Get to Know the ACA

Things you need to know about ACA Compliance and the Employer Mandate

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1. Introduction

The Patient Care and Affordable Care Act (ACA) was first enacted under former President Barack Obama in 2010. The Employer Shared Responsibility Provisions (ESRP) is a component of the ACA that impacts employers. The ESRP, also known as the Employer Mandate, did not take effect until 2015. While the ACA has seen some changes, the ESRP provisions remain constant. Key elements that impact the ESRP are as follows:

Four Key Areas of the ACA Affecting Employers

1. The Employer Shared Responsibility Provisions (ESRP), otherwise known as the “Employer Mandate,” requires Applicable Large Employers (ALEs), employerswith 50 or more full-time employees and full-time equivalent employees, to offer Minimum Essential Coverage (MEC) to at least 95% (70% for 2015) of their full-time workforce and their dependents whereby such coverage met Minimum Value (MV) and is affordable to the employee or be subject to penalties. To prove compliance with the Employer Mandate, the offers of coverage are required to be reported through the submission of annual filings.

 

2. Establishment of the Premium Tax Credit (PTC) and government-run health exchanges, which allows individuals within a prescribed income range an opportunity to obtain affordable health coverage through an exchange. Individual taxpayers can obtain Premium Tax Credits from the federal government to subsidize health insurance plans purchased on government-run healthcare exchanges. However, in some instances, this can trigger tax penalties for employers.

 

3. Expansion of Medicaid and Medicare allowed Americans with income levels up to 138% of the federal poverty line (FPL) to enroll in Medicaid if such expansion was implemented in their state.

 

4. Individual shared responsibility, or the “Individual Mandate,” which required every citizen to be enrolled in health coverage or be subject to a tax penalty. This penalty was zeroed out as of January 2019. However, some states have decided to create their own state level individual mandates to replace the federal Individual Mandate. The Individual Mandate interplays with the Employer Mandate by incentivizing employees to obtain health coverage, whether through the employer, a government-run health exchange or otherwise.

 

The objective of this page is to highlight the key elements of the ESRP under the ACA.

2. Who the ACA’s ESRP Impacts

Under the ACA’s ESRP, employers with 50 or more full-time employees and full-time equivalent (FTE) employees, identified by the IRS as ALEs, are required to offer Minimum Essential Coverage (MEC) to at least 95% (70% for 2015 only) of their full-time workforce and their dependents whereby such coverage meets Minimum Value (MV) and is affordable to the employee or be subject to penalties.

 

Determining whether or not you’re an ALE can be difficult for any employer. It can be particularly complicated for organizations with a mix of full-time and part-time workers. In order to know whether or not your organization is an ALE, an aggregated employer analysis must be performed.

 

Before performing an analysis, make sure to read the IRS rules. The IRS provides complicated guidelines on how to group entities for purposes of determining ALE status.

Generally speaking, the following information needs to be reviewed to perform an aggregate employer analysis:

  • All of the legal entities that could potentially be related through ownership or working relationship
  • The business structure and date each entity was formed;
  • The ownership for each entity;
  • The working inter-relationship, if any, among the potentially legal entities, such whether one provides services, such as management, for another.

This can be a significant issue where there are multiple related entities, each of which consists of less than 50 full-time and full-time equivalent employees.  These entities may erroneously presume that each is not an ALE but once the employer aggregation rules are correctly applied, they combine to form an ALE.  A significant consequence of this error is the failure to recognize the obligation to offer the required coverage and failure to file and furnish the information returns, either or both of which may result in significant IRS penalties.

 

Another significant consequence of incorrectly performing an Aggregated Employer Group Analysis is the misapplication of the allocation of the reduction of full-time employees or “freebies,” which is 30 per ALE Aggregated Group (except for 2015, which, through transition relief, allowed for 80). These 30 are “freebies” in that the IRS will not penalize the ALE Aggregated Group (or a single entity ALE) for the first 30 full-time employees. However, these freebies are allocated ratably among the ALE members of an ALE Aggregated Group. Accordingly, it is important that the ALE members are properly identified.

