January 18, 2021
At the beginning of each year, businesses are responsible for sending W-2 forms to employees and contractors and gathering the data necessary for ACA reporting. Both of these tasks are required to ensure compliance.
While compiling the data is tedious and time-consuming, it is essential to capture accurate data in order to avoid penalties and fees. Through regulatory reporting, the data can identify any issues within a company and allow for corrective actions to be taken. It is necessary to verify that companies are safe and ethical. As Former US Deputy Attorney General Paul McNulty said, “If you think compliance is expensive – try non-compliance.”
At BenefitElect, we want to ensure you have the tools and information you need to achieve 100% compliance. Below, we have included a few tips to guarantee your success when it comes to processing W-2s and ACA reporting.
Keeping track of the numerous forms and copies that W-2 processing involves can be overwhelming, and mistakes can result in financial consequences. In fact, the penalty for turning in a single incorrect W-2 is $550.
Before you begin processing W-2’s, take a look at the three most common issues:
- Incorrect withholding
Disregarding Social Security maximums is a frequent oversight when it comes to reporting employee withholdings. Unfortunately, such errors can be costly and require numerous resources to resolve. Investing in financial software that automatically populates W-2 forms and alerts you when Social Security maximums have been reached can readily mitigate this issue.
Another problem when it comes to withholdings is out-of-date information on employees’ W-4 forms. The W-4 form is used to determine withholding amounts and deductions. If the information on a W-4 form is incorrect, additional expenses can be incurred. This particular problem is easily resolved by reminding employees to update their W-4 forms after each life event to ensure that withholding amounts and deductions are correct.
- Failing to use approved methods
Because Copy A of the W-2 form, which goes to the Social Security Administration (SSA), is printed with special red ink, W-2 forms cannot be downloaded online. Instead, they must be purchased at an office supply store or the IRS or obtained from financial software. Failure to use these specialized forms can result in missed deadlines and steep penalties.
Please note that it is highly recommended that the font used for completing W-2 forms be in 12 pt., Courier. Problems can result if the font is different or printed in any other color than black. The IRS also requires that if more than 250 forms are being filed, you must file online. Making sure to comply with these details can save you time on the back end.
- Distributing to the wrong entities
The W-2 form consists of four copies that require distribution to specific entities. Failure to send each copy to its respective recipient can, once again, result in missed deadlines and penalties. Copy A, the one with red ink, is sent to the SSA. Copy 1 is sent to a state, local or city tax department. Lastly, copies B and C are for the employees’ tax purposes and private records. The deadline for distributing 2020 W-2s to employees is January 31, 2021.
When it comes to ACA reporting, companies need to be aware of the following:
- Number of full-time employees
According to the ACA, if you have 50 or more full-time employees, you are classified as an Applicable Large Employer (ALE). The ACA mandates that all ALEs must submit monthly reports which include information about Minimum Essential Coverage (MEC), the total employee count (and full-time employee count), as well as comprehensive information about every full-time employee, including coverage information.
For the purposes of ALE classification, the ACA designates a full-time employee as someone who works an average of 30 hours per week. Bear in mind that if your company has less than 50 full-time employees and is related to another company, both companies could be treated as one ALE, with each company being a member and possibly rendering ACA applicable.
- Coverage requirements
The insurance coverage that you offer must be Minimum Essential Coverage (MEC), Minimum Value (MV) and “affordable.” MEC plans must include information regarding hospital care, maternity care, and emergency services, to name a few. Minimum value means that the plan must make up at least 60% of an employee’s total benefits costs. Affordable plans must have an employee contribution not exceeding 9.5% of the employee’s household income.
- Reporting requirements
Employers are required to report the total cost of health benefits on W-2 forms, as well as report on whether MEC coverage was offered to at least 95% of full-time employees and their families. In addition, the number of full-time employees and information regarding each ALE member are also required. This information should be reported monthly.
How We Help
At BenefitElect, we provide the data you need to prove 100% offers of coverage. With our intuitive platform, we ensure data accuracy, streamline complex reporting, and eliminate your risk of penalties or fees for noncompliance. Learn more about the BenefitElect Advantage.