Affordable Care Act (ACA) Compliance for 2022, 2023, and Beyond - Netchex

Like taxes, employee benefits administration requires a lot of paperwork and management to ensure compliance. Since its inception, the Affordable Care Act (ACA) has had several requirements for employee benefits and annual reporting with some changes over the years.

As 2022 comes to end and with 2023 just around the corner, ensure that your company remains in ACA compliance to avoid rising penalties with benefits administration software.

What is the Affordable Care Act (ACA)?

Enacted in two parts, the “Affordable Care Act” (ACA) was a comprehensive set of healthcare reform laws and amendments. The initial act was signed into law on March 23, 2010, titled “The Patient Protection and Affordable Care Act” (PPACA, or ACA). A week later, it was amended with the “Health Care and Education Reconciliation Act.”

The dual legislation addresses health care costs, insurance coverage, and preventative care. Of special interest to businesses, the employer mandate requires certain companies to make sure that full-time employees have access to health care.

Which companies are required to report by the ACA? 

The Employer Shared Responsibility provisions of the ACA apply to large companies, based on the number of employees. Employers with 50 or more full-time employees are designated Applicable Large Employers (ALEs) and required to report. The number of employees is averaged over the course of the year, and it includes full-time equivalent (FTE) employees. 

You’ll need a little math to calculate the number of FTE employees in your workforce. Add together the hours of all your part-time employees (those averaging less than 130 hours monthly or 30 hours weekly). For individual employees working more than 120 hours, round down to 120. Divide the total monthly hours by 120, and the result is your FTE number for that month.

How does the ACA define affordable and adequate coverage?

For 2023, the cheapest essential coverage plan (without dependents) should cost no more than 9.12% of the employee’s household income. Past years have allowed higher percentages, 9.5% or 9.61% last year, but the number is indexed annually for inflation.

Adequate coverage is defined by the minimum value (MV) threshold. For adequate coverage, at least 60% of the total allowed cost of benefits must be covered by the plan.

Since your company may not know the household income of employees, the US Treasury Dept allows three alternatives:

  • W-2 Safe Harbor: Wages as reported in Box 1 of the employee’s W-2
  • Rate of Pay Safe Harbor: Monthly salary or lowest hourly wage multiplied by 130
  • Federal Poverty Line Safe Harbor: Federal poverty line for a single individual

For a plan’s coverage to be considered affordable, the MV should not exceed 9.12% of the safe harbor or household income.

What happens if full-time employees aren’t offered coverage?

ALEs are required to offer minimum essential coverage (MEC) to at least 95% of employees (and their dependents). If one full-time employee goes to the government marketplace and gets a premium tax credit, then the employer risks being assessed one type of employer shared responsibility payment (ESRP) and a 4980H(a) penalty.

After excluding the first 30 full-time employees, the employer payment will be over $2,000 per employee (adjusted annually for inflation). For 2023, the penalty is $240 per month or $2,880 for the year.

What happens if the offered coverage isn’t affordable or adequate?

When ALEs offer coverage to 95% of full-time employees, the coverage still needs to meet the minimum affordability and value standards. Like the penalty described in the previous section, the 4980H(b) penalty is also based on the number of employees who get premium tax credits for insurance.

When employees rely on the government marketplace for coverage, it suggests that your company policies may be too expensive or inadequate. The penalty is over $3,000 per full-time employee (adjusted annually for inflation). In 2023, the penalty has risen to $360 per month or $4,320 for the year.

What are the ACA compliance reporting requirements?

ALEs must comply with the ACA by completing and submitting Forms 1094-C and 1095-C. Inaccurate information and delays may result in penalties and interest.

  • The 1095-C form is given to all full-time employees, even if they don’t take advantage of company benefits.
  • Form 1094-C collects data about the total number of employees and totals from all the 1095-C forms together. Form 1094-C includes contact information and the Employer Identification Number (EIN).

Important 2023 ACA compliance reporting deadlines

Make sure that your ACA reporting paperwork is submitted on time. Use HR benefits administration software to compile internal reports on employee hours and current benefits. 

  • Feb. 28, 2023 – Forms 1094-C and 1095-C filed with IRS
  • March 2, 2023 – Form 1095-C furnished to applicable employees (for large employers)
  • March 31, 2023 – Due date for electronic filing

Preparing for ACA compliance year-end reporting

An ALE needs to collect a range of data for IRS paperwork. Make sure you have the following information ready for year-end reporting. Prioritize HR data security to protect sensitive information about employees.

  • Employer Identification Number (EIN)
  • Business Contact Information
  • Name and Contact Information for a Key Contact Person at Company
  • Verify Whether Insurance was Offered to Each Full-Time Employee
  • Names and Social Security Numbers for Individual Employees
  • Each Month’s Total Number of Full-Time Employees 
  • Each Month’s Total Number of Employees and Average Hours Worked by Each Employee
  • Confirmation That at Least 95% of Full-Time Employees Were Offered Coverage
  • Details About the Type of Insurance Coverage Offered
  • Lowest Monthly Cost for Self-Only Minimum Coverage for an Employee
  • Details About Minimum Value Available

How can HR technology simplify early ACA compliance reporting?

As you can tell, there’s a lot of moving parts to ACA reporting. Networked solutions with HR software keep essential data easily accessible, from payroll to benefits and taxes. Pull monthly data about employee hours and wages as well as deductions for benefits.

With employee benefits administration software, you can streamline enrollment and changes to plans. Employee portals can automatically handle deadline reminders and confirm receipt of important paperwork like form 1095-C. Larger employers are required to file electronically with the IRS, and software allows you to skip the hassle of manual data entry, filing efficiently and accurately.

Automate the most tedious and repetitive HR tasks with reliable software solutions from Netchex. The right software improves accuracy by reducing the opportunities for human error. Talk to the team at Netchex to learn how we can help your company improve ACA reporting.

Learn more about how Netchex can ensure your company remains in ACA compliance:

Learn more about our Benefits Administration software, where comprehensive doesn’t have to mean complex. Netchex makes Benefits Administration (and ACA compliance) easy, straightforward, and worry-free.

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