All Applicable Large Employers (ALEs) are required to offer at least 95% of full-time employees Affordable Care Act (ACA)-compliant Minimum Essential Coverage (MEC) benefits.
ALEs are any business with over 50 full-time employees in a calendar year. Full-time equivalent employees (anyone who works at least 30 hours per week) also count towards the 50 full-time employee tally.
The ACA was created in 2010 to offer more affordable health benefits to a wider range of people. Any ACA compliant benefit plan must cover these 10 health benefits:
Additionally, ACA benefits cover birth control and breastfeeding support.
An ALE who does not provide ACA-compliant benefits to employees is subject to ACA employer penalties. The Internal Revenue Service (IRS) issues fines and penalties to non-compliant companies.
These penalties can fall under the categories Penalty A or Penalty B. If the IRS finds an ALE incompliant, and issues penalties, the agency will not issue both Penalty A and Penalty B simultaneously. They will only issue one or the other.
Penalty A occurs when ALE does not offer 95% of their full-time employees along with their dependents MEC. The IRS will issue a fine for every full-time employee, excluding the first 30 employees, who are not offered ACA benefits. Fine amounts vary depending on the tax year IRS penalizes. The 2021 tax year penalties will be $2,700.
Penalty B occurs when employers do offer coverage to full-time employees, but the coverage is not ACA-compliant. Fines issued for Penalty B are $4,060 per employee for the 2021 tax year for ALEs who issued noncompliant insurance options.
Read the ACA Times full article below for more information about the IRS issuing more ACA employer mandate penalties in 2021.
“ACA reporting for the 2021 tax year may not be top of mind for employers right now, but that doesn’t mean you shouldn’t be aware of the penalties being assessed by the IRS for non-compliance with the Employer Mandate.
Under the ACA’s Employer Mandate, Applicable Large Employers (ALEs) organizations with 50 or more full-time employees and full-time equivalent employees) are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.
The IRS is currently issuing Letter 226J penalty notices to employers identified as having failed to comply with the ACA’s Employer Mandate for the 2018 tax year. Each Letter 226J penalty notice will contain either a 4980H(a) or 4980H(b) penalty amount.
The “A” penalty, also known as the “hammer penalty’ is triggered when an ALE fails to offer Minimum Essential Coverage (MEC) to at least 95% of its full-time workforce and their dependents and had at least one full-time employee receive a Premium Tax Credit (PTC) from a state or federal health exchange. For the 2018 tax year, the annualized penalty amount per employee for 4980H(a) is $2,320.
The 4980H(b) penalty is triggered if the healthcare coverage does not meet Minimum Value and/or is not affordable. The “B” penalty is triggered by each full-time employee who receives a PTC from a state or federal health exchange. Unlike the “A” penalty, the “B” is calculated on a per-employee basis. The 4980H(b) annualized penalty for the 2018 tax year is $3,860 per employee.
For more information on Letter 226J penalty assessments, download our free What is Letter 226J? guide.
Employers should know that a recent audit report from the Treasury Inspector General found the IRS had calculated proposed ESRPs of over $15B in penalties for 2018, more than double the amount calculated in 2015. That same TIGTA report also recommended that the IRS increase its enforcement efforts to ensure they are collecting penalties, even from those who complied but filed inaccurate reports. With Biden requesting additional funding for IRS enforcement efforts, the agency is gearing up to make good on the recommendation to improve its process for identifying ACA non-compliance.
Employers should also be aware that the IRS is issuing ACA penalties beyond Letter 226J. Failing to meet ACA-mandated deadlines under IRC 6721/6722 could result in penalty assessments via Letter 972CG or Letter 5005-A, which the IRS is currently issuing for the 2017 tax year.
The IRS may be issuing penalties for 2017 and the 2018 tax years, but the agency may go back to even earlier years, as the IRS General Counsel clarified that there is no statute of limitations for Employer Shared Responsibility Payment (ESRP) penalties.
For the 2021 tax year, the penalties associated with failing to comply with IRC 6721/6722 reporting requirements, in addition to Employer Mandate responsibilities, are increasing. Download the 2021 ACA 101 Toolkit to learn about the increasing penalty amounts, federal and state filing deadlines, tips for improving ACA compliance practices, and steps for responding to penalty notices.
A word to the wise for employers — IRS enforcement of the ACA is very real and it’s increasing in volume and dollar amounts. Reporting for the 2021 tax year may be a ways away, but now is the time to assess your ACA compliance process to ensure you’re not making any errors that could lead to penalty assessments. Reporting is growing in complexity, due in large part to a patchwork of additional state ACA reporting requirements and new 1095-C codes.
Best practices for minimizing ACA penalty risk with the IRS include undergoing an ACA Penalty Risk Assessment. The assessment will identify potential penalty risks, improve processes, and mitigate future penalty assessments. Your organization can receive one for free.
If you’re looking to learn more about ACA compliance in 2021 and the requirements of the Employer Mandate and state-level reporting, download The 2021 ACA Essential Guide for Employers.
If your organization has received IRS Letter 226J, download our white paper on Letter 226J to learn best practices for responding to the penalty notice.”
MEC plans are affordable insurance options, meant to be affordable for everyday people. The right ACA-compliant MEC benefit plans save ALEs vastly more money than compared to paying either Penalty A or Penalty B for noncompliance. Learn more about why MEC benefits are important, how much it saves ALEs, and how to find the right plans for your employers in our article here.
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