Employee benefit programs have been mandatory for all applicable large employers (ALE) since the Affordable Care Act, enacted in 2010. This Act requires employers to offer minimum essential coverage to all employees who work in a company with a staff of 50 or more. Failure to comply with this requirement will cause penalties for these companies and will likely lead to an IRS Audit down the road. Here is more information regarding the importance of Penalty A and Penalty B compliance.
The ACA ensures that ALEs offer coverage to more than 95% of their full-time workforce (who work 30 hours or more a week) and their dependents. If they fail to do this, the Employer Shared Responsibility Payment (Penalty A) will be issued. As of 2020, the cost for this violation is $2,750 for each full-time employee. Each month an eligible employee is not offered coverage; the penalty enforces, which comes to $214.19 per month for one employee.
If an employer has 500 employees, and they do not offer benefits to 95% of their full-time workforce, they could face at least a million dollars in violation fees. (See graphic.)
In addition to the minimum essential coverage ALE employees must provide, they also have to ensure that the coverage they offer their full-time employees is affordable. For coverage to be accessible, the employee must pay less than 9.78% of their household income. So coverage should cover more than 60% of medical service expenses. Noncompliance with this requirement could result in a $3,860 fine per employee who receives and exchanges tax credit.
If 100 of an employer’s employees receive a premium tax credit or subsidy on the Marketplace exchange, the employer’s fine is $3,860 per employee, which results in a $386,000 fine. Like Penalty A, Penalty B requires monthly assessments, for each employee not offered coverage that is a $321.67 fine.
Other penalties that may incur:
The delivery of Forms 1095-C to every recipient by January 31. Every form that is not delivered will incur a $280 fine.
All Forms 1094 and 1095 must be filed electronically by March 31. For every form, there will be a $280 fine failure with intentional disregard will increase the fine to $560.
At SBMA, we want to help your company avoid any potential penalties. Our team will take care of all of your 1095/1094 filings, and, in the event, the IRS sends a letter saying the filing was incorrect, we will take care of the refiling on your company’s behalf.
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