The Affordable Care Act (ACA) compliance rules have brought significant changes and challenges for businesses of all sizes. These new regulations affect everything from health insurance coverage requirements to reporting obligations. It is crucial for both small and large businesses to understand these new rules to avoid substantial financial penalties and ensure compliance.
ACA Compliance: What Businesses with 50 or Fewer Employees Need to Know
- Exemption from Employer Mandate: Businesses with fewer than 50 full-time employees (FTEs) are not required to offer health insurance to their employees. However, if they choose to provide health coverage, it must meet the Minimum Essential Coverage (MEC) standards outlined by the ACA. Additionally, any employer choosing to offer employee benefits must contribute a minimum of 50% of the employee-only premium of the lowest cost plan for a particular carrier.
- Voluntary Compliance Benefits: Even though offering health insurance is not mandatory for small businesses, doing so can be beneficial. Providing health coverage can help attract and retain employees, improve workplace morale, and potentially qualify the business for tax credits under the Small Business Health Care Tax Credit program. Additionally, if employers decide to offer health benefits, they may also be required to extend COBRA rights to any employees who separate from the business. Federally, this applies to all businesses with 20 or more employees. However, some states, like Arizona, require all employers that offer benefits to also extend COBRA rights.
- State MiniCOBRA: For states with MiniCOBRA laws, employers may need to offer medical coverage with a 5% fee added to the premium (compared to the 2% fee under Federal COBRA) if the employee had been enrolled for 90 continuous days. All states except Alabama, Alaska, Delaware, Hawaii, Idaho, Indiana, Michigan, Montana, and Pennsylvania have State MiniCOBRA laws in place.
- Reporting Requirements: If a small business with less than 50 FTEs chooses to offer health insurance, then they become subject to ACA reporting requirements. In this case, they would need to track and document employee health insurance information and file Forms 1095-C and 1094-C with the IRS.
- Understanding Penalties: While the employer mandate penalties do not apply to businesses with fewer than 50 employees, failing to meet reporting requirements can result in significant fines. It is essential to stay informed about the latest reporting guidelines and deadlines to avoid these penalties.
For a full overview of how ACA impacts small businesses, please visit https://www.healthcare.gov/small-businesses/learn-more/how-aca-affects-businesses/.
ACA Compliance: What Businesses with Over 50 Employees Need to Know
- Employer Mandate: Businesses with 50 or more full-time employees or FTEs are subject to the employer mandate, also known as the employer-shared responsibility provision. They must offer affordable health insurance that provides minimum value to at least 95% of their full-time employees and their dependents.
- Affordability and Minimum Value Standards: The health insurance offered must be affordable, meaning the employee’s contribution to the premium for self-only coverage should not exceed 8.39% of their household income. Additionally, the coverage must meet the ACA’s minimum value requirements, which ensure that the plan covers at least 60% of the total allowed cost of benefits.
- Penalties for Non-Compliance: There are two primary penalties for large employers who fail to comply with the ACA requirements:
- 4980H(a) Penalty: This penalty applies to large employers (those with 50 or more full-time equivalent employees) who fail to offer minimum essential coverage to at least 95% of their full-time employees and their dependents, and at least one full-time employee receives a premium tax credit (PTC) for purchasing coverage through the Marketplace. For tax year 2024, the penalty is $2,970 per full-time employee (excluding the first 30 employees). This represents a slight increase from the 2023 penalty of $2,880.
- 4980H(b) Penalty: This penalty applies to large employers who offer health insurance that is either unaffordable or does not provide minimum value, and at least one full-time employee receives a PTC. The penalty amount for tax year 2024 is $4,460 per full-time employee receiving a PTC. This is an increase from $4,320 in 2023.
- Comprehensive Reporting: Large employers must accurately document and report their compliance with the ACA’s requirements. This includes tracking employee eligibility, offers of coverage, and the acceptance or declination of coverage. Timely and accurate reporting to the IRS and applicable states is essential to avoid penalties.
What’s Changed with ACA?
1. Increased Penalty Amounts: The penalty amounts for non-compliance have increased. The 4980H(a) penalty is now $2,970 per full-time employee (excluding the first 30 employees), and the 4980H(b) penalty is now $4,460 per full-time employee receiving a premium tax credit (PTC). It’s important to note that these penalties are assessed on a monthly basis. So, the annual penalty amounts translate to $247.50 per month for the 4980H(a) penalty and $372 per month for the 4980H(b) penalty in 2024.
2. Updated Affordability Threshold: The affordability threshold for employer-sponsored health insurance has decreased to 8.39% of an employee’s household income in 2024. This means a larger portion of an employee’s salary can go towards their premium while still being considered affordable under the ACA.
3. Potential for Increased Scrutiny on Reporting: While the core reporting requirements haven’t changed significantly, the IRS may be focusing more on enforcing existing rules. This could mean stricter penalties for inaccurate or incomplete reporting in 2024. Businesses should ensure they are up-to-date on any clarifications or updates from the IRS.
Resources for ACA Compliance in 2024:
- Internal Revenue Service (IRS): The IRS website is a comprehensive resource for information on ACA compliance, including the employer mandate, reporting requirements, and penalty information. (https://www.irs.gov/)
- Department of Labor (DOL): The DOL website provides information on employee benefits security, including health insurance. (https://www.dol.gov/)
- Healthcare.gov: The official website for the Health Insurance Marketplaces. Businesses can find information on plan options and subsidies available to their employees. (https://www.healthcare.gov/)
- Arizona Department of Insurance: This website provides information on Arizona-specific health insurance regulations, including potential requirements that may apply beyond the federal ACA mandate. (https://benefitoptions.az.gov/insurance)
Navigating ACA compliance can be confusing, but it doesn’t have to be. Focus HR can help your business understand the rules, ensure you’re meeting your obligations, and avoid penalties. Contact us today for a free consultation!