In determining ALE status, an important consideration is the existence of seasonal workers.

 

Seasonal workers are accounted for to determine whether or not an organization is an ALE. If an employer’s workforce exceeds 50 full-time employees, including full-time equivalent employees (employees who have aleast 120 hours of service in a month), for 120 days or fewer during the preceding calendar year, and all of the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal workers, the employer is not considered an ALE. Note that a “seasonal worker” is different from a “seasonal employee.” A “seasonal worker” is one who performs labor or services on a seasonal basis as defined in certain Department of Labor Regulations and include agricultural laborers and retail workers employed exclusively during holiday seasons.

Regardless of your views about the ACA, as an ALE, the ACA is a law you can’t ignore. It impacts the bottom line of your employee benefits cost, it can impact your employees’ health coverage, and it requires your HR, tax and payroll departments to prepare detailed reports that must be filed with the IRS every year.

Every ownership situation is unique. There are many nuances and details that need to be taken into account. When performing an Aggregated Employer Group Analysis, it may be in your interest to perform this analysis working with outside help that is familiar in dealing with the IRS on ACA issues, specializes in ACA compliance, and has expertise in data consolidation.

3. The ACA is Here to Stay

When Donald J. Trump won the presidential election in 2016, he identified as a priority the repeal and replacement of the ACA. While successful in effectively eliminating the Individual Mandate (one of the significant provisions in the ACA) beginning January 2019, other key provisions of the ACA remain intact, including the Employer Mandate. In efforts to address the loss of the individual mandate at the federal level, states, such as Massachusetts, Maryland, New Jersey, California, Rhode Island and Vermont, have passed statewide legislation to create their own individual mandates or other related healthcare initiatives.

 

The biggest indicator that the ACA’s Employer Mandate is here to stay is the IRS enforcement action that began in November 2017. The IRS issued penalties, some in the millions of dollars, to ALEs for not complying with the ACA. The IRS began issuing these ACA penalty assessments in its Letter 226J notice during this time. The IRS issued penalty assessments some in the millions of dollars to employers for failing to comply with the Employer Mandate.

 

The TIGTA report indicated that the enforcement process for 2015 was a “test run,” yet still resulted in $4.5 billion dollars in penalties. The TIGTA report also noted that the IRS had spent over $2.8 million to improve their process for identifying, calculating, and processing non-compliant ALEs.

 

The IRS has since updated their tools for identifying ACA non-compliance and moved on to enforcing compliance of the ACA for the 2016 and 2017 reporting years.

 

The IRS disclosed its use of an automated ACA compliance validation system (ACV) tool that identities ACA non-compliance based on annual ACA filings, suggesting more ALEs will receive IRS Letter 226J than in previous years.

 

As of June 2019, the IRS began issuing Letter 226J penalty assessments to employers for the 2017 tax year. Employers should anticipate future reporting years to follow.

In addition to Letter 226J penalty assessments being issued, the IRS also began issuing ACA penalties to ALEs that failed to file Forms 1094-C and 1095-C with the IRS or furnish Forms 1095-C to employees under IRC Sections 6721 and 6722 for the 2015 and 2016 tax years. These notices focus on the failure to distribute Forms 1095-C to employees and to file Forms 1094-C and 1095-C with the IRS by required deadlines. These are penalties in addition to penalties for not offering the required healthcare coverage under IRC Section 4980H.

In the final days of 2018, the agency started assessing penalties to organizations that failed to file Forms 1094-C and 1095-C with the IRS or furnish Forms 1095-C to employees under IRC Section 6721 and 6722 for the 2015 and 2016 tax years.

The agency determines penalty assessments for certain employers by using the number of W-2s employers filed with the IRS as a proxy for the number of Forms 1095-C.  Using this proxy, which is much larger than the number of full-time employees, the IRS proposed potentially overestimated penalties through Letter 5005-A and Form 886-A.

