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The ACA has introduced a number of terms that are either brand new or newly applied to healthcare, and many are especially important to know when filling out 2015 tax returns. Besides the “pay or play” employer mandate and penalty, there are many other mandates – and corresponding penalties – that must be attended to in order to avoid noncompliance. Understanding key terminology is an important piece of the puzzle.
Below are terms that are relevant to a broad range of mandates and penalties, beyond the employer mandate:
- Applicable Large Employers (ALEs): Any company with 100+ full-time or full-time equivalent employees in 2015, and 50+ full-time or full-time equivalent employees in 2016.
- ERISA penalties: ERISA penalties are issued when the US Department of Labor or plan participants/beneficiaries take civil action against a plan or sponsor, which is not complying with ERISA regulations. Penalties can range from up to $1000 per day for plan administrators who don’t comply with reporting regulations to a percentage of prohibited transactions.
- Good faith: To comply with the ACA in “good faith” means that all reporting, filing and content is done in an appearance and template that is consistent with the final instructions and regulations. When operating under “good faith” an organization can demonstrate and prove a reasonable interpretation of the law. Good faith exemptions to ACA mandates do not apply to returns that not filed in a timely manner.
- Minimum value: Employer-sponsored coverage must meet a minimum value (MV) of at least 60% of plan costs. As a result, employees do not pay more than 40% of plan costs.
- Penalty tax: A $100 excise tax (per employee) under the Internal Revenue Code for each day a plan is not in compliance. This tax applies to all plan sponsors; however it does not apply to governmental employers or health insurance issuers.
- Safe harbors: The IRS has implemented three safe harbor methods to help employers determine an employee’s household income to insure group coverage is “affordable.” Safe harbors must be used uniformly and consistently among all employees in a company or a particular category within a company. The three safe harbors include:
- Using an employee’s W2 taxable income; however this does not include any employer contributions to HSAa, 401(k)s, or cafeteria plans
- Using an employee’s rate of pay on the first day of plan coverage
- Using federal poverty guidelines
Any organization – regardless of ALE status – that provided healthcare to employees in 2015 must be prepared to demonstrate a strong understanding of the intricacies of the ACA. This means knowing all terminology and how penalties may affect returns.
For more ACA-related definitions, or to learn more about the
ACA mandates and possible penalties and exclusions, download
The Nonstop Guide to ACA Penalties for the 2015 Tax Year
