Since it was enacted, the Affordable Care Act (ACA) has been an essential part of employer reporting. ACA reporting compliance has become a fixture of the tax filing season with forms such as the 1095-C. The passage of the Tax Cuts and Jobs Act of 2017 triggered an important change in ACA: the removal of the penalty for not having health insurance.
In response, states have begun implementing their own mandates to control health care costs. Rhode Island, New Jersey, California, Massachusetts, Vermont and the District of Columbia have enacted state-level ACA reporting, with more on the way. This development leaves employers needing to monitor state-level ACA developments as they do for state and local tax withholding regulations today.
Here’s a run-down of what you need to know by state for ACA compliance requirements.
ACA Compliance Requirements By State
Each state has its own ACA guidelines for employers, which is why it’s especially important for states operating in multiple states or with a remote workforce to understand these requirements. Below, you’ll find ACA reporting requirements for employers for various states, so you can understand how these obligations can differ across state lines.
Rhode Island
Employers were required to report coverage information for their employees residing in Rhode Island annually beginning in 2021, unless the employer’s insurer completes the reporting requirement.
- The federal forms are sufficient to meet the Rhode Island reporting requirement.
- The Division of Taxation provides a webpage where employers can upload file(s). A link to this webpage is available on the Division of Taxation’s website.
- The state reporting deadline for Rhode Island has been extended to Mar. 31.
New Jersey
New Jersey’s individual mandate law took effect on January 1, 2019. Like the original ACA mandate, it requires that everyone in the state to maintain qualifying coverage (officially known as minimum essential coverage) or face a tax penalty. For adults, the penalty started at either $695 or 2.5% of annual income, whichever is higher.
Employers with 50 or more employees who employ N.J. residents now must electronically report on their compliance with the New Jersey Health Insurance Market Preservation Act by:
- Submitting 1095 forms through the MFT Secure Services in a file based on the IRS XML schemas, paper filing will not be accepted.
- Deferring to New Jersey’s own forms if those federal forms are ever discontinued.
- Completing their electronic filings by March 31.
Employers with less than 50 forms must file using the Form NJ-1095.
These are new requirements, on top of existing reporting responsibilities to the federal government.
Both New Jersey-based and out-of-state employers with employees in New Jersey must comply with the state mandate. According to the state’s official guidance, the provisions of the New Jersey Health Insurance Market Preservation Act provisions are not limited only to those employers who withhold New Jersey payroll taxes.
California
California passed an individual mandate (California Mandate) that required residents to maintain minimum essential coverage (MEC) starting Jan. 1, 2020.
- To complete the California Mandate reporting, self-insured employers, regardless of their Applicable Large Employer (ALE) status, must transmit 1094/5-B and C forms to the California Franchise Tax Board (FTB) by March 31. However, California has stated a penalty will not apply if the return is filed on or before May 31.
- If an employer has 250 or less forms to report to California, employers can print and mail the same1094/5-B or C forms that they transmitted to the IRS for ACA reporting to complete their California Mandate reporting.
- If an organization files more than 250 forms, it must file electronically. You can register at any time to submit reporting electronically.
- To electronically transmit forms to the state of California, besides registering, you must undergo a testing cycle before being approved to transmit your final data. For TY2022, transmitters who have already tested with California do not need to retest again to obtain a new production code for transmitting data. California production codes will automatically be extended.
- Fully insured employers are not required to submit California Mandate reporting as long as their insurer reports to the FTB, which they are required to do.
- All employers must provide 1095-B and C forms to their employees by Jan. 31 following the end of the plan year, which is already required under ACA. While the federal ACA deadline is frequently extended past Jan. 31,the California Mandate distribution deadline will not automatically be extended to mirror the federal deadline.
You must work closely with your ACA reporting vendor to ensure that forms are distributed in the correct format and on time. Employers who fail to submit reporting as required are subject to a $50 penalty per individual.
