This month is the anniversary of the Patient Protection and Affordable Care Act, or the ACA. It was passed in 2010 under President Obama, and even though we’re 11 years into it, there are still lingering questions and occasional confusion over what the law means for employers. For the ACA’s anniversary, here’s a recap of things that you should know about the ACA if you employ people.
The ACA is still in effect. As of now, the ACA is law, although the Tax Cuts and Jobs Act of 2017 more or less eliminated the ACA’s individual mandate by getting rid of the federal tax penalty for not having health insurance. It is important to know, however, that some states, including New Jersey, Vermont, and Massachusetts, have their own requirements for health insurance. Failure to be insured in those states can mean incurring fines at the state level.
If you have 50 or more full-time employees (or equivalent part-time workers), the ACA applies to you. For the purposes of the law, a full-time employee is one who averages 30 hours per week or 130 hours per month. For part-time employees, there’s a little math involved to see what the full-time equivalent is. First, you must add up all the hours that your non-full-time employees work in a month. Next, divide that number by 120. That becomes the number of “full-time equivalent” employees you have, which should then be added to the full-time employee count to get your final total for the ACA. Fractional amounts are rounded down, so if you end up with a total of 72.8 full-time employees, it rounds down to 72.
Even though part-time workers are counted in your employee total to determine whether you must comply with the ACA, you are not required to provide health insurance to employees working fewer than 30 hours per week. That said, you are required to provide health insurance to at least 95% of your full-time workers and their dependents. Full-time again means 30 hours per week on average. The coverage you offer must also meet minimum requirements, including affordability (the maximum amount an employer can require an employee to contribute to the health care plan for self-coverage is set by the IRS; in 2020, it was 9.78% of the employee’s household income) and value (the plan must pay for at least 60% of covered health care costs).
Children can stay on their parents’ plans until age 26 under almost all circumstances. Spouses are not dependents under the ACA, but adopted children, biological children, stepchildren and foster children under the age of 26 can be included as dependents for the purposes of ACA coverage. Employers cannot place restrictions on a child’s eligibility for coverage based on things like marital status, financial dependence, residency or employment status. This means that, if an employee has a 25-year-old child who is married, lives in another state, and is employed elsewhere or attending school, that child is still eligible to be on the parent’s healthcare plan.
You must comply with all reporting requirements, even if you aren’t required to provide insurance. Nearly all employers fall under the Fair Labor Standards Act, which says you must let your employees know what their health care insurance choices are when you hire them. This is the case even if you have fewer than 50 full-time employees and are not required to provide coverage under the ACA.
If you DO fall under the ACA, you are required to file Forms 1094-C and 1095-C with the IRS. Form 1094-C reports the summary information for Applicable Large Employers (ALE Members, or those with 50 or more full-time employees in the previous year), and Form 1095-C reports the employee information, one form per employee. These forms are used to determine whether you have a shared responsibility payment and how much it is. You must also make sure your full-time employees have a copy of their Form 1095-C. For tax year 2020, the deadline to get these forms to your employees was March 2, 2021.
The penalties for not complying with the ACA can be costly. As an employer with more than 50 full-time employees, you may wonder exactly what could happen if you don’t comply with the ACA. You can be penalized for two main reasons: not meeting the minimum coverage requirements, and not offering coverage to at least 95% of your full-time workforce. These failures are measured by tracking whether you have employees who are receiving the premium tax credit for buying coverage through the Health Insurance Marketplace because the coverage you’re offering either isn’t adequate (in affordability or value) or isn’t offered to them despite their eligibility as a full-time employee. It takes just one employee receiving the premium tax credit for your company to incur a penalty, so be sure you’re meeting the ACA requirements across the board.
For not meeting the minimum coverage requirements, the penalty for tax year 2020 is $3,860 per employee who gets the premium tax credit. This penalty can’t be greater than not providing coverage to 95% of your full-time employees in the first place, though. And speaking of that, for not offering coverage to at least 95% of your full-time staff, the penalty for tax year 2020 is $2,570 for every full-time employee you have, not counting the first 30 full-time employees. So if you have 72 full-time employees, and you don’t offer health care coverage to at least 69 of them, you will pay a penalty of $107,940, or $2,570 per employee after the first 30 (72 – 30 = 42, and 42 x 2,570 = 107,940).
Now that we’ve refreshed your ACA knowledge, be sure you’ve got the right team in your corner. The Greenshades platform includes ACA compliance tools, data double checks, and form printing and distribution services, so if you want to ensure you’re following the ACA to the letter for this year and beyond, contact us at firstname.lastname@example.org to set up a demo and learn more!