The Affordable Care Act: What does it all mean???

Danny Kline – President
Over the last few years I’ve reviewed countless IRS web pages and documents. I’ve watched even more webinars on the Affordable Care Act (ACA). What have I learned? The ACA is a tough pill to swallow. I have found there are quite a few exceptions for every rule and endless footnotes, asterisks, etc. attempting to cover any and all businesses in America. Any attempt to glean information from these countless resources is a kin to sipping from a firehose.Here is my attempt to make the ACA easier to understand. Please bear in mind that I am not an attorney, benefits broker or consultant and nothing found on this page should be construed as legal or tax advice. I will not be reviewing the myriad of exceptions and oddities that go along with ACA legislation. My purpose is to cover very basic information that I believe will affect the majority of Payday’s clients.

I hope you will find some value in what we’ve put together. As always, Payday will strive to be your trusted source for all things payroll related.

Lesson One: Am I an Applicable Large Employer?

Starting in tax year 2015, only companies that have 50 or more full-time/full-time equivalent (FT/FTE) employees are required to offer Minimum Essential and Minimum Value coverage to their Full Time employees (this requirement is referred to as the Employer Mandate). Companies meeting this threshold (50+) are considered Applicable Large Employers (ALE or Large Group).

Calculating Full Time and Full Time Equivalents for Each Month

Full-Time Employee: Any employee you designate as Full-Time or one that works on average, at least 30 hours per week (or 130 hours per month).
Full-Time Equivalents: Here is where you need to brush off your math skills and break out a calculator.

  • For all non-full time employees, add up their hours in the month and divide by 120.
  • Take this number out to two (2) decimals, this is your FTE count for the month.

Add your FTE to your FT count and that is your total FT/FTE for the month.
You may subtract owners from this calculation. (For example, sole proprietors, partners in a partnership, members of LLCs taxed as a partnership, and shareholders who own two percent or more in an S-Corporation.)

How to determine if the company is an ALE

Step 1: Count your number of FT/FTE employees each month. You must choose the same time period each month in order to ensure the data is not being skewed in favor of the employer. At the end of the year, you will have twelve counts.

Step 2: Take the average of those 12 counts, round your number down to the next whole number. If the average is 50 or more, the company is considered an ALE. If the number is fewer than 50, the company is considered a small group and is not currently required to offer coverage. For purposes of this calculation numbers from the previous calendar year should be used (e.g. use 2014 statistics to determine ALE status in 2015). Of course, there is Transitional Relief available for tax year 2015 which allows an employer to choose a 6 month period from 2014 (instead of the full 12 months) to determine ALE status.
All companies with 50 or more FT/FTE are required to file the appropriate 1094-C/1095-C forms for tax year 2015. However, relief from penalties is offered to companies with 50-99 FT/FTE if they did not reduce their workforce to below 99 employees without a bona fide reason and did not materially reduce its health care plan (the one that was in existence as of 2/9/14.)

For help determining ALE status on PayEntry, please watch this video walking you through the use of our ALE report.

Lesson Two: All about form 1095

Think of form 1095 as the employee’s proof of insurance.

  • The ACA requires all individuals to have insurance. One can either attain insurance through their employer, on their own or through one of the exchanges.
  • Form 1095 will be used by ALL people filing a personal tax return (1040), beginning in 2016, for tax year 2015. If someone does not have a 1095, and thus did not have insurance (of some kind), they may face a penalty.

There are 3 types of form 1095

  • 1095-A:
    • This is provided to individuals who have received insurance through the Exchange.
      • This will NOT be distributed by employers.
  • 1095-B:
    • This is provided to employees who have insurance through their employer.
      • It will be provided by the Insurance Carrier if the plan is fully funded (for fully funded, think “normal” insurance that most of us have where premiums are paid to the insurance carrier who handles all claims.)
      • It’s provided by small group employers if they’re utilizing a self-insured plan (self-insured plans are typically only used by larger companies and entail the company collecting premiums and paying out claims directly or through a third party administrator. So the employer, not the carrier, assumes the direct risk for payment of the claims for benefits.)
      • There are additional scenarios in which a 1095-B may be issued, but as they do not have broad implications for Payday clients, they will not be discussed.
  • 1095-C
    • This form is provided by employers to its employees who work for a Large Group (ALE) and were full time for at least one month during the calendar year.
      • Parts I and II are filled out for plans that are fully funded
      • Parts I, II and III are filled out for plans that are self-insured

Here is a “simple” table that summarizes the information we just covered.

Group Description Form Required to be Distributed to Employees Section 6055(Carrier) Form Required to be Distributed to Employees Section 6056(Employer)
Small Group (fully-funded) 1095-B n/a
Small Group (self-insured) 1095-B (sent by employer) n/a
Large Group (fully-funded) 1095-B 1095-C (Parts I-II)
Large Group (self-insured) n/a 1095-C (Parts I – III) Satisfies both 6055 & 6056

Payday has partnered with SyncStream to provide ACA Compliance and Reporting. We will be producing and filing forms 1094C and 1095C. The 1095C’s will be mailed to employees’ homes.

Fully-funded, Small Group Employers should advise their employees they will be reciving form 1095-B from the company’s insurance carier.

Please remind your employees that they will need the appropriate 1095 form(s) when filing their personal returns. Professional tax preparers and accountants will likely require the form in order to appropriately complete line 61 of the 1040.

*This article was written on May 18, 2015 with the latest information available at the time of publishing.*

Lesson Three: Understanding Form 1095-C

See below for a breakdown of Form 1095-C.