knowing that the missed offer for this employee ends there.
As you can see from the above example, the monthly ACA compliance process allows your organization to track employees who become eligible for health benefits, putting your organization in the ideal position for making offers of coverage and thus complying with the requirements of the ACA’s Employer Mandate.
Save yourself time
If for some reason you do receive a Letter 226J penalty notice from the IRS, having a monthly process in place puts you at a significant advantage for a number of reasons.
The first is that the IRS determines penalty assessments of the Letter 226J notices on a monthly basis. Secondly, the agency also identifies which employees received a PTC and for which months they were received, which can impact the type and size of an IRC Section 4980H penalty.
Essentially, by incorporating a monthly ACA compliance process, you are in a better position to cross-reference the information contained in Letter 226J with your own records. This will save you substantial time when preparing your response. And since the agency reduced the amount of time an organization has to respond to Letter 226J, you’re going to need all the time you can get.
For those of you who don’t have a monthly process in place, if you decide to set one up, you should take into account these three critical areas: (1) regulatory knowledge, (2) documentation and record-keeping, and (3) data quality management.
When addressing ACA compliance needs on a monthly basis, a complete understanding of the mechanics of the Employer Mandate is required. If employers do not have this deep level of understanding of the ACA, consider outsourcing ACA compliance services to Trusaic. We have intimate knowledge of ACA regulations, and understand how to interpret and take action in accordance with the requirements of the law.
Mastery of ACA regulatory concepts, such as IRS-approved measurement methods, affordability safe harbors, and Limited Non-Assessment Periods, can come in handy as you navigate the law, particularly if you want to minimize or eliminate IRS penalties.
Documentation and record-keeping
To be IRS audit-ready, organizations need to document and store all relevant ACA information on a monthly basis. Supporting documentation includes items such as a Summary of Benefits and Coverage, rate contribution sheets, offers of coverage to employees, medical invoices, enrollment forms, waiver forms, and acknowledgment of offers to employees for the relevant reporting year.
The IRS is currently issuing Letter 226J and separate penalties under IRC 6721/6722. Some employers have received penalty notices in the hundreds of thousands to millions of dollars. Your organization wants records close at hand if it becomes necessary to respond to ACA penalty assessments.
Data quality management
ACA compliance ultimately comes down to data quality. This relates to the management of your workforce and HR data. Data fields, such as census information, time and attendance, employment type, wage and rate information, as well as contribution structure, must be accurately tracked in order to comply with the ACA.
For employers that store this information on physical paper files, unstructured HR data is another factor to consider. Managing data in this way is prone to user error and can result in significant penalty assessments.
In the end, the analytical data outputs are only as good as the quality of the raw data inputs that feed the calculations required to meet ACA regulations. This is particularly true if you use do-it-yourself software packages which will automatically complete IRS forms without checking if the data being used to populate them is accurate. These types of software are more susceptible to triggering ACA penalties from the IRS.
The IRS has issued billions in penalties to employers that failed to comply with the ACA’s Employer Mandate. If you haven’t received a penalty notice from the IRS, you may still be in the offing.
To get a better understanding of ACA compliance, and your responsibilities under the healthcare law’s Employer Mandate, download the 2022 ACA Essential Guide for Employers below:
To gain invaluable insights on penalty amounts, affordability percentages, filing deadlines, expert tips for responding to penalty notices, and proven strategies for minimizing IRS penalty risk, download the ACA 101 Toolkit.