How To Follow ACA Reporting Requirements & Avoid Penalties
Last Updated on October 24, 2024 / HR Compliance
HR Question:
I’m confused by the Affordable Care Act’s (ACA) reporting requirements. Can you clarify the reporting standards and deadlines so we can avoid penalties and remain compliant?
HR Answer:
You’re not alone. Many organizations struggle to understand if they are following the Affordable Care Act (ACA) reporting standards correctly while others are not aware that they need to report in the first place. If you aren’t in compliance with ACA reporting requirements, each employee represents a potential fine. These fines can range from hundreds to millions of dollars—easy enough to bankrupt a smaller organization.
We’ve saved clients millions of dollars in potential fines from ACA reporting violations. It starts with a good understanding of the employer mandate because not every company is required to report.
Who is required to report?
Any employer with self-insured medical benefits or with 50 total full-time and full-time equivalent (FTE) employees is required to report to the IRS. This reporting includes the coverage the employer offered to its FTEs as well as any eligible dependents. Not sure if you have 50 full-time equivalent employees? Use our guide to calculate FTE employees.
What are the ACA reporting deadlines?
For 2025 (2024 tax year), employers that qualify to report need to complete IRS Form 1095 and 1094 either by February 28, 2025, for paper filers or March 31, 2025, for electronic filers.
NOTE: Employers with more than 10 forms are required to file electronically.
What happens if I don’t report or report incorrectly?
Employers who are required to report must file 1095 forms with the IRS and provide a 1095-C form to all full-time equivalent employees to comply with the ACA mandate. Failure to report to the IRS could result in two different types of penalty notices; Section 4980H(a) and Section 4980H(b) penalties.
If you receive a penalty notice, check out our guidance on what to do if the IRS notifies you of ACA penalty fees.
Potential fines for not following ACA reporting requirements
If an employer does not file their ACA reporting before the IRS deadline, or if an employer submits reporting on time but with incomplete information, they are subject to a fine of $330 per return.
In other words, each full-time equivalent employee for whom you must generate a 1095-C form represents a potential fine of $330. If an organization has 150 full-time equivalent employees and there are errors in their ACA filing, they could potentially be fined $49,500. If the organization has 1,500 full-time equivalent employees, that potential fine rises to $495,000.
The maximum penalty differs for small and large businesses, including government entities. It’s important to note that there is no maximum penalty for what the IRS defines as “intentional disregard.”
Corrections can help
An organization that has already received an IRS violation can still recoup some of its losses if they act within 30 days of the IRS filing deadline. Successful corrections drop the per-return penalty from $330 to $60.
If more than thirty days have passed since the filing deadline, it’s still worth it for organizations to correct their returns. If corrections are submitted by August 1, 2024, the per-return penalty drops from the original $330 to $130.
How to avoid IRS penalties
Organizations should be sure they are familiar with the ACA reporting requirements, deadlines, and what might happen if they don’t file accurately or on time. Not only is a lot of money on the line, but potentially a lot of rework.
Many organizations rely on their payroll provider to handle ACA filing. Even though that provides them with less control over the ACA filing process, there are still ways to gain more confidence they are submitting error-free returns.
1. Have someone else prepare the returns
If an organization has an HRIS system to prepare and file returns, that’s the best-case scenario. Otherwise, the HR department will be essential in helping gather information needed about employee hours, enrollment specifications, and other relevant information. Even if an organization has an HRIS provider, we recommend they also follow this next step…
2. Have someone else double-check the returns
Engaging a specialist to ensure your returns are correct can set organizations up for success for the future by showing them everything they need to know and do to keep IRS penalties out of the equation. For example, Clark Schaefer Strategic HR employs certified health reform experts who know the Affordable Care Act inside and out, and we work with our clients to ensure they are reporting correctly.
3. Respond promptly to any IRS penalty notifications.
If an organization is faced with penalties or requests for more information from the IRS, the best thing to do is respond promptly, assure the operations manager assigned to the case that the issue is top of mind, and request a filing extension if needed. As we stated before, ACA penalties can increase by the day, and it’s best to act quickly.
You can save millions with ACA reporting compliance checks
ACA compliance is complicated. The threat of millions of dollars in fines adds fear on top of complication. It is well worth it to review your ACA compliance reporting, which was proven when our ACA expert saved one of our clients $1 million in one week by working with them to ensure filing compliance!
How much money could you save? Whether you need help filing or double-checking your prepared returns, we encourage you to engage with an ACA expert – it could lead to significant cost savings.
Thank you to Mary Mitchell, MBA, SPHR, SHRM-SCP, Certified Healthcare Reform Specialist, and Heather Churchman for contributing to this week’s HR Question of the Week.
We understand that ACA compliance can be confusing, but don’t worry. Clark Schaefer Strategic HR has ACA experts who can help! Contact us to get a sense of where you stand, how we can lighten your load, and how we can help you avoid steep penalties from the IRS.