 

In 2019, The IRS started issuing Letter 972CG to ALEs who filed their ACA information returns, but did so after the IRS deadlines established pursuant to IRC Section 6721.

 

Employers may see Letter 5699 prior to the reception of an IRC Section 6721/6722 penalty assessment.  This notice is sent to employers the IRS believes are ALEs and that should be filing ACA information returns annually with the tax agency.  In this letter, the IRS asks employers to confirm the name the ALE used when filing its ACA information, provide the Employer Identification Number (EIN) submitted, and the date the filing was made.  

 

4. How to Comply with the ACA

The underlying principal of the Employer Mandate is as follows:

An employer with 50 or more full-time employees and full-time equivalent employees, or an Applicable Large Employer (ALE) is, 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 to the employee or be subject to IRC Section 4980H penalties.

The three key elements of the Employer Mandate are:

  • Minimum Essential Coverage
  • Minimum Value
  • Affordability

Minimum Essential Coverage

The term “Minimum Essential Coverage” is defined by examples to include certain government sponsored programs, such as Medicare and Medicaid, eligible employer sponsored plans and plans in the individual market.

 

A notable distinction between employer sponsored plans, on the one hand, and “qualified plans” in the individual market through a government-run exchange is the requirement of “essential health benefits.” “Essential health benefits” include doctor visits, emergency services (such as emergency room services), hospitalization, maternity and newborn care, mental health, prescription drugs, rehabilitation services and devices (which are services to help you recover from injury or disability), lab services, preventative and well-being services, and pediatrics. Unlike qualified plans in the individual market, employer sponsored plans do not require “essential health benefits.” Only qualified plans in the individual market through a government-run exchange allow for Premium Tax Credits (PTCs).

Minimum Value

The IRS determines that an employer-sponsored plan provides Minimum Value (MV) if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan. Typically, the Summary of Benefits and Coverage will confirm whether a plan met MV or not.

Affordability

Affordability is calculated based on a cap of 9.5% of an individual’s annual household income. This 9.5% cap is adjusted annually. For 2019, the percentage rate is 9.86%.

The IRS provides three safe harbors that an employer can use to show affordability. They are:

FPL Safe Harbor

The federal poverty level (FPL) is based on the annual household income which depends on the household size and is adjusted on an annual basis. For 2019, the FPL is $12,490 for a household size of one. In order to meet this safe harbor for 2019, for each full-time employee, the employer would have to show that the employees was offered self-only coverage that did not exceed the product of the FPL multiplied by 9.56% and then divided by 12 ($12,490 x 9.86% / 12 = $102.63). If the employee contribution for self-only coverage meets or is below this amount, then the FPL safe harbor is met.

W-2 Safe Harbor

The W-2 safe harbor can be the trickiest safe harbor because it cannot be determined until the end of the reporting year. While there are methods an employer can use to gauge whether or not this safe harbor will be met, it ultimately cannot be proven until the end of the year. The reason for this is because you need the amount in the W-2 Box 1 for the affordability calculation. In order to claim the W-2 safe harbor for 2019, the following formula is generally used: W-2 Box 1 Wages multiplied by 9.86% with an adjustment for partial year coverage.

Rate of Pay Safe Harbor

The rate of pay safe harbor is based on an employee’s hourly rate or monthly salaried rate depending on employment status.

Hourly Workers: To determine the affordability threshold for an hourly worker, for example, take the employee’s lowest hourly rate for the month and multiply by 130 (the minimum total of hours on a monthly basis to be treated as a full-time employee under the ACA). Take that product, multiply by 9.86% (for 2019). This will identify the maximum monthly premium that the employee may be required to pay to satisfy affordability per ACA regulations.

Here’s an example: Chris works 130 hours at a $15 hourly rate in March. Multiply $15 by 130. Take the result of $1,950 and multiply by 9.86%. The $192 is the maximum amount for March that Chris’s employer can require Chris to pay to cover himself if the employer wants to satisfy affordability for that month with respect to that employee.
Salaried Worker: To determine the affordability threshold for a salaried employee, multiply the monthly salary by 9.86%.

