As a CPA, you play an important role in helping your clients navigate the complex regulations of the ACA. One such regulation is employer-shared responsibility. It calls for organizations classified as applicable large employers (ALEs) to offer affordable health insurance coverage to their ongoing employees or face IRS penalty payments.
Employers with 50 or more Full-Time Employees
Large businesses (those with 50 or more full-time equivalent employees) must provide their eligible workers with health insurance coverage that complies with specific requirements starting in 2014, or they may be subject to a fine. The ACA employer shared responsibility provisions also created a new option for individuals to obtain health insurance through an online marketplace or exchange, where they may qualify for premium tax credits if their income is below the poverty level.
When determining whether a company meets the requirements to be classified as an applicable large employer (ALE), the IRS considers an employee who works an average of 30 hours per week to be a full-time employee. In addition, the law defines a part-time worker as someone who works an average of 130 hours or less each month. Therefore, for ALE reasons, a full-time employee also includes a person with a changeable schedule who may only work part-time, depending on their circumstances. Additionally, a worker on paid leave is not regarded as a full-time worker.
Unless an employer offers its full-time employees and their dependents the minimum essential coverage, it will pay the penalty to the IRS if any of its full-time employees enroll in an exchange or marketplace and receives a premium tax credit for purchasing health insurance through an Exchange or marketplace. Generally, the penalty is $2,000 per year for each full-time employee who does not have affordable coverage, with the first 30 employees excluded.
Employers with 50 or more Full-Time Employees and Their Dependents
Large firms must provide health insurance under the ACA or face a fine. The ACA employer requirement or the “pay-or-play” provisions are other names for this regulation. It applies to companies that employ 50 full-time workers (or their equivalents) or more in a given year.
Small businesses are encouraged, but optional, to offer coverage. The IRS uses your average number of full-time and equivalent employees for the previous year to determine whether you’re an ALE for a calendar year. This includes your current employees and your seasonal and part-time workers. Employees who receive premium tax credits on the exchange because of their income are also counted in your workforce tally.
As an ALE, you must provide at least 95% of your full-time staff members and their families with reasonably priced health insurance. Additionally, the coverage you give must deliver a minimum amount of value. Depending on household income, the definition of affordable coverage varies every year. Here is further information about what satisfies the minimal value and affordability requirements.
In 2023, if you don’t offer affordable coverage and any of your full-time employees purchase subsidized health insurance on the exchange, you’ll have to pay a monthly penalty. The penalty is calculated using the information you provide to the IRS about your employees’ wages and pay rates, plus the cost of their health coverage.
Employees and Their Dependents Who Receive Premium Tax Credits
Employers employing more than 50 full-time employees (or their equivalents) may be subject to fines under the ACA if they don’t provide health insurance or if it doesn’t meet certain minimum standards. The rules for this are complicated, and the penalties can be severe if you’re not careful.
The ACA’s employer shared responsibility provisions apply to businesses with more than 50 full-time employees and their dependents, generally referred to as applicable large employers (ALEs). ALEs must either offer affordable health insurance that provides minimum value to their employees or potentially face a penalty from the IRS.
To trigger an ALE’s potential penalty, at least one of its full-time employees receives a premium tax credit from the exchange based on household income between 100% and 400% of the federal poverty line and doesn’t have access to affordable employer-sponsored coverage or Medicare. The IRS compares ALEs’ records with the data on employee 1095-C forms and notifies ALEs of any possible liabilities. These notices, known as Letters 226J, were first distributed by the IRS in late 2017 for the 2015 calendar year and in late 2018 for the 2016 calendar year.
Whether you have 50 or more full-time employees or fewer, you can avoid the ACA’s employer mandate by offering all your workers quality, affordable health insurance. Every health plan offered to employees must meet some minimum standards, including not placing lifetime or annual caps on benefits and covering ten categories of preventive services without cost sharing.
Employees and Their Dependents Who Don’t Receive Premium Tax Credits
As a business owner, you must comply with the Affordable Care Act (ACA). The employer-shared responsibility provisions are an important part of this law and could have significant financial consequences for your company.
Employers must provide affordable minimum-value health insurance that complies with other employee criteria. They will incur a fine if they don’t. The Employer Shared Responsibility payment, or ESR payment, is what this is known as.
Meeting these requirements is easy for most businesses, but some exceptions exist. For example, seasonal workers like those who work during holidays or retail workers aren’t considered full-time employees and therefore don’t count towards the tally of 50 or more. Also, certain types of health insurance need to meet the ACA’s affordability and minimum value requirements, such as short-term or association-based plans.
If an applicable big company fails to provide its employees with affordable, minimum-value coverage for a calendar month, the IRS will impose a fine. The penalty constitutes the lesser of one-twelfth of the company’s total monthly payroll tax obligation or $2,000 per employee (after the first 30).