Massachusetts
Employers with operations do not need employee-level details in their state level filings like is necessary in annual ACA submissions to the IRS. Massachusetts’s mandate requires employers to file by Dec. 15 of the reporting year. Employers must also issue Form 1099-HC to their employees and report information to the state Department of Revenue. Failing to comply with 1099-HC requirements could be subject to a penalty of $50 per employee, with a maximum of $50,000.
Vermont
As of 2021, Vermont will only have new coverage reporting obligations to the state if federal ACA reporting requirements are eliminated.
The District of Columbia
The District of Columbia (D.C.) has enacted legislation similar to New Jersey’s, requiring its residents to carry a minimum level of coverage (or obtain an exemption) or face a penalty. The law in question, the Individual Taxpayer Health Insurance Responsibility Requirement Amendment Act of 2018, is effective for tax years ending on or after Dec. 31, 2019.
- Under this statute, all “applicable entities’ under this statute must report their compliance information to the district’s Office of Tax and Revenue (OTR). The definition of an applicable entity includes any employer or employment-based health plan sponsor with at least 50 employees. Plus, one or more employees must be of based in D.C. Providers of minimum essential coverage and insurance carriers/issuers are also applicable entities.
- For purposes of determining someone’s residency in D.C., the OTR considers any employee who had taxes withheld and remitted to D.C. during the applicable calendar year a resident. Minimum essential coverage providers should also consider any individual with a home or mailing address in D.C. as a resident.
- The OTR accepts the same IRS forms but instead of an XML format the electronic file must be a piped delimited text (.txt) file, with submissions going exclusively through the MyTax.DC.gov domain.
- Like NJ, D.C. will also not be accepting paper filing. All forms must be filed electronically.
- The D.C. deadline for tax year 2023 is May 1, since April 30falls on a weekend.
Penalties for Non-Compliance
Now that you understand how ACA compliance reporting varies by state, what are the potential penalties for failing to meet these ACA guidelines for employers? Take a look at some ACA employer penalties:
- 4980H(a) Penalty: A penalty of $2,970/year ($247.50/month) for each full-time employee for employers who fail to provide minimum essential coverage to at least 95 percent of their full-time employees and dependents.
- 4980H(b) Penalty: A penalty of $4,460/year ($371.67/month) given to employers who fail to provide affordable health insurance coverage that meets the minimum value or for each full-time employee who receives subsidized coverage through the marketplace.
Overall, these penalties can add up, highlighting the importance of ACA compliance for employers. Working with a trusted employer services provider can offer the tools and expertise needed to maintain compliance with ACA guidelines. Contact us today to discover how our ACA employer reporting services can help.
Exemptions and Special Circumstances
When it comes to healthcare coverage, there is an individual shared responsibility that requires individuals to have Minimum Essential Coverage (MEC), or they may be subject to a penalty for having MEC. However, after the passing of the Tax Cuts and Jobs Act, the Shared Responsibility Payment was cut down to $0, becoming effective after December 31, 2018, meaning individuals no longer need to have MEC or qualify for an exemption from the Individual Mandate.
Another exemption and special circumstance deals with individuals looking to purchase a catastrophic health plan. Individuals over 30 must receive an exemption for hardship or affordability from the Individual Mandate to purchase a catastrophic health plan, but this is not required for individuals under the age of 30. To claim an affordability exemption in 2024, the lowest cost of coverage that’s available to you must be more than 8.39% of your household’s 2024 Modified Adjusted Gross Income. These hardship exemptions can be granted under various circumstances, including natural disasters, financial hardship, or eviction.
Best Practices for ACA Compliance
Understanding ACA compliance for employers is crucial for avoiding costly penalties that can hurt your bottom line and reputational damage that can drive employees and customers away. Some best practices for ACA compliance include:
- Understanding employer mandate requirements and whether your organization is considered an Applicable Large Employer (ALE).
- Accurately tracking employee hours to determine full-time status and whether an employee works 30 or more hours per week on average.
- Offering minimum essential coverage where at least 60% of the total allowed cost of benefits are provided.