Here’s an example: Joanna is a full-time employee who receives a monthly salary of $10,000. Multiply $10,000 by 9.86%. The $986 is the maximum monthly amount that Joanna’s employer can require Joanna to pay to cover herself if the employer wants to satisfy affordability for that month with respect to that employee.

 

5. How to Assess Full-Time Employees Under the ACA

Perhaps the most challenging issue for ACA compliance is an ALE’s full-time employee count. There is a common misconception that “full-time” means 40 hours per week. With regard to the ACA, full-time means averaging at least 30 hours of service per week or 130 hours of service per month. The Employer Mandate dictates that the ACA-defined “full-time” employees are those for whom an offer of Minimum Essential Coverage (MEC) that meets Minimum Value (MV) and affordability to avoid IRC Section 4980H penalties. As mentioned earlier, the full-time employee count is also a significant factor in determining whether the ALE threshold is met for an employer to become an ALE.

 

See below the difference between full-time and full-time equivalent employees:

A full-time employee

In general, under the ACA a full-time employee is a worker who, on average, works at least 30 hours per week, or at least 130 hours in a calendar month.

Determining the full-time employee count under the ACA can be tricky. The IRS allows employers one of two measurement methods for determining full-time status. The rules for identifying them are vastly different.

A full-time equivalent employee

This is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee. For example, two employees who each work an average of 15 hours per week are equivalent to one full-time employee.

6. How to Implement the Correct Measurement Method for the ACA

The two methods sanctioned by the IRS for determining full-time employee status are the Look-Back Measurement Method and the Monthly Measurement Method. Employers need to implement one of these methods to ensure accurate full-time determination.

The Look Back Measurement Method

The Look-Back Measurement Method typically works best for workforces that include a substantial number of part-time, seasonal or other variable hour employees. For these kinds of employees, it can be difficult to identify in advance which employees should be considered to be full-time under the ACA. The Look-Back Measurement Method allows employers to monitor and track their employees’ hours of service to determine if they are full-time before extending an offer of coverage. The Look-Back Measurement Method consists of three different periods:

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The Measurement Period

Each employee’s hours are tracked and averaged over the measurement period which can be as short as three months to as long as 12 months. Many employers prefer to use a 12 month Measurement Period that allows for a more normalized calculation of an employee’s average hours of service, as seasonal fluctuations up or down will be smoothed out over the 12 months in a manner that may not have captured had the employer utilized a shorter measurement.

 

The Administrative Period

Following the measurement period, there is an optional administration period of no longer than 90 days. The IRS has specifically rejected an extension of the 90 days to three full calendar months. This administrative period must begin immediately following the end of a measurement period and end immediately before the start of the associated stability period. The administrative period is often used as a time for gathering and collecting all the paperwork necessary to ensure that an offer can be made at the start of the stability period. The length of the administrative period may also vary depending on the type of measurement period that was completed. For example, for new hires completing their initial measurement period, employers may choose to use a 30-day waiting period while, for ongoing employees completing a standard measurement period, employers may choose to use a 60-day administration period.

 

The Stability Period

After the optional administration period is completed, the stability period begins. The beginning of the stability period should align with the beginning of the offer coverage effective date. The stability period determines the treatment of the employee’s full-time or non-full-time status based on the results of the preceding measurement period. During this stability period, regardless of the hours they are currently working, employees are locked in as either full-time or not full-time. Of course, even if the employee is “locked” into a non-full-time position, that doesn’t mean that the employer cannot offer coverage. For most employers, it makes the most sense to align the Standard Stability Period with the health plan year.

The Monthly Measurement Method

The Monthly Measurement Method is more straightforward than the Look-Back measurement method. The monthly measurement method is designed for employers that have primarily full-time workforces. An employee’s status is taken at face value. Employee status is based on whether or not he or she provided a minimum of 130 hours of service a month or 30 hours a week.

 

Under the Monthly Measurement Method, the employee’s status can fluctuate between full-time and non-full-time status as there are no stability or measurement periods. Each month, the hours are averaged to determine status.

