How To Prepare for the Employer Shared Responsibility (ESR) Provisions

BePreparedPaychex released a checklist for business owners to prepare for the IRS year-end reporting for the Employer Shared Responsibility (ESR) provision. Under the Affordable Care Act (ACA), ESR provisions are in place to determine if full-time employees are offered adequate and affordable health care coverage.

Businesses with 100 or more full-time employees (including full-time equivalents) may be subject to ESR penalty assessments beginning in January 2016 for the tax year 2015. Businesses with 50 to 99 full-time employees in 2014 (including full-time equivalents) may be eligible for relief from ESR penalties for the year 2015, but only if they meet specific qualifications. They still have to complete IRS year-end reporting requirements to certify their eligibility for they exemption.  While the tax filing is not required until early 2016, it is important to act now.

Below is a checklist to help guide business owners through IRS year-end reporting:

• Prepare now to avoid playing catch-up later: It is critical to have at least 12 months of payroll information tracked as businesses are expected to use historical hours and wages – by month – for every employee to determine the following: whether you are considered an applicable large employer (ALE), which employees are considered full-time based on 30 hours per week, not 40, and whether the coverage you offer to full-time employees is considered adequate and affordable. For more information and tips on tracking employees’ hours, click here.

• Determine if you are an applicable large employer (ALE): ALEs in 2015 have had 50 or more full-time employees (including full-time equivalents) in calendar year 2014. Full-time employees work an average of 30 hours per week, or 130 hours per month in the calendar year. To calculate the number of full-time equivalent employees, use the hours of service for all employees  who were not full-time employees (including seasonal workers) in any given month (capped at 120 hours per employee) divided by 120. Click here for more information.

• Determine your full-time employees: Hours can be measured on a monthly basis during the calendar year or throughout a pre-determined look-back period. You must give every employee who was full-time for at least one month during the calendar year this form: IRS Form 1095-C. For help determining your employees’ status, click here.

• Review your plan coverage: ACA Section 6056 requires ALEs to file information returns with the IRS and provide statements to their full-time employees about their health insurance coverage. This includes information about medical coverage offered to full-time employees on a monthly basis throughout the calendar year. ALEs must determine and report that the coverage they offer meets the minimum actuarial value standards, as well as affordability requirements, outlined in the ESR provisions. Click here.

• Complete and submit forms 1094-C and 1095-C: These IRS forms provide certification as to whether you have allowed full-time employees to enroll in insurance that provides Minimum Essential Coverage at a minium-actuarial-value of 60% for each month of the year. They employer files these forms with the IRS: Form 1094-C and Form 1095-C. Employers must also give this form to their full-time employees: Form 1095-C t. You can find draft instructions for forms at http://www.irs.gov/Forms-&-Pubs.

• Be on time: Year-end reporting timelines are similar to W-2 forms. You have to file forms 1094-C and 1095-C with the IRS no later than February 28 or, if filing electronically, by March 31. You have to give Form 1095-C to full-time employees by January 31.

Understanding and complying with these new health care reform requirements may be overwhelming for business owners to handle on their own. With this in mind, beginning in tax year 2015, Paychex will offer IRS year-end reporting assistance through its Employer Shared Responsibility Services to help ease the burden of these new requirements.

Last Updated 10/20/2021

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