How does the Employer Shared Responsibility Provision of the ACA apply to Small Employers
Do I Have To Offer My Employees Health Insurance?
For business owners who own more than one business, it’s essential to consider the concept of “common ownership,” which can have implications for determining whether separate businesses are considered a single entity under the ACA.
Common Ownership, under the ACA, is defined as businesses with common ownership or that are part of a controlled group. These businesses are often treated as a single entity when determining whether they meet the threshold of an Applicable Large Employer. Common ownership typically applies to businesses where the same individual or group of individuals own a significant interest in multiple entities. This means that the total number of employees across all commonly owned businesses is aggregated to assess if the threshold of 50 or more employees is met. It’s a critical consideration for companies with related entities or subsidiaries.
For example, Company A and Company B are under the common ownership of individuals Jo and Jane. Company A has 25 full time employees and Company B has 30. Together they employ 55 full-time employees, they would collectively be considered an applicable large employer, and both companies are potentially subject to the Shared Responsibility provisions.
Applicable Large Employers who fail to offer Minimum Essential Coverage that is Affordable to their employees and employees’ dependents risk incurring fees from the IRS.
Reporting requirements include:
IRS Reporting (Form 1094-C and Form 1095-C): Applicable large employers must file annual reports with the IRS. This includes submitting Form 1094-C, which is an overall transmittal form, and Form 1095-C, which provides detailed information on each employee’s healthcare coverage. These forms help the IRS verify that the employer is meeting their obligations and allows them to assess potential penalties.
Employee Statements (Form 1095-C): Employers are also required to furnish Form 1095-C to each of their full-time employees. This form outlines the specific coverage offered to the employee and their dependents during the tax year. It is essential for employees when filing their individual income tax returns and applying for premium tax credits or other benefits through the Health Insurance Marketplace.
Reporting Deadlines and Penalties for Non-Compliance
Applicable Large Employers must adhere to specific deadlines for filing these forms, which typically fall early in the year following. Timely and accurate reporting is crucial to avoid penalties and to ensure that employees can claim appropriate tax credits and deductions.
Penalties for Not Providing Coverage:
If applicable large employers fail to offer affordable and minimum essential coverage to their full-time employees and their dependents, they may be subject to penalties. Here’s how the penalties work:
For more information on these penalties, see Types of Employer Payments and How They’re Calculated on IRS.gov.
Failure to file the required reports with the IRS and furnish them to employees can also result in penalties. Here are the key points regarding these penalties:
- Failure to File Information Returns (Form 1094-C and Form 1095-C): If an employer fails to file the necessary information returns (Form 1094-C and Form 1095-C) with the IRS, they can incur penalties.
- The penalty amount for each unfiled or incorrect return may vary based on the size of the employer, the time of filing, and the level of negligence.
- In general, the penalty for each unfiled or incorrect return can range from $50 to $280 per return, with a maximum annual penalty of $3,392,000 for large employers.
- Failure to Furnish Employee Statements (Form 1095-C): Employers are also required to furnish Form 1095-C to their full-time employees. Failure to do so can lead to penalties.
- The penalties for failing to provide employees with their statements can range from $50 to $270 per statement, with a maximum annual penalty of $3,392,000.
It’s crucial for employers to comply with both the coverage and reporting requirements under the ACA to avoid these penalties. Accurate and timely filing and reporting not only help employers steer clear of financial consequences but also ensure that employees receive the necessary information to claim tax credits and benefits through the Health Insurance Marketplace. Employers should stay informed about the specific penalty amounts and adjust their practices accordingly to maintain compliance with the law.
What Are My Options For Offering My Employees Health Insurance?
- Fully Funded Small Group Plans
- Level Funded Small Group Plans
- Health Reimbursement Arrangements
- Health Savings Account Funding
- Ancillary Products
Reach out today to discuss your company’s situation with a Licensed Consulting Agent.