3 Common ACA Reporting Mistakes

Affordable Care Act (ACA) reporting can be complicated enough when employers get it right. And with the repeal of “good faith” relief starting in 2022, no one can afford to get it wrong.

Here are 3 common mistakes employers make regarding ACA reporting, including Forms 1094-C and 1095-C.

What are Forms 1094-C and 1095-C?

The federal government uses Form 1095-C to track employer’s compliance with the Affordable Care Act (ACA). The ACA requires employers with 50 or more full-time or full-time equivalent (FTE) employees to offer healthcare coverage to all full-time employees—or potentially face a fine. These are called Applicable Large Employers (ALEs).

Essentially, the function of Form 1095-C is to communicate ALEs’ health insurance information to the IRS. The form also helps the IRS determine which employees were eligible for subsidies—such as the premium tax credit—for individual health insurance during the year.

Form 1094-C acts as a cover sheet for all of an organization’s 1095-Cs. Unlike 1095-Cs, Form 1094-C is not distributed to employees and requires information such as the number of workers employed and how many 1095-Cs are being filed. Employers must file one Form 1094-C per tax ID—Employer Identification Number (EIN)—to the IRS. This means that—if your company oversees different divisions or employment groups—a separate Form 1094-C must be filed for each individual EIN.

ALEs are required to file a 1095-C for every worker employed that year, not just current employees. Beginning in 2022, the IRS has permanently extended the deadline for furnishing copies to employees to March 2. The deadline for ALEs to file paper forms with the IRS is February 28, and the electronic-filing deadline is March 31.

Mistake #1: Not Including Part-Time Employees

Many employers mistakenly think they don’t qualify as an ALE because they have less than 50 full-time employees. However, ACA reporting requires that employers also calculate the hours worked by part-time employees to determine full-time equivalents (FTEs). This can be an easy mistake to make, but it can be costly.

Employers can determine their ALE status this way:

Calculate the number of full-time employees per month

Add all the full-time employees for each month together to get a subtotal.
Please note: The IRS defines a full-time employee as someone who works 30 hours per week, or 130 hours per Month

Calculate the number of hours worked by part-time employees per month.

Divide this number by 120 to determine the number of full-time equivalents (FTEs). Add all months together to get a subtotal.

Add the two subtotals together

Divide the total by 12

If the total is less than 50, the employer is not an ALE. If the total is 50 or more, the employer is an ALE and is required to offer health insurance to all qualifying employees.

Mistake #2: Not Including All Business Entities with Common Ownership

Another common mistake employers make is not totaling all employees under all business entities. This is directly related to determining an organization’s ALE status.

The IRS instructions clarify the Employer Aggregation Rule:

Companies with a common owner or that are otherwise related under certain rules of section 414 of the Internal Revenue Code are generally combined and treated as a single employer for determining ALE status. If the combined number of full-time employees and full-time equivalent employees for the group is large enough to meet the definition of an ALE, then each employer in the group (called an ALE member) is part of an ALE and is subject to the employer shared responsibility provisions, even if separately the employer would not be an ALE.

For example, a parent company that owns 80% or more of one or more subsidiary entities should actually be combined with the subsidiaries as a single employer to determine ALE status.

Mistake #3: Misunderstanding the $0 Individual Mandate Penalty

Beginning in 2019, the federal penalty for individuals who fail to purchase comprehensive coverage in the previous tax year became $0. While the federal penalty is $0, some states have chosen to implement additional penalties:

California: Beginning in January 2020, California requires individuals who can afford it and their dependents to have ACA-compliant coverage or face a penalty of 2.5% of their household income—or $800 per adult and $400 per minor dependent, whichever is greater.
Massachusetts: Since 2006—before the ACA became federal law—Massachusetts has required individuals to have affordable health insurance, now defined by ACA standards. The penalty can be up to 50% of the monthly premium of the lowest-cost plan for which they would have qualified. There is no penalty if your income is at or below 150% of the poverty level.
New Jersey: The maximum penalty since 2019 has been based on the average cost of a “bronze” plan in the state of New Jersey.
Rhode Island: The penalty is either 2.5% of annual household income or $695 per adult and $347.50 per child, whichever is greater.
Washington, D.C.: The penalty since 2019 has been 2.5% of annual household income—or $695 per adult and $347.50 per child, whichever is greater.
Vermont: Since 2020, Vermont’s individual mandate requires residents to maintain minimum essential coverage. However, there is no penalty for non-compliance. Instead, this information is compiled and used by the state to provide targeted outreach to help applicable residents enroll in appropriate and affordable coverage.

Several other states have considered individual mandates—including Connecticut, Hawaii, Maryland, Minnesota, and Washington—but have not made them into law. Employers and HR should research the health insurance laws in their state and consult with their benefits broker.

Additional Resources

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