ACA Reporting – Preparation is the Key to Success

The Affordable Care Act (ACA) went into effect over a decade ago on January 1, 2014.  While we would hope that it is second nature by now, we find that for many, the year-end deadline still sneaks up on us and causes undue stress.  Confucius said “Success depends upon previous preparation, and without such preparation, there is sure to be failure,” so with a little bit of preparation now, one can be ahead of the game when we get to December.

Here is what can be done ahead of time:

1. It goes, without saying, that the first step is determining if you even have to comply.  Is the business an Applicable Large Employer (ALE)?  If you averaged 50 or more full-time equivalent (FTE) employees in the previous calendar year, then you are an ALE.  For further information on calculating FTE, visit the IRS webpage on determining if an employer is an Applicable Large Employer.
2. Determine who will prepare the year-end forms and filing.  ACA reporting requires the annual filing of IRS Forms 1094/1095.  Many payroll service providers, such as PayMaster, will handle this filing for your business, but there are also benefit providers, third party form filers and accounting firms who can perform the work.
3. Determine if the insurance being offered meets the Minimum Essential Coverage (MEC).  This should be easy, as most business group health insurance plans meet MEC.
4. Determine if the insurance being offered to the employee meets affordability.  This is a bit harder, as it is a moving target and is different from one employee to the next.  The factor for affordability changes each year and for 2025, it is 9.02%.  A company only has to meet affordability based on one of the following three affordability tests; take your pick:
   1. Rate of Pay affordability test – Multiply the employee’s lowest hourly wage by 130 (standard full-time work hours for a month) times the 9.02% affordable rate.
   2. W-2 wage affordability test – This method uses the employee’s W-2 wages from Box 1 divided by 12 months times the 9.02% affordability rate.  This test is tricky  because the W-2 wages cannot be determined until the end of the year, and by then, it is too late to adjust any cost to the employee for that year.
   3. Federal Poverty affordability test – The deduction must be no more than 9.02% of the Federal Poverty Level for a single person, which is $15,650 for 2025 for the 48 continuous states divided by 12.  This translates to a monthly deduction of no more than $117.64.  The 2025 FPL for Alaska is $19,550 and for Hawaii, is $17,990.  This is the easiest of tests, as you do not need to know how much the employee is paid, but it does result in a low amount.

The following steps should be performed, ideally, on a quarterly basis:

1. Maintain accurate data!  Record new hires and terminations with the proper dates.
2. Request from your insurance carrier a quarterly census to assist in reviewing your covered employees.  Carriers have to remit their own version of the 1095C form, called the 1095B form.  Between their form and the 1095C form, the interaction between the employee and your insurance plan needs to match.  To reiterate, requesting the census on a quarterly basis is a great way to make sure you are representing what your carrier shows.
3. Be aware of deadlines.  The IRS Form 1095 is due to the employees by March 2, 2026, and electronic filing of the forms is due to the IRS by March 31, 2026.  These deadlines are for the 2025 tax year. Going forward, the month and day they are due may change due to weekends, but it should be relatively around those dates.  A number of states have state filing requirements with different deadlines.  If you are utilizing a service to prepare the forms, they will likely have a deadline to submit the information to them, in time for their processing turn- around.  An employee, who never works full time for any month of the year, is not required to be issued a 1095 form.
4. Review the form codes for accuracy; specifically, lines 14, 15 and 16, where ultimately, the offering and affordability of the insurance is indicated.  Certain codes will potentially trigger a penalty; especially leaving line 16 blank is likely going to cause a penalty.

Penalties are assessed by the IRS for failing to offer affordable insurance that meets minimum essential coverage, but only if the employee goes to the Marketplace and receives a government subsidy under false pretenses.  The penalty letter, called an ESRP letter, will address a projected cost that you owe the IRS.  It is important to note that sometimes an employee may not be truthful in obtaining discounted insurance from the Marketplace, so be sure you are ready to respond to any potential penalty notice.  A signed waiver of insurance is good to have on hand, should the employee refuse any offered coverage.

If you are a PayMaster client, and you are on our list as an ALE, we will send you an email each quarter as a reminder.  We also have reports that will help you identify those code combinations, as mentioned in item 4 above, that will help identify problems before they turn into a penalty.  If you need assistance with our ACA reports or would like more information on our ACA processing, reach out to your payroll specialist. 

While we make every attempt to ensure the accuracy and reliability of the information provided in this document, the information is provided “as-is” without warranty of any kind. Romeo Chicco or PayMaster, Inc. does not accept any responsibility or liability for the accuracy, content, completeness, legality or reliability of the information contained. Consult with your CPA, Attorney, and/or HR Professional as federal, state, and local laws change frequently. Rates and numbers quoted in this article are for a specific year and likely change for previous and subsequent years.