 

If your organization has a lot of variable hour employees, this may not be the method for you.

 

It is important to note that while there are certain categories for which your organization may apply the different methods, such as employees who are salaried versus hourly or employees who are at different locations, you cannot switch, for example, from the Look-Back Measurement Method to the monthly method, during a measurement period.

 

Make sure that your organization is utilizing one of these measurement methods correctly.

7. Possible Penalties for Not Complying With the ACA

If IRS enforcement is not convincing enough to take ACA compliance seriously, perhaps the possible consequences for failing to comply will be.

 

ALEs that do not comply with the ACA can be penalized in the millions of dollars under Section 4980H. The Section 4980H penalties have two components. The “A” penalty, under IRC Section 4980H(a) for an ALE who fails to offer Minimum Essential Coverage (MEC) to 95% of full-time employees (and their dependents), is calculated at an annualized rate of $2,080 (for 2015 and adjusted upwards annually) multiplied by the total number of full-time employees. The “B” penalty, under Section 4980H(b), is calculated at a rate of $3,120 (for 2015 and adjusted upwards annually) multiplied by the number of full-time employees who obtain a tax subsidy because the ALE did not offer Minimum Essential Coverage (MEC) or even if such coverage was offered, that coverage failed to meet “Minimum Value (MV)” and “affordability” to the employee. These penalties are currently being issued to employers in IRS Letter 226J.

 

In addition to IRC Section 4980H penalties being issued in IRS Letter 226J, penalties can be assessed to employers for other reasons.

 

Under IRC Sections 6721 and 6722, penalties may be assessed for failing to accurately and completely file returns to the IRS and/or failing to accurately and completely furnish statements to the applicable employees, i.e., the IRS forms 1094-C/1095-C. depending on the lateness of the filing, these penalties range from $50 to $270 per return for the 2019 tax year - (wgereby each applicable employee counts as one return) and can and can add up to more than $6 million for combined filing and employee statement distribution failures. Moreover, the penalties double for a willful failure, which the employer bears the burden to show that any failure to comply was despite reasonable diligence. The IRS has been issuing penalties under IRC 6721 and 6722 to employers who failed to file any returns using Letter 5005-A/Form 886-A. For those employers who filed late, the IRS is issuing penalties under IRC Section 6721 and 6722 using Notice 972CG.

8. The Benefits of an ACA Penalty Risk Assessment

With an ACA Penalty Risk Assessment, not only are you given an opportunity to address any data inconsistencies from prior filings, but you also have a chance to correct them and resubmit to minimize the risk of penalties. In doing so you may also rethink your current process for ACA compliance, implement any necessary changes, and improve your strategy for ACA reporting on a going forward basis.

 

There is a great deal of information contained in the IRS filings that needs to be checked for accuracy. Filing incorrectly or with incorrect information could result in millions of dollars of Employer Shared Responsibility Payments (ESRPs) under IRC Section 4980H, like those included in IRS Letter 226J, and/or other reporting penalties under IRC Sections 6721 and 6722.

 

Having an ACA Penalty Risk Assessment performed can make sure these critical ACA filing items are checked:

 

  1. Submitting the correct company name and EIN;
  2. Listing all ALE members and correctly allocating the reduction of full-time employees among the ALE members;
  3. All 12 months indicators are reported accurately;
  4. Code combinations are logical and correct;
  5. List all covered members for self-funded plans; and
  6. All appropriate safe harbors are claimed.

 

In addition, an assessment of your ACA information returns (1094-C/1905-Cs) each year will help you practice these steps in ACA compliance:

 

  1. Consolidating, aggregating and validating HR, Time and Attendance, Payroll, and Health Benefits data for each month of the applicable reporting year;
  2. Conducting a monthly audit of employment classifications, such as full-time, part time, variable and seasonal;
  3. Determining your workforce composition, at both the "ALE 'Aggregated Employer Group’" and EIN level;
  4. Calculating health coverage affordability for each applicable employee; and
  5. Checking the accuracy of your data.

