With the penalty-assessment phase of the Affordable Care Act’s employer mandate in place as of January 1 2015, companies in certain industries must be paying attention. Managing their penalty risk is crucial because consequences for not meeting the coverage mandate of the new health law will be real. And those IRS penalties are rising from year to year.

IRS hammers cartoon_Integrity Data ACA Compliance Solution

  • For calendar year 2015, the per-employee penalty for not offering any coverage to eligible employees went from $2,000 to $2,084. You’ll hear this assessment referred to as the sledgehammer penalty.
  • For calendar year 2015, the per-employee penalty for offering coverage that is not deemed affordable or which does not meet the ACA standard of minimum value went from $3,000 to $3,126. This assessment is also known as the tack hammer penalty

A company will be hit with either penalty in 2016 if, during 2015, just one employee who is eligible for an employer-sponsored health plan sought coverage on an exchange and got a premium tax credit or cost-sharing subsidy for that coverage.

ACA exposure is greatest for companies where:

  • Workers’ schedules vary.
  • Lines between full-time and part-time workers often aren’t clear.
  • Wages are low.
  • The workforce sees frequent turnover. 

Industries most exposed to an ACA penalty include:

  • Hospitality (restaurants, hotels, motels, casinos, resorts)
  • Nursing care (rehabilitation facilities, senior living centers)
  • Employment agencies (staffing companies, temp services)
  • Educational institutions (schools, colleges, universities)
  • Religious organizations
  • Retail operations
  • Security services
  • Trucking
  • Food processing
  • Construction
  • Oil
  • Agribusiness
  • Nonprofits

The sledgehammer: ACA penalty for offering no coverage

For 2015, the penalty for each month that an employer does not offer coverage to an eligible employee is $2,084, divided by 12, times the total number of full-time employees or full-time equivalents minus 80. (In 2016, this number will drop from 80 to 30.)

An eligible employee is a worker whose hours of service (not hours of work) total at least 130 in any month of a calendar year.

The multiplier for the ACA sledgehammer penalty for 2015 would be $173.67 a month, right?

Not necessarily, when you remember that ACA penalties cannot be deducted as business expenses.

So at a 30% tax rate for a profitable company, the sledgehammer penalty would be $225.77 a month times the total number of full-time employees or full-time equivalents minus 80.

The tack hammer penalty: ACA penalty for offering noncompliant coverage

For 2015, the penalty for each month that an employer does not offer compliant coverage is $3,126, divided by 12, times the number of full-time employees who sought coverage on an exchange and got a premium tax credit or a cost-sharing subsidy that month, not to exceed:

$2,084, divided by 12, times the total number of full-time employees or full-time equivalents minus 80 (the same calculation for the sledgehammer penalty).

Before taxes, the multiplier for the ACA tack hammer penalty in 2015 would be $260.50 a month. At a 30% tax rate, this penalty would be $338.65 a month times the number of full-time employees who got a tax credit or subsidy that month, as long as this does not exceed the penalty for the employer having offered no coverage. The actual penalty would be the lesser of the two calculations.

Again, ACA penalties cannot be deducted as business expenses.

Integrity Data _IRS readiness for ACA enforcement

According to the IRS website, almost $1 billion has been invested in data-clearing infrastructure for the administration of feeds from sources filing Affordable Care Act returns.

Behind these numbers

It’s important to understand that, as health-coverage premiums rise, employers will face stiffer penalties.

The new health law relies on employer shared responsibility payments to offset the costs of subsidizing tax credits on the exchanges and the expansion of Medicaid.

In 2009, when the new health law was being crafted on Capitol Hill, the U.S. deficit was $1.4 trillion – the largest since 1945. In order to secure enough votes for passage, framers of the Affordable Care Act built in funding provisions that would not worsen the U.S. deficit.

These increases for 2015 are a reflection of this ACA reality.

According to the IRS website, $921.2 million has been invested so far in the data-clearing infrastructure for administration of feeds from Affordable Care Act reporting. From this picture of preparedness, it’s clear that penalties will be assessed swiftly as the interchange processes returns from insurers, individuals, the exchanges and now employers.

Integrity Data_AIR system for ACA enforcement

The IRS penalty-collection engine in processing Affordable Care Act returns will run on feeds from insurers, individuals, the exchanges and employers.

ACA penalties will be calculated on a monthly basis. Because we’re already into the penalty assessment period, any delay in taking cover will be costly if your workforce fits any of the descriptions listed at the beginning of this post.

Managing the risk of ACA penalties

Since 2012, we have been providing employers with business intelligence tools to identify variable-hour employees trending toward full-time status. We have the technology to help an organization with the deep internal reporting needed monthly so that, for newly eligible employees, workforce decisions can be made proactively.

Employers of all sizes trust Integrity Data’s ACA Compliance Solution to:

  • Automatically track employee eligibility for health care coverage.
  • Thoroughly test affordability of coverage offered.
  • Monitor stability periods to ensure accurate coverage periods.
  • Manage FMLA absences in accordance with IRS directives for hours of service.
  • Monitor breaks in service.
  • Apply the rule of parity for rehire monitoring.
  • Identify employees who must receive a Form 1095-C.

To learn more about Integrity Data’s ACA Compliance Solution so you can take cover from ACA sledgehammer and tack hammer penalties, sign up now to join our next weekly webinar.

Helen Karakoudas headshotBy Helen Karakoudas | ACA Education Director