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The end of 2019 is here and that means that if you haven’t done so already, it’s time to get your Affordable Care Act (ACA) filings in order.
The information communicated on the 1094-C/1095-C schedules tells the IRS a great amount of information about the health insurance your organization offered employees for the relevant reporting year. Providing inaccurate information could result in your organization being assessed hefty penalties by the IRS.
The IRS requires that organizations with more than 50 full-time or full-time equivalent employees file information to prove their compliance with the ACA under the ACA’s Employer Mandate. These Applicable Large Employers (ALEs) must demonstrate that they have offered 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 IRC Section 4980H penalties.
You want to be sure that the ACA information you provided to the IRS is accurate to avoid those penalties – and that all starts with using accurate data that has been checked and validated.
Below is a Monthly ACA Best Practices Checklist to refer to when preparing your organization’s ACA filings for the 2019 tax year to submit to the IRS.
Monthly ACA Best Practices start with Data Quality.
Monitor Data Quality. Many of the problems encountered on the path to ACA compliance are data related issues.
Consolidate and Validate HR, Time & Attendance, Payroll and Health Benefits data. Monitoring Data Quality is critical to ongoing ACA compliance. Doing so on a regular basis will help ensure an accurate and timely ACA filing with the IRS. Consolidating and validating the accuracy of data on a monthly basis will avoid errors and a scramble to ensure data accuracy right before submitting your annual filing to the IRS, or worse, in the event of a regulatory inquiry (e.g., IRS tax penalty assessment).
Make sure your key data points are accurate, including:
· Legal Name
· Date of Birth
· Employment Periods, including Hire and Termination dates
· Hours of Service
· Rate of Pay
· Compensation Type
· Employee Class
· Health Benefits Eligibility Class
· Health Benefits Eligibility and Enrollment Periods
· Health Benefits Enrollment Periods
· Health Benefits Monthly Premium Contribution Rates
· W-2 information
· Leave of Absence dates
Ideally, this data should be reviewed monthly as part of an organization’s internal broader ACA risk management process. If you have not been checking this data monthly, conduct testing on a sampling of these records prior to filing to obtain a sense of whether they’re being tracked and updated accurately. Below is a list of “checks” your organization should use when assessing your ACA compliance status:
● Conduct a monthly audit of employment classifications, such as full-time, part-time, variable and seasonal. Employees should be properly classified, and the classification should be appropriately documented in personnel records and accurately coded in technology platforms. Failure to properly classify employees can lead to potentially costly misrepresentations on the 1094-C and 1095-C IRS filings.
● Monitor Workforce Composition at both the ‘Aggregated Employer Group’ and EIN level. This includes knowing the numbers of full-time and non-full-time employees, including full-time employees that are not in a limited non-assessment period. If using the Look-Back Measurement Method, monitor the number of employees under measurement each month. Remember that different organizations with common ownership or certain kinds of operating relationships may need to be grouped as common employers in an “Aggregated Applicable Large Employer Group.” This means that if you own or are a partner in several business organizations, each with less than 50 employees, you may still be required to file ACA information with the IRS as an Aggregated ALE Group under ACA employer aggregation rules.
● Monitor compliance with the 95% Offer of Coverage threshold. The ACA’s Employer Mandate requires employers to accurately identify their full-time employees (and their dependents) and offer them Minimum Essential Coverage. A 5% margin of error is allowed each month. For any month that an employer strays outside of the 5% margin of error in 2019, the employer is exposed to an annualized penalty of $2,500 multiplied by the number of full-time employees.
● Determine the full-time employees who are approaching a required offer of health coverage. When using the Look-Back Measurement Method, these employees should be able to identified and flagged months in advance of their required effective eligibility start date, allowing ample time to coordinate the offer of health coverage.
● Track full-time employees who are “Missing” offers of health coverage for historical months. These employees can potentially trigger IRS 4980H penalties. If this number is unexpectedly increasing monthly, drill down as soon as possible to identify the cause.
● Measure “IRS Audit Readiness” and identify gaps in supporting documentation. In the event of a regulatory inquiry or IRS audit, the only facts that matter are those that can be substantiated with documentation. Each month, engage in a reconciliation process to prevent any supporting compliance documents that should have been collected from slipping through the cracks. Ideally, the organization should be monitoring the number and percentage of claimed offers of health coverage that can be substantiated with supporting documentation.
● Calculate health coverage affordability. For 2019, in order to meet the ACA’s affordability threshold, the employee’s required contribution to the lowest cost monthly premium for Self-Only coverage providing Minimum Value should generally not exceed 9.86% of either (a) the employee’s Rate of Pay, (b) the employee’s W-2 Box 1 wages, or (c) the Federal Poverty Line threshold for a household of 1. If you are not regularly performing these calculations, it’s well worth it to conduct a spot check to see where you stand. When calculating affordability, make sure to account for flex credits through cafeteria plans as allowed under IRS Section 125, and other factors such as opt-out payments, wellness plans, HRAs and fringe benefits.
Organizations should perform these checks on a regular basis as part of a healthy ACA risk management practice to avoid costly penalties as the IRS is currently issuing Letter 226J penalty notices for the 2017 tax year. They should be starting the 2018 tax year letters in 2020.
If you are not sure of your potential IRS penalty exposure, consider undergoing an ACA Penalty Risk Assessment to determine your ACA penalty exposure.
We’re committed to helping companies reduce risk, avoid penalties, and achieve 100% ACA compliance. For questions about the ACA contact us here.