ACA: The Latest in State-Based Reporting and Penalty Management

Manager focused on compliance

Given the need to comply with state and federal reporting requirements regarding ACA, here's how your organization can improve its ability to comply.

The employer shared responsibility provision – also referred to as the Employer Mandate" – in the Affordable Care Act (ACA) requires employers with 50 or more full time equivalent employees (FTEs) to provide timely, affordable health insurance to at least 95% of the FTEs and dependents up to age 26 if they wish to avoid a federal potential penalty.

Businesses with fewer than 50 FTEs are not subject to the employer mandate. In most cases, businesses with 50 or more employees were already providing health insurance coverage to their employees prior to the ACA's implementation.

If Applicable Large Employers (ALEs) need reminding of the importance of compliance with the ACA, penalties for failing to comply with the Employer Mandate portion of the Act resulted in $4.5 billion in assessments for the 2015 tax year alone. Annualized for 2016 and 2017, ACA compliance penalties could total $13.5 billion for 2015, 2016 and 2017. 2017 penalties are still circulating as of 2020; ACA IRS penalty notices are still waiting to be assessed and sent for the 2018 and 2019 tax year.

States Enter the Arena

In addition to reporting requirements and potential penalties at the federal level, there's a growing number of states that require similar employer reporting. For example, for the 2019 tax year, New Jersey and Washington D.C. required reporting. Additionally, California and Rhode Island announced their requirements for employer reporting and employee forms for tax year 2020. California has already defined potential penalties for those that do not fulfill these new employer reporting requirements; New Jersey is examining applying penalties to non-compliance as well. Finally, Connecticut, Maryland, Minnesota and Washington may soon enact their own ACA reporting requirements, watching the successes and developments of the first states and their reporting cycles.

To complicate matters further, each state reserves the right to create its own filing guidelines and protocols. For example, the filing date for initial reporting cycles for New Jersey is March 31, 2020. The District of Columbia's filing date for the same report is June 30, 2020. Starting the 2021 filing season, filing dates may be shifted as well, with many dates mirroring IRS established dates of January and March. It is important to note: California cannot grant extensions to filing dates as it is not permitted through that state's legislation.

When it comes to both federal and state reporting, data accuracy and integrity is a must. For companies with employees who live in one state and work in another, the data on file must show where they live to allow for the appropriate state reporting.

Given the steady increase in the number of states implementing their version of ACA reporting, an effective solution to manage the process must be able to be scaled without requiring significant increases in the cost associated with the platform. To that end, a solution provider that helps organizations comply with ACA reporting should embrace a proactive, month-by-month approach to notification and state reporting requirements by working with its customers to plan for compliance well in advance of filing due dates.

The Evolution of ACA Penalty Avoidance

In the early days of their efforts to ensure compliance at the federal level, many organizations focused almost exclusively on the submission of forms required under the Act at the end of the year. What ADP has discovered is that the submission of timely and accurate forms is a byproduct of the organization's efforts and success in managing proactive penalty avoidance a monthly basis. Therefore, businesses should engage technology and expertise to support efficient and effective business efforts to gather, analyze and validate its data on a monthly basis, so that it is the easier to submit accurate, compliance-related data with minimal potential penalty exposure on an annual basis.

Since the penalties for non-compliance apply to each Federal Employer Identification Number (FEIN) by month, if issues are not addressed, they compound over time. Meaning, if an employee becomes eligible for benefits in February, but that is not discovered until December, the potential penalty would span February to December (10 months of penalty exposure). This comparted to identifying it in March and correcting the missing offer (only one month of potential penalty exposure). As this example illustrates, minimizing ACA compliance penalties requires a proactive penalty avoidance solution.

The complexity of managing compliance for each FEIN, by employee, by month continues to present a significant challenge for many large organizations. Such complexity stems from the challenges of sourcing and reconciling data from multiple systems, including payroll, human resources, benefits, leave of absence, etc., and correctly aggregating that data by employee every month.

Consequently, penalties can result if there's a lack of data integrity. If, for example, an organization lacks HR-related data on an employee and they are not shown as active within its records, they will likely be excluded from future analysis. This could result in the failure to offer them coverage at the appropriate time, which in turn could trigger a penalty. In addition, an organization's systems might fail to capture hours worked accurately, which could also justify the assessment of a penalty. Therefore, eliminating penalties depends on an organization's ability to identify data discrepancies and potential analysis gaps that could result in a penalty.

Whether seeking to comply with state or federal reporting requirements, organizations need solutions that simplify and streamline the process because of the inherent challenges of gathering and analyzing employee-related data from across the enterprise. Once data has been aggregated and its integrity confirmed, organizations should leverage solutions to apply proactive penalty measures to ACA measurements and status every month, by FEIN and by employee. It's only once they have those solutions and visibility in place that they'll be able to comply with ACA reporting requirements while minimizing the potential for costly penalties.

Additional Information

Understanding the Affordable Care Act — Where We've Been and What to Do Next

Meet the demands of the evolving ACA landscape with the ADP SmartCompliance® Health Compliance Module.