Affordable Care Act reporting: 101 IRS Penalties
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Find more educational information at www.acafluent.com What are the IRS penalties* for employers who do not comply with the Affordable Care Act? Which employers are at greater risk? *Non-filing penalties start at $500 per required return and as high as $520 per required return in for 2017 reporting.
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Affordable Care Act reporting: 101 IRS Penalties
- 1. Affordable Care Act Reporting 101 Why comply? What are the ACA penalties for employers? April 2016
- 2. ACA coverage penalties for Tax Year 2016 The sledgehammer Penalty for no offer of coverage $180 a month, times all eligible employees minus 30 The tack hammer Penalty for noncompliant coverage $270 a month, times the number of eligible employees who got a subsidy on an exchange © Integrity Data 2016. All rights reserved.
- 3. For Tax Year 2016, the employer penalty for every month that an eligible employee was not offered coverage: $2,160, divided by 12, times the total number of FTEs minus 30 (the number of exemptions) The multiplier, before taxes: $180 a month The sledgehammer ACA penalty for offering no coverage Also called “the A penalty” because it’s detailed in Section 4980H(a) of the Internal Revenue Code © Integrity Data 2016. All rights reserved.
- 4. The tack hammer ACA penalty for offering noncompliant coverage For Tax Year 2016, the employer penalty for every month that an eligible employee did not get coverage deemed affordable OR which did not meet the minimum value standard: $3,240, divided by 12, times the number of full-time employees who got a subsidy on an exchange that month Not to exceed the sledgehammer calculation The multiplier, before taxes: $270 a month Also called “the B penalty” because it’s detailed in Section 4980H(b) of the Internal Revenue Code © Integrity Data 2016. All rights reserved.
- 5. Which employers are most ACA-vulnerable? Hourly workers Lower-wage workers Part-time workers with varying schedules Seasonal hires Frequent turnover 5 By industry Hospitality Restaurants Hotels Motels Casinos Resorts Employment agencies Staffing companies Temp-help services Nursing care Rehabilitation facilities Senior living centers Retail Colleges, universities, schools Religious organizations Municipalities Security services Food processing Trucking Construction Agribusiness Nonprofits Alabama Florida Georgia Idaho Kansas Maine Mississippi Missouri North Carolina Nebraska By workforce By state Oklahoma South Dakota South Carolina Tennessee Texas Utah Virginia Wisconsin Wyoming © Integrity Data 2016. All rights reserved.
- 6. 6 Be aware of the non-filing penalty: $500 per required return © Integrity Data 2016. All rights reserved.
- 7. What are these mandates exactly? Is the IRS really ready for this? integrity-data.com/aca-education © Integrity Data 2016. All rights reserved.
- 8. 8 Thank you for your time To get on the fast and sure track to ACA compliance, please contact us: sales@integrity-data.com 888.786.6162 Integrity Data’s publications and presentations are designed to make employers aware of IRS reporting requirements under the Affordable Care Act, best practices for compliance with those requirements, and the consequences of noncompliance. This material is intended to provide accurate information as of the date posted. It is provided with the understanding that neither Integrity Data, nor the authors and presenters, are rendering legal or accounting advice. With respect to your organization’s decision making for Affordable Care Act compliance, review the information presented with legal counsel specializing in employment law.
Editor's Notes
- If your organization meets the ACA classification for an Applicable Large Employer, you face serious financial consequences if you do not comply with both the coverage mandate and the related reporting obligations of the Affordable Care Act. There is a monthly risk of coverage penalties. And there is a yearly risk of filing penalties. Each penalty can add up quickly. None can be deducted as business expenses. First, we will look at the coverage penalties, which have come to be known by the names one employee benefits lawyer gave them when they first were announced: the sledgehammer and the tack hammer.
- Each of these penalties is triggered when one employee who has not been offered a health plan – or a compliant health plan – gets subsidized coverage on an exchange. Two things to note: The numbers for these monthly assessments are for Tax Year 2016. The same penalties for Tax Year 2015 were lower. The number of exemptions is for Tax Year 2016. For Tax Year 2015, they were higher. Let’s learn more about these penalties.
- An employer who offers no health plan is at risk of the ACA sledgehammer penalty. The trigger for this penalty is the IRS finding, through its data crunching, that an employee who was eligible for an employer-sponsored plan did not get an offer of health insurance from his or her employers. Instead, they sought coverage on an exchange, and got a subsidy or tax credit for that coverage. Here’s how the multiplier works for the sledgehammer penalty: If you have an employee that was eligible for coverage in a certain month and your 1095-C reporting for that tax year shows that no offer of coverage was made to that employee in that month, then the penalty you’re facing is $180 multiplied by all your ACA-defined full-time employees – that’s for that month and all months afterward in that tax year. If you have 100 full-time employees and you offered them no health plan in 2016, your penalty would be $126,000 if one of those employees got subsidized coverage on the exchange in March of 2016. Remember, the $180 multiplier you see on this bottom line is per-employee and per-month.
- An employer who offers a health plan that does not meet ACA standards – either for quality or affordability – is at risk of the ACA tack hammer penalty. The back story on the reference to a lighter hammer is that architects of the Affordable Care Act did not want an employer who made an effort to offer health insurance to be hit with a higher penalty than an employer who offered no health insurance. So the sledgehammer goes away and the hit comes from a tack hammer when, through its data crunching, the IRS finds that the employee who got subsidized coverage on an exchange worked at a place where an employer-sponsored plan was offered – but that plan just happened to be an ACA noncompliant plan. A tack hammer penalty can go up to, but not exceed, the sledgehammer penalty.
- In 2017, the IRS will be assessing penalties to employers who, in Tax Year 2016, did not provide an employer-sponsored health plan – or one that met ACA standards – to 95% of their ACA-defined full-time workers. Organizations that do not have stable workforces or higher-paid employees with consistent hours have the greatest risk of being hit by these coverage penalties. If you are in one of the industries listed here, or your company’s workforce meets the descriptions given, it’s important to be aware of – and proactive in managing the risk of – the penalties we just reviewed. If you are in a state that has not adopted expansion of Medicaid, it’s just as important to take steps toward ACA penalty-risk management. As of this recording, South Dakota, Virginia and Wyoming are discussing Medicaid adoption. The 16 other states listed have decided not to adopt Medicaid – which is a coverage safety net for employers of lower-wage workers who are not offering health insurance or not offering ACA-compliant insurance.
- The penalties we just reviewed are monthly risks and are ACA-specific to noncompliance with the coverage mandate. But there is also the yearly risk of a significant penalty for noncompliance with the ACA reporting obligation. Failure to produce IRS forms 1095-C and 1094-C, which document the availability of health insurance at a workplace, may result in a penalty of $500 per required form. This non-filing penalty is the same financial consequence an employer faces for not producing a W-2 form. So remember: - Employers with an ACA Pay strategy – that is, choosing to accept the penalties for not complying with the coverage mandate – must still produce and file Forms 1095-C and 1094-C. You have to document employees’ access to coverage – even if to say there is no access. - Also, if all along you have been offering quality health coverage to your employees that is affordable – that is, you were complying with the coverage mandate before there was a coverage mandate – you still must meet the reporting requirement. You still must produce and file IRS Forms 1095-C and 1094-C to prove what you have been offering.
- Here’s a link with plenty more resources for you, such as blog posts more educational videos an easy ACA to-do checklist for 2016 An e-book with a lot more information - and IRS resources, so you can fact-check the guidance we’re giving.
- Thank you for joining us. We hope you found this presentation informative. Please make sure to check all our educational resources on the Affordable Care Act! Do let us know how else we can help you.