- Ensure the employee’s share of the premium for the lowest-cost self-only coverage does not exceed a certain percentage of their household income, which is 8.39 percent for 2024.
Where is state-level ACA reporting headed in the future?
On December 24, 2024, President Biden signed HR 3797, the Paperwork Reduction Act, which deals with an alternative manner of furnishing health insurance coverage statements to employees—specifically the 1095-C. (The 1095-C provides coverage information to employees regarding health insurance options offered by Applicable Large Employers).
The newly signed measure retains the original effective date that shall “apply to statements for calendar years after 2023.” Employers awaiting IRS guidance may look to the process established for the 1095-B to guide their transition. We will continue to monitor for new legislation or publications in the event any dates related to this Paperwork Reduction Act are altered. It will be important to watch states react to the federal law, as several states have their own reporting requirements. Stay tuned to this space for updates on both federal and state ACA reporting requirements.
ACA Reporting Compliance for Employers FAQs
What Is ACA Reporting Compliance?
The Affordable Care Act is a health care reform law put in place to provide health insurance coverage for the uninsured, reduce health care costs, expand insurance access and increase consumer protections. But what is ACA compliance reporting? ACA reporting compliance for employers ensures employers must provide affordable health insurance coverage to at least 95% of their full-time workforce and their dependents. Affordable Care Act compliance also requires employers to provide employees a notice of coverage along with additional available benefits, Form 1095-C and a Summary of Benefits and Coverage.
Why Is ACA Reporting Compliance Important?
Abiding by ACA compliance requirements is essential for employers, as noncompliance can result in expensive penalties that can dig into your bottom line and tarnish your company’s reputation if you fail to comply with federal regulations. With that said, ACA employer reporting is important because it ensures you abide by the law and satisfy your duty of providing affordable health care coverage to your employees.
What Are the ACA Requirements for Employers?
There are a few key ACA compliance requirements employers need to abide by. To ensure ACA reporting compliance for employers, follow these requirements:
- Generally, applicable large employers (ALEs) with 50 or more full-time employees will need to offer affordable health insurance with a minimum value to at least 95% of their full-time staff and dependents.
- For an employer-sponsored health care plan to be deemed affordable, employee costs can’t exceed a certain percentage of their household income.
- Employers must file Form 1095-C annually to the IRS and provide a copy to their employees.
- Employers must also file Form 1094-C, which only goes to the IRS.
When Are Employers Required to Report ACA Compliance?
To remain compliant with the IRS, employers must report their ACA compliance annually using forms 1094-C and 1095-C. For 2023, employers must file paper Forms 1094-C and 1095-C with the IRS by Feb. 28 or electronically by March 31. Employers must also send Forms 1095-C to employees by March 2, 2023. The Internal Revenue Service (IRS) released final regulations on February 21, 2023 requiring organizations to electronically file specified returns and other documents. (This includes 1094-C and 1095-C forms.)
How Can Small Businesses Meet the ACA Reporting Requirements?
Small businesses are those with fewer than 50 full-time employees. They can meet ACA compliance requirements by enrolling in the Small Business Health Options Program (SHOP) through a private insurance company or with the help of a broker or agent. ACA reporting compliance for employers with fewer than 50 employees requires them to provide information about the Marketplace to their employees, regardless of whether they plan on offering health insurance.
How Can Large Businesses Meet the ACA Reporting Requirements?
Applicable large employers (ALEs) are those with 50 or more employees. They can meet the ACA compliance requirements by providing affordable health care coverage to at least 95% of their full-time employees and their dependents.
What Are the Consequences for Noncompliance With ACA Reporting Compliance?
There are several penalties employers can face for noncompliance with ACA reporting. For example, employers with 50 or more employees who fail to provide 95% coverage to their full-time workforce can face a penalty of $2,880 in 2023. To avoid penalties, you can use ACA reporting software that automates ACA reporting to help reduce errors and prevent missed deadlines. Contact us today to learn more about Experian Employer Services’ ACA employer reporting solution.