Changes are coming to the Affordable Care Act (ACA) in 2024, and HR departments need to take note of them now. With this review and planning, your company will be compliant and adhere not only to the ACA’s pay or play rules going forward, but be able to file correctly and avoid penalties.
Three main areas are changing:
- Most employers must file electronically beginning in 2024
- Pay or play affordability percentage will decrease for 2024
- Pay or play penalties will increase for 2024
Right now, any reporting entity that is required to file at least 250 individual statements under Sections 6055 or 6056 must file electronically. If that is your company or organization, then you already are prepared for this change.
The change is that this year the threshold for mandatory electronic reporting drops from 250 returns to 10 returns. This means most reporting entities will be required to complete their ACA reporting electronically starting in 2024.
The good news is that if you’re new to this, you might be able to work with a third party partner to complete the electronic filing. HR professionals responsible for this area should review the Affordable Care Act Informations Returns (AIR) section of the IRS website carefully first to see if you’re eligible to work with a third party.
If you are not eligible, it’s going to be OK. While that reporting process is quite technical, here’s what you need to do.
Step one: Register to use IRS e-Services tools (new sign-in options are now available) and apply for the ACA Application for Transmitter Control Code (TCC). The IRS issued a tutorial for requesting a TCC. Reporting entities that are using third-party vendors—and are not transmitting information returns directly to the IRS—should not apply for a TCC.
Step two: Pass all applicable test scenarios. Software developers are required to annually pass ACA Assurance Testing System (AATS) testing to transmit information returns to the IRS, and those who passed testing for any tax year ending after Dec. 31, 2014, do not need to test for the current tax year. Transmitters and issuers must use approved software to perform the communications test, which is only required to be successfully completed once.
Remember, though, this blog is not technical, legal or tax advice and be sure to use those IRS resources for more help.
If you truly need more help, you can request a hardship waiver. But you cannot apply for a waiver for more than one tax year at a time and must reapply at the appropriate time for each year a waiver is required.
Pay or Play Affordability Percentage Will Decrease
For plan years beginning in 2024, employer-sponsored coverage will be considered affordable under the ACA’s pay or play rules if the employee’s required contribution for self-only coverage does not exceed 8.39% of their household income for the year.
This means that employer-sponsored coverage for the 2024 plan year will be considered affordable under the pay or play rules if the employee’s required contribution for self-only coverage does not exceed 8.39% of the employee’s household income for the tax year.
That means what you require employees to contribute for 2024 to meet the adjusted percentage might need to be lowered significantly. You will need to determine the affordability based on the Form W-2 safe harbor, the rate of pay safe harbor, or the federal poverty level safe harbor.
This marks the third year that the affordability percentage has been adjusted lower: from 9.61% in 2022 to 9.12% in 2023 and now 8.39% for 2024.
You need to remember that the affordability test applies only to the portion of the annual premiums for self-only coverage and does not include any additional cost for family coverage. If you offer multiple health coverage options, the affordability test applies to the lowest-cost option that provides minimum value.
Pay or Play Penalties Will Increase
With changes in rules and regulations, if your company is an applicable large employer (ALE), you are only liable for a penalty if at least one full-time employee receives a subsidy for Exchange coverage. Employees who are offered affordable, minimum value (MV) coverage are generally not eligible for these Exchange subsidies.
(What is an ALE? If you’re asking, you likely are not one. But if you are a company with at least 50 full-time employees, including full-time equivalent employees, on average for the prior year, you are an ALE for the current calendar year.)
An ALE will be subject to a penalty if it does not offer coverage to “substantially all” (generally, at least 95%) of its full-time employees (and dependents) and any one of its full-time employees receives a subsidy toward his or her Exchange plan. The monthly penalty is equal to the ALE’s number of full-time employees (minus 30) multiplied by 1/12 of $2,000 (as adjusted), for any applicable month.
ALEs that offer coverage to substantially all full-time employees (and dependents) may still be subject to a penalty if at least one full-time employee obtains a subsidy through an Exchange because the ALE did not offer coverage to all full-time employees, or the ALE’s coverage is unaffordable or does not provide MV. The monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is 1/12 of $3,000 (as adjusted) for any applicable month. However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.
Keeping Your Company Compliant
It’s a lot and the changes thankfully happen just once a year. We are making it easier for you to stay in compliance with our Affordable Care Act: 2024 Compliance Checklist. Download your copy here.