What Is ACA Reporting?

ACA reporting refers to the reports that employers need to send to the IRS on an annual basis. 

These reports are required to comply with the Affordable Care Act (ACA). Also known as the Patient Protection and Affordable Care Act, the ACA became law early in 2010. 

Since its passing, ACA has expanded healthcare to more Americans, improved the quality of that healthcare through making prescription drugs more widely available, and changed regulations in the insurance industry to include people with pre-existing conditions. 

The IRS requires certain employers to send ACA reports to ensure compliance with the ACA regulations.

The word "certain" mostly means Applicable Large Employers (ALEs). These are employers with 50 or more full-time or full-time equivalent employees. All ALEs must comply with ACA reporting. Determining if an Employer is an Applicable Large Employer | Internal Revenue Service (irs.gov) 

Most smaller employers with under 50 full-time or full-time equivalent employees don't need to fret over annual record keeping and ACA compliance.

What Are the ACA Reporting Requirements for 2022?

The ACA reporting requirements for 2022 are that all ALEs need to furnish and file the following:

• A 1095-C form for each employee (The employer needs to provide a 1095-B or a 1095-C form. The form type depends on the size of the employer or the type of insurance. (group/ICHRA plan versus self-insured)
• A 1094 transmittal form

1095-C Form

Officially known as the "Employer-Provider Health Insurance Offer and Coverage" form, this form must be handed out (or "furnished") to employees by March 2nd. Then, these 1095-C forms must be sent (or "filed") to the IRS by March 31st. 

If you are an ALE with a small number of employees, you may be able to paper file. While the limit for paper filing has been 250 employees, the IRS has proposed reducing this to 100 for 2022. Further reductions in size have also been proposed. If you choose to paper file, the deadline is February 28.



1094 Form

This form is officially known as the "Transmittal of Employer-Provider Health Insurance Offer and Coverage Information Returns." It acts as a summary of the information in the 1095-C forms and must be filed to the IRS by March 31st. 

Together, these two forms prove to the IRS that 95% of an ALE's full-time employees and dependants have received an offer of coverage that meets the ACA requirements. (The offer to the employee must meet MEC, MV, and affordability. The offer to dependents only need to meet MEC)

What is MEC, MV, and Affordability in ACA Reporting?

Minimum essential coverage is a way to ensure that healthcare quality and coverage reach a certain standard. Most group plans offered by an employer or plans purchased through the federal or state facilitated marketplace will meet the MEC requirements. 

The definition of "affordability" changes from year to year, which is why it's essential to keep up to date. For 2022, "affordability" means health coverage that is no more than 9.61% of a full-time employee's annual income.

Since this isn't always easy to determine, the IRS allows employers to use one of the three Safe Harbors options 

• Pay rate
• Federal poverty line
• W-2 forms

"Minimal value" means covering at least 60% of health care costs.

According to the Employer Shared Responsibility Provisions (ESRP) of the ACA, ALEs must make on offer of coverage that meet MEC, MV, and Affordability requirements to at least 95% of their full-time employees.

If they don't, then the employer faces penalties. 

Penalties for Inaccurate ACA Reporting

If an employer fails to furnish and file their ACA reports accurately and promptly, the IRS may penalize them.

The two most common penalties are the sledgehammer and tack hammer.

Sledgehammer Penalty

In 2022, the sledgehammer penalty costs $229.17 per month, $2,700 annually per employee. The IRS hands this out if 95% of an ALEs full-time workforce isn't offered health insurance.

Tack Hammer Penalty

The 2022 tack hammer penalty costs $343.33 per month, $4,120 annually per employee. The IRS levies this penalty if an ALE offers coverage, but the coverage isn't up to MEC standards. In other words, it's not affordable and doesn't provide minimal value.

IRS Approach to Penalties 

Up until 2021, there was a Good Faith Transition Relief that reduced IRS penalties. That is now gone. For 2022 and on, the IRS will pursue penalties with more vigor. 

The process of being penalized often starts with IRS Letter 5699. This letter notifies employers of any inconsistencies in their ACA reporting. At this stage, the IRS is seeking to confirm the accuracy of specific details.

If they are concerned with accuracy, the IRS may send Letter 226J. This letter will tell the employer what penalties they will have to pay.

How to Keep Up With ACA Reporting

One of the most effective ways to keep up with ACA reporting is to automate the process with software. 

Making sure you have all the correct data to furnish and file 50+ ACA reports from your full-time employees can be difficult. That difficulty multiplies if you're dealing with full-time employees at multiple locations with various pay rates.

Automating it through ACA software helps reduce the complexity. That's because salary, hours, and other relevant data are kept in one easy-to-search location.

Ultimately, this leads to higher accuracy, fewer penalties, and a track record of ACA compliance.

Automate Your ACA Reporting for 2022

If you're an employer seeking to simplify your ACA reporting process, there's no easier way than with ACA software. 

Points North created its ACA Reporter to do just this. This premier software helps employers track, support, and analyze all the employee data they need for annual ACA reports.

After tracking data such as salary, hours, and health coverage, ACA Reporter easily fills out automated forms. Then, it sends these forms off to the IRS.

The IRS receives everything it needs, and employers are left with peace of mind and a detailed analysis of the entire process.

Furthermore, if an employer falls out of compliance with ACA reporting requirements, then ACA Reporter will notify the employer and set up a plan for getting in compliance. Get a free demo today to see if it's right for you.