By: HUB’s EB Compliance Team

Some employers that are subject to the Affordable Care Act (“ACA”) employer mandate make a decision not to offer coverage. However, that does not mean they are done with ACA compliance.

These employers have looked at the numbers and concluded that paying the penalty for not offering coverage is cheaper for them than offering coverage. They’ve also concluded that any benefits to offering coverage (such as the ability to attract and retain employees) are, for them, outweighed by the cost.

That’s Not the End of the Story

While that may be a rational economic decision, they still have to tell the IRS what they have decided to (not) do. ACA imposes two separate (albeit closely-related) requirements upon Applicable Large Employers (“ALEs”). These are generally organizations with 50 or more full-time and full-time equivalent employees that is subject to the ACA employer mandate (more detail on how to determine if an employer is an ALE, see our earlier articles on the employer mandate here). The two obligations are:

  1. Employer mandate:
  2. ALEs must offer compliant health coverage to all full-time employees, or pay a penalty; and
  3. Employer reporting:
  4. ALEs must issue a report to each full-time employee (and the IRS) showing whether or not they offered coverage to them. ACA reporting comes with its own separate set of penalties (currently $270 per failure up to a cap of approximately $3 million)

The key point is this: the requirement to report about coverage offered (or not offered) is independent of the ACA employer mandate. This means that any ALE that decides it’s less expensive to simply pay the employer mandate penalty for all full-time workers must still file its IRS Forms 1095-C. In other words, it would file a Form 1095-C to all full-time employees showing that no offer of coverage was made. This is reiterated by the IRS as part of these FAQs posted on its website (see, specifically, Number 11).

But Why?

Part of the purpose of the reporting is to let the government know which individuals are (and which are not) eligible for a tax credit/subsidy to help pay for the cost of individual health coverage. Employees who receive an offer of compliant coverage are not eligible for the tax credit. However, employees who do not receive an offer from their employer may be eligible, depending on their income. Therefore, the IRS needs to know whether or not an employee was offered coverage.

The reporting also lets the IRS know that an employer mandate penalty is due from an employer that did not offer coverage.

Those are the policy reasons, but as stated above, the failure to report carries heavy penalties that are separate from the ACA employer mandate. Therefore, even those employers that choose not to offer coverage must report. If they don’t, they will end up paying twice (once for the mandate, and once for failing to report) when they only thought they would have to pay once.

HUB International can help put employers in touch with vendors who can provide reporting services. Given the extended deadline for providing the forms to employees, these employers have some breathing room, but not much. Reporting to the IRS comes sooner (by February 28, if an employer is reporting on paper; April 1, if reporting electronically). The sooner employers get their reporting started, the more they can mitigate these potential penalties.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.


The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.