ACA Filing Rules Change: How You Can Be Prepared

Get ready, a significant change is here for this ACA filing season, and it requires certain filers to e-file in the beginning of 2024. But first, some background information on ACA filing.

The Affordable Care Act (ACA) created reporting requirements under the Internal Revenue Code Sections 6055 and 6056. Under these rules, certain employers must provide information to the IRS about the health plan coverage they offer, or in some cases, do not offer, to their employees.

The ACA requires applicable large employers (ALEs), generally those with 50 or more full-time equivalent employees, to report certain information to the IRS annually. This reporting helps ensure compliance with the ACA’s employer shared responsibility provisions and allows the IRS to administer premium tax credits correctly.

According to the original rule, any reporting entity that was required to file at least 250 individual statements under Sections 6055 or 6056 had to file electronically. But on February 23rd , 2023, the IRS released a final rule implementing a law change by the Taxpayer First Act of 2019, which lowered the 250-return threshold for mandatory electronic reporting to 10 returns. Therefore, most reporting entities will be required to complete their ACA reporting electronically starting in 2024.

The size of the employer determines what ACA rules will apply to that employer. An employer’s size is generally determined by the number of its ACA full-time employees (FTEs,) including full-time equivalents.

If an employer has 50 or more FTEs, including full-time equivalent employees, the employer is an Applicable Large Employer (ALE) and needs to issue statements to employees and file an annual information return, reporting whether and what health insurance the employer offered employees for the reporting year.

As an employer, you may need an ACA vendor if you:

• Are between 50 and 250 ACA Full-time employees;
• Are part of an ALE (Applicable Large Employer), i.e., employers with 2 EINs or more, OR, have over 50 ACA full-time employees;
• Have previously paper-filed your returns with the IRS.

Regardless of size, all employers that provide self-insured health coverage to employees must file an annual return, reporting certain information to IRS for each covered employee and must provide the same information to covered individuals.

This rule had been percolating for a while before it was finally issued in February 2023. But, put simply, it’s an efficiency measure. The IRS estimates that by 2028 it will receive 5 BILLION information returns, which includes Form 1094-Cs and Form 1095-Cs. By reducing the form limit to ten (10) forms, it is the hope that the IRS can migrate the acceptance of millions of additional forms to its electronic system(s).

In prior years, small employers could file paper ACA reporting forms if they were filing fewer than 250 returns. Starting in 2024, employers filing ten (10) or more returns in aggregate must file their Forms 1094-C and 1095-C electronically. This means that ANY Applicable Large Employer MUST e-file, effective with the 2023 filing year – during Q1 2024.

Any business who previously paper-filed 1095-C forms will need to complete the following steps to e-file with the IRS under the new rules, and these steps can be time-consuming and confusing.

• First, the business will need to apply for a Transmitter Control Code (TCC) for the IRS AIR System.
• Once the organization receives the TCC Code, they will need to test with the IRS before they are approved to e-file
• The organization must prepare and file their Forms 1094-C and 1095-Cs in the manner required by the IRS- their 18-page guidelines are here.

With that said, it is important to keep in mind that this system requires a special coding format for transmission so it is generally not something that a typical employer would use on their own without the support of an ACA reporting vendor.

Many employers who previously relied upon paper-filing their ACA forms may be (1) unaware of the changes, (2) unfamiliar with how to e-file, and/or (3) have not applied for a Transmitter Control Code (TCC) with the IRS AIR System. If you fall into this category…and have learned about it the hard way, it will be likely that you receive a Letter 5699 which will outline that you failed to effectively file your required ACA Filing for the 2023 tax year. This letter is important to take care of with speed and accuracy. Refer to our Letter 5699 Guide and advice for replying to this letter.

Let us file your forms for you – please reach out to clientservices@paragoncompliancellc.com for a quote or call us today!