American flag and medical symbol From M&As to premium surcharges and ongoing implications of actions by legislators, the changing landscape of ACA employer responsibilities can be challenging to navigate.

Employers have seen unprecedented change in 2021 regarding health care for their workers, and compliance with Affordable Care Act (ACA) reporting mandates is no exception. At Equifax Workforce Solutions, we’ve been fielding numerous employer questions about how current events might affect their ACA responsibilities and have compiled the most frequently asked for BenefitsPro readers.

Should I be concerned that the IRS intends to sunset its ACA good faith reporting relief?

Yes. When the ACA was established more than 10 years ago, the IRS initiated what is known as good faith relief – a grace period to temporarily assist employers as they became familiar with Employer Shared Responsibility Provisions. This grace period exempted eligible employers from penalties for certain missing or inaccurate information.

Late last year, the IRS indicated its intention to discontinue good faith relief for future reporting, unless it received persuasive public comment to the contrary. This development could increase penalties for employers whose forms are not fully complete and accurate by IRS standards (including SSN/TIN data) and submitted by the IRS form submission deadline. Penalties can also be assessed for incorrect forms furnished to taxpayers. Today each situation carries a penalty of $280 per return (increased to $560 per return if noncompliance is intentional). Penalties are capped based on filing date and company revenue, with a maximum of just over $3.3 million, unless there is intentional noncompliance (for which the cap is removed).

Can we levy a premium surcharge on employees who choose to remain unvaccinated against COVID-19 and still be compliant with the ACA?

The short answer is, “It depends.”

If a premium surcharge affects the affordability of your health plans, compliance issues can result. The ACA requires that the employee premium cost for your lowest-cost plan must meet minimum value and affordability guidelines. In 2021, affordability is met when an employee’s cost for health insurance benefits is no more than 9.83% of that employee’s household income. Under current ACA guidelines, a premium surcharge for choosing to be unvaccinated against COVID-19 could be applied to the cost of your organization’s lowest-cost health plan.

If the cost including the surcharge renders the plan unaffordable, and the employee goes to the exchange and receives a premium tax credit, the employer may be subject to Penalty B – a $4,060 penalty (per year) that can be multiplied by the total number of full-time employees who did not have an offer of affordable coverage and who also receive a premium tax credit.

Is the American Rescue Plan still impacting my ACA compliance risk?

Yes. The American Rescue Plan, the most sweeping health reform legislation since the passage of the ACA, expands consumer eligibility for premium tax credits to purchase insurance through the health care exchanges. While this has been welcome news for many struggling Americans, employers need to understand the possible financial implications this law poses to them.

Under the ACA, employers are at risk of incurring a penalty when they fail, for whatever reason, to offer affordable coverage that meets minimum value requirements (see above). Until 2021, only individuals who made less than 400% of the federal poverty level (FPL) were eligible to receive a subsidy. The American Rescue Plan expands eligibility by eliminating the FPL income cap for tax years 2021 and 2022. With the threshold removed, more workers will qualify for subsidies, resulting in greater risk of a penalty for employers that fail to offer affordable coverage.

Why did I get a 226-J letter with the code “XF”?

It appears that the IRS is now looking at employer-reported data more closely and comparing affordability codes on line 16 of forms 1095 with data it has from its own resources – namely, the W2 forms every employer also files with the IRS. It also appears that the IRS is doing its own math to determine if reported codes are applicable to determine affordability. If the IRS doesn’t agree with an employer’s use of W2s as a safe harbor, it’s sending the employer a 226-J letter with a notation of “XF” for line 16 on the included Employee Premium Tax Credit (PTC) Listing form (Form 14765). A 226-J letter is the IRS’ way of informing an employer that penalties could follow and is accompanied by the Employee PTC Listing form.

To date, we’ve seen the IRS use an X notation only when disallowing W2 as safe harbors (XF), but that could change, as the 226-J letter details that XG and XH codes may also appear to indicate rejection of the safe harbors FPL and rate of pay. Details on the new X codes are somewhat misplaced within the 226-J letter and can be confusing.

Employers who receive a 226-J letter with an XF notation can assume that the IRS doesn’t think using the W2 safe harbor is accurate based on data it has on file and should respond in one of three ways: 1) providing the corrected safe harbor code for the affected employee group, 2) admitting that you did the math wrong, or 3) defending use of the W2 safe harbor by showing the IRS your calculations.

Our company just acquired another, how does that impact my ACA reporting responsibilities? The acquiring entity is liable for ACA reporting responsibilities for all employees of the company it acquired from the date of acquisition. This includes acquired employees who have been placed on leaves of absence or furlough. To fulfill this obligation, you’ll need to understand the acquired company’s measurement periods and benefit offerings to help ensure that you’re making the necessary offers of health coverage. Among the information you should collect:

  • The prior employer’s statistics as an Applicable Large Employer (ALE)
  • Details of the sales agreement as they pertain to ACA information filings, benefits and eligibility
  • ACA information reporting obligations for which the acquiring company is responsible
  • Access to data including benefits, HR, payroll, COBRA, ACA, leaves of absence
  • Prior period and current period measurement, administration and stability period data
  • IRS filing information
  • Collective bargaining or multi-employer union representative contact information and contracts

Acquiring corporations also must calculate the appropriate affordability safe harbor for each acquired employee population to avoid IRS Penalty B, as well as make immediate offers of health coverage to newly acquired employees if they were taken on as a whole population (instead of making them complete a waiting period).

From M&As to premium surcharges and ongoing implications of actions by legislators, the changing landscape of ACA employer responsibilities can be challenging to navigate. Getting it wrong could cost your organization significant amounts in financial penalties. That’s why it’s mission critical to be able to rely on trusted experts who can support you through the process, especially as the IRS begins exerting more scrutiny over employer-reported data.

Kyle Scott is assistant vice president of compliance at Health e(fx), an Equifax company. Kyle is Certified in Healthcare Compliance (CHC), and achieved certificates in Management Information Systems, Health Law, Human Resources Compliance, and Cybersecurity and Privacy Law. Kyle has more than 25 years experience in health care and employer benefits solutions.

Christy Abend is director of product management at Equifax Workforce Solutions. She has spent more than two decades working in the talent, HR, and product management space, with a concentration in health and welfare benefits and a focus on employer regulatory alignment. Christy holds a SHRM-SCP certification as well as Group Benefits Associate certification through the Wharton School of the University of Pennsylvania.