9. Getting Help Complying with the ACA

There are several types of outside vendors that can assist your organization with ACA compliance, resulting in various degrees of success. Most of these outside vendors require the employer to play a burdensome role in providing data for use in ACA compliance activities and information return filings with the IRS.

 

Outside vendors that can offer the following are ideal for improving your ACA compliance:

 

  • Understanding of the nuances of ACA’s Employer Mandate compliance;
  • Consolidating and validating data from disjointed databases such as payroll, benefits administration, time and attendance and unstructured workforce data; and
  • Tracking time and attendance, onboarding and offboarding, scheduling, and supporting documentation.

 

These resources can help you navigate the complexities of the ACA.

10. 2019 ACA Compliance

Regardless of whether or not your organization decides to outsource for ACA compliance support, best practices suggest incorporating a monthly compliance process.

That monthly compliance process should take into account these three critical areas: (1) regulatory knowledge, (2) documentation and record-keeping, and (3) data quality management.

 

Regulatory Knowledge: When addressing ACA compliance needs on a monthly basis, a complete understanding of the mechanics of the Employer Mandate is required. If employers do not have staff with a deep level of understanding of the ACA, consider hiring third-party consultants who have intimate knowledge of ACA regulations, and understand how to interpret and take action in accordance with the requirements of the ACA. Mastery of ACA regulatory concepts, such as IRS Approved Measurement Methods, affordability Safe Harbors, and Limited Non-Assessment Periods, can come in handy as you navigate the law, particularly if you want to minimize or eliminate penalties.

 

Documentation and Record-Keeping: Monthly ACA compliance relies heavily upon supporting documentation in order to be “audit ready” in case your organization receives a penalty assessment from the IRS. Documentation should include items such as a Summary of Benefits and Coverage, rate contribution sheets, offers of coverage to employees, medical invoices, enrollment forms, waiver forms, and acknowledgment of offers to employees for the relevant reporting year. The IRS is currently issuing Letters 226J for penalties under IRC Section 4980H and issuing other letters for separate penalties under IRC Section 6721 and /6722. Some employers have received penalty notices in the hundreds of thousands to millions of dollars. Your organization will want records close at hand if it becomes necessary to respond to ACA penalty assessments.

 

Data Quality Management: This relates to the management of your workforce (HR) data. The raw inputs matter here. Data fields, such as census information, time & attendance, employment type, wage and rate information, as well as contribution structure, must be accurately tracked in order to comply with the ACA. For some employers who also use paper files, unstructured HR data is another factor to consider. In the end, the analytical data outputs are only as good as the quality of the raw data inputs that feed the calculations required to meet ACA regulations to avoid IRS penalties. This is particularly true if you use do-it-yourself software packages which will automatically complete IRS forms without checking if the data being used is accurate. This is a significant trigger of ACA penalties issued by the IRS.

 

In addition,

Organizations should continue adhere to the following steps to ensure they are complying with the ACA for 2019. Below is a checklist that should help in complying with complexities of the ACA. 

 

Consolidate, Aggregate and Validate year-to-date data from HR, Time and Attendance, Payroll and Health Benefits each month. This is an important step to ensuring an accurate and timely ACA filing with the IRS.


Conduct a monthly audit of employment classifications, such as full-time “designated,” part-time, variable and seasonal
. The ACA Employer Mandate requires employers to accurately identify their full-time employees and offer them health coverage meeting certain substantive standards. A 5% margin of error is allowed each month. For any month that an employer strays outside of the 5% margin of error, for 2019, the employer is exposed to an annualized penalty of $2,500 (adjusted annually) multiplied by the number of full-time employees if at least one full-time employee obtains a Premium Tax Credit (PTC) for that month.


Determine your Workforce Composition, at both the ‘Aggregated Employer Group’ and EIN level. 
This includes knowing the numbers of full-time (FT) and part-time employees, including full-time employees that are not part of the limited non-assessment period. You also need to know the numbers of “pending” and “trending” employees when using the Look-Back Measurement Method. Remember to track historical “FT employees, not in Limited Non-Assessment Period,” who are without an offer of health coverage.


