All the recent activity around ACA repeal/ replace has created a lot of confusion for employers. The net outcome of this has been…nothing. The ACA – including the employer mandate – stands, at least for 2017.

With 2017 tax reporting coming up, now is a good time to recap what the penalties are if employers do NOT comply with the employer mandate and if the IRS really is going to pursue them – especially under the current administration. This is part 2 of a 2 part blog, covering the associated penalties for non-compliance. Part 1 dove into who needs to comply and what they need to do to be compliant and by when.

Why comply? What are the Penalties?

The ACA Employer Mandate – a refresher PART 2

The Sledge Hammer coverage penalty applies to employers who do not offer any coverage, or offered coverage that did not provide Minimum Essential Coverage (MEC) to at least 95% of full-time employees, and at least one employee receives a Premium Tax Credit for purchasing coverage through the Marketplace.

Exceptions

  • An exception to this rule is if MEC coverage is offered to all but 5 full-time employees and 5 > 5% of the total number of full-time employees. This is done to provide extra relief to smaller companies.
  •  This penalty also does not apply to any full-time employee who is in a Waiting Period.

Penalty Calculation 2017: An ALE subject to this penalty will pay $2,260 for each full-time employee (regardless if they took a tax credit) after excluding the first 30 Full-Time employees from the calculation. So, employers who are subject to this penalty will be charged $188.34 per month (2,260 / 12) per full-time employee subject to the penalty.  Bear in mind that a “full-time” employee from an ACA perspective is any employee working at least 30 hours per week on average during the measurement period in addition to traditional full-time (40 hour/week) employees.

The Tack Hammer coverage penalty applies to employers who offer a health plan that does not meet ACA standards – either for quality or affordability. 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.

Exceptions

  • The penalty amount cannot exceed the amount the employer would have paid for the Sledge Hammer Penalty.
  • This penalty also does not apply to any full-time employee who is in a Waiting Period.

Penalty Calculation 2017: An ALE subject to this penalty will pay $3,390 for each Full-Time employee (if they obtained a subsidy on an exchange) after excluding the first 30 Full-Time employees from the calculation. So, employers who are subject to this penalty will be charged $282.50 per month (3,390 / 12) per eligible employee subject to the penalty.

The Non-Filing Penalty
An employer who chooses to not fulfill their year-end 1095-C and 1094-C responsibility will be charged at least $520 per eligible employee – this penalty is similar to the W-2 non-filing penalty.
Is the IRS really going to enforce this?

All indications are that they will do so:

  • The IRS was recently audited by the Treasury Inspector regarding the ACA Compliance Verification system that was put in place. Recommendations were adopted and the IRS appears to be moving forward.   
  • In a series of information letters, the IRS has clearly indicated that it won’t waive employer mandate penalties under the ACA.
  • Employers are already beginning to receive letters from the IRS if they failed to provide the necessary forms to the IRS.

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