Affordable Care Act (ACA) reporting has started for tax year 2023. ACA reporting can quickly become complicated and costly with IRS penalties if your business does not have an efficient process in place. Although regulations have generally stayed the same for this reporting season, there are some important updates all businesses should be aware of when filing their ACA forms with the IRS this year.
The IRS requires ACA filing with the goal of knowing where each individual gets their healthcare coverage from during the calendar year. Taxpayers can get insurance coverage through one of three places:
- ACA Marketplace (Form 1095-A)
- Insurance company (Form 1095-B)
- Applicable large employers (ALEs) (Form 1095-C)
Knowing this information allows the IRS to deliver penalties to applicable ALEs and determine persons who are eligible for tax credits on their individual returns. As a refresher, IRS Form 1095-C is usually filed by ALEs (generally those who employ 50 or more people), which is required under code 6056. This tax form proves an offer of minimum essential coverage (MEC) was provided to each applicable employee as required under action 4980H.
ACA updates for tax year 2023
For tax year 2023, we did not see many changes from the IRS surrounding ACA tax forms. However, there are three important penalty changes to be aware of for the 2023 reporting season:
T.D.9972 now requires businesses to electronically file information returns, including ACA Forms, at a threshold of 10+ returns, counted in the aggregate. The lowered threshold includes a variety of information returns including W-2s, 1099s, ACA Forms, 1042-S Forms, and more. Prior to 2023 reporting, the threshold was 250+ returns, applied to each form individually.
- The 4980H(a) penalty increased to $2,880 for tax year 2023. This penalty is issued when an employer does not offer the MEC to at least 95% of its full-time employees (and their dependents) for any month during the tax year, and at least one-full time employee receives a Premium Tax Credit (PTC) for purchasing coverage through the marketplace.
- The 4980H(b) or Employer Shared Responsibility Penalty increased to $4,320 for tax year 2023. This penalty is assessed when an employer fails to offer coverage that meets the affordability and minimum value requirements. This penalty is typically only issued when the 4980H(a) penalty does not apply.
The penalties specified under codes 4980H(a) and 4980H(b) are slated for another increase for 2024, increasing to $2970 and $4460, respectively. For 2023 returns (filed in early 2024), the penalty for failing to file electronically, failure to provide a correct payee statement, and/or filing inaccurate information is $310 per return (with a maximum of $3,783,000 per calendar year).
ACA reporting deadlines for 2023
As of tax year 2023, all businesses filing ten or more forms must file electronically. The ACA reporting deadline for electronic filing is April 1, 2024, while the ACA reporting deadline for paper filing is February 28.
How should I prepare for the 2023 ACA reporting season?
We’ve compiled a few key tips to help you prepare for the ACA reporting deadlines for 2023:
- Ensure your data is accurate. Doing a cleanse of your data can help eliminate errors when transmitting, which often lead to costly penalties.
- File electronically to ensure you have enough time to accurately report your data. The due date for Forms 1094-C and 1095-C is April 1 when filing electronically, versus February 28 for paper filings. This gives you an extra month to prepare your data for transmittal.
- Find a solution that fits your needs. If you are a business that hovers around 50 employees, finding a solution and contract terms that allows for flexibility in your reporting from year to year is essential.
- Confirm your business’ state reporting obligations. Since the mandate to have health insurance was removed at the federal level in 2017, many states began to administer their own requirements on healthcare. California, Massachusetts, New Jersey, Rhode Island, Vermont and the District of Columbia all require ACA reporting at the state level, with more states expected to edict mandates in the future.
It is not too late to implement a Sovos solution to help with your ACA reporting needs. Sovos can give valuable time back to your team and simplify your ACA reporting process.
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With over 10 years of experience filing ACA forms, our Tax Information Reporting – ACA solution can handle all of your reporting needs, no matter how regulations change. Talk to our compliance experts today.
