Avoiding Costly ACA Reporting Errors: Key Employer Considerations

Under IRS Code Section 4980H, employers are required to offer health insurance coverage to employees if their business is an Applicable Large Employer (ALE), which is generally any business with 50 full-time or full-time equivalent employees as defined under the Affordable Care Act (ACA). Pursuant to Code Section 6056, these employers must report the offering of health insurance coverage. 

Form 1095-B is used for reporting certain information to the IRS and to taxpayers about individuals who are covered by minimum essential coverage and therefore are not liable for the individual shared responsibility payment. Form 1095-C is filed with the IRS and furnished to any individual who is a full-time employee for one or more months of the calendar year. Employers must report that information for all 12 months of the calendar year for each employee. These two forms must be furnished, as appropriate, to individuals, for their coverage in the prior calendar year, as well as to the IRS.

Even with the repeal of the individual mandate, 1095-B reporting is still required. The IRS uses this information to enforce the employer mandate. It is also used when determining premium subsidy eligibility in the ACA marketplace. 

Measurement Methods

Under the ACA’s employer mandate, employers have the option to choose between two different measurement methods when determining which employees are full time (averaging at least 30 hours per week):

Monthly Measurement Method (MMM). Under this method, employers determine full-time employee status by measuring the employee’s number of service hours at the end of every month. Employees with 130 or more service hours during each month are considered full-time employees for that month. 

The MMM works best for employers with a workforce that is entirely or almost entirely full-time with few or no part-time workers. It is also recommended for employers that set health plan eligibility limits below 30 hours/week and those without a substantial number of employees whose service hours fluctuate above and below 30 hours/week.

Look-Back Measurement Method (LBMM). Instituted by the IRS for employers with largely variable hour workforces, the LBMM is only available when a determination cannot be made as to whether an employee will be employed at least 30 hours per week on average. Under this alternative method, an employer can determine an employee’s full-time status during a future period (the “stability period”) based on the employee’s service hours in a prior period (the “measurement period”). 

The LBMM is recommended for employers whose workforce is primarily part-time or seasonal as well as employers that have established health plan eligibility at 30 hours/week and have a significant number of part-time or seasonal employees.

We help organizations set up the employee benefit plans that are right for their members, put processes in place to ensure regulatory compliance, and keep those benefit plans updated based on changes in laws and regulations. To learn more about the services we offer at Hall Benefits Law, call 678-439-6236 today.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.
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