Calculate health coverage affordability
. For 2019, in order to meet the ACA’s affordability threshold, the employee’s required contribution to the lowest cost monthly premium for Self-Only coverage providing Minimum Value (MV) should not exceed 9.86% of either (a) the employee’s Rate of Pay, (b) the employee’s W-2Box 1 wages, or (c) the Federal Poverty Line threshold for a household of 1. When calculating affordability, make sure to account for flex credits through cafeteria plans as allowed under IRC Section 125, and other factors such as opt-out payments, wellness plans, HRAs and fringe benefits.


Check the accuracy of your data
. Many of the problems encountered on the path to ACA compliance are data problems. Make sure your key data points are accurate, including Legal Name, SSN, DOB, Address, Employment Periods, Hours, Wages, Rate of Pay, Compensation Type, Title, Employee Class for Coverage, Location, EIN, Health Benefits Class, Health Benefits Eligibility Periods, Health Benefits Enrollment Periods, and W-2 information.


The IRS has set the following penalties for employers with 50 or more full-time or full-time equivalent employees that do not comply with the ACA for the 2019 reporting year:

4980H(a) Penalty

Employer Shared Responsibility Payment for Failure to Offer Minimum Essential Coverage (MEC).


On a monthly basis, applies to each month that the employer failed to offer Minimum Essential Coverage (MEC) to at least 95% of a company’s full-time employees (and their dependents) AND at least one full-time employee received Premium Tax Credits for purchasing coverage through the Marketplace for that month.


Annualized Penalty for 2019 tax year is sum of $2,500/12 x (# ALL Full-Time employees – 30) for each month that at least one full-time employee received Premium Tax Credits. An employer with 300 full-time employees would see an IRS penalty of $675,000, assuming a PTC was received over a 12-month period.


*The 30 reduction is ratably allocated among the entities within the single “employer.”

4980H(b) Penalty

Employer Shared Responsibility Payment for Failure to Offer Coverage that Meets Affordability and Minimum Value (MV) (assessed if 4980H(a) does not apply).


On a monthly basis, applies for every full-time employee that did not receive an offer of coverage or received such an offer but the offer was either unaffordable or did not provide Minimum Value (MV) or both AND the employee received a premium tax credit for that month. Annualized Penalty for 2019 tax year is the sum of $3,750/12 x (# of full-time employees receiving PTCs for each month). An employer with 10 full-time employees would see an IRS penalty of $18,750.

Failure to File Penalty

Failure to file correct information returns.

If the return is not filed by the late filing deadline of August 1, 2020, the full penalty is assessed per applicable individual return not filed. Penalty for 2019 is $270** x (# of applicable individual not filed). Employers with 300 full-time employees would see an IRS penalty of $81,000.


** Amount doubled for intentional disregard.

Failure to Furnish Penalty

Failure to furnish correct payee statements to employees.


If the ACA-mandate health insurance information is not provided to employees by the deadlines established by the IRS, the penalties are assessed per applicable individual not receiving this information. Penalty for 2019 tax year is $270 x (# of applicable individuals not receiving information). Employers with 300 full-time employees would see an IRS penalty of $81,000.

11. ACA Reporting for 2020

After successfully complying with the ACA for 2019, organizations should take note of the following reporting dates to ensure they are accurately and timely submitting their ACA information filings containing information for 2019 with the IRS. Here are the IRS filing dates for the 2019 reporting year:

 

January 31, 2020

 

Deadline to furnish Forms 1095-C to employees.

 

February 1, 2020


Employers may start receiving exchange notices related to the 2019 tax year. Remember, there is a 90-day window to appeal exchange notices.


February 28, 2020


Deadline to file Forms 1094-C/1095-C if paper filing.

 

 

March 31, 2020


Deadline to file forms 1094-C/1095-C if electronic filing.


April 15, 2020


Individual tax returns are due. Employees should include healthcare coverage information on their individual returns.

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