ACA Penalties Are Increasing in 2022

KB13-026

The IRS penalty amounts for non-compliance of the ACA’s Employer Mandate are again increasing in 2022.

There are three types of ACA fines that an employer can incur for 2022:

Penalty for not filing any federally mandated ACA report

The basic penalty for failure to file or furnish a correct information return or payee statement is $280/form.
The IRS is currently issuing failure to file penalties via Letter 5005-A. For the 2022 tax year, the penalty amount is $280 per return, if filed after August 1, 2023. Here’s an example of how the IRS calculates the penalty:
If an organization in 2022 has 300 full-time employees, and one of these employees receives a PTC for 12 months, the cost of this penalty would be $742,500. The per-employee penalty applies across all 300 full-time employees, minus 30, even if only one employee receives a PTC.
The standard annual penalty cap is $3,339,000 per organization.
If the IRS determines that an employer’s failure to file is the result of intentional disregard, the penalty amount will increase from $280 to $570/ form without limitations.

Penalty for filing an ACA report documenting that an employer did not offer health insurance

Triggered when an employee who should have been offered coverage goes to an exchange and gets subsidized coverage
Called the “ACA sledgehammer penalty” or 4980H(a) Penalty
- For the 2022 tax year, the 4980H(a) penalty amount is $229.17 a month or $2,750 annualized, per employee. The IRS issues the 4980H(a) penalty when:
  • An employer doesn’t offer Minimum Essential Coverage (MEC) to at least 95% of its full-time employees (and their dependents) for any month during the tax year, and
  • At least one full-time employee receives a Premium Tax Credit (PTC) for purchasing coverage through the Marketplace.
- Here’s an example of how the IRS calculates the penalty:
  If an organization in 2022 has 300 full-time employees, and one of these employees receives a PTC for 12 months, the cost of this penalty would be $742,500. The per-employee penalty applies across all 300 full-time employees, minus 30, even if only one employee receives a PTC.

Penalty for filing an ACA report documenting that an employer offered health insurance that does not meet ACA standards

Triggered when an employee who should have been offered coverage goes to an exchange and gets subsidized coverage
Called the “ACA tack hammer penalty” or 4980H(b) Penalty
The 2022 4980H(b) penalty, or Employer Shared Responsibility Penalty for failure to offer coverage that meets affordability and Minimum Value (MV), is $343.33 a month or $4,120 annualized, per employee. This is the penalty amount if an employee is assessed if the 4980H(a) does not apply.
This penalty is assessed on a monthly basis 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 MV or both AND the employee received a PTC for that month.
For example, an employer with 10 full-time employees who each received a PTC for six months would see an IRS penalty of $20,600.
It’s important to note that an employer can only receive the (a) penalty or the (b) penalty, never both. The IRS is currently issuing 4980H penalties via Letter 226J for the 2019 tax year.

The following Blog links will give further details on the above:

Here are some considerations to help determine how part-time and seasonal employees equate to full-time and FTE employees:

Only employees working in the United States are counted.
Volunteer workers for government and tax-exempt entities, such as firefighters and emergency responders, are not considered full-time employees.
Teachers and other education employees are considered full-time employees even if they don’t work full-time year-round.
Seasonal employees who typically work six months or less are not considered full-time employees. This includes retail workers employed exclusively during holiday seasons.
Schools with adjunct faculty may credit 2 and 1/4 (2.25) hours of service per week for each hour of teaching or classroom time.
Hours worked by students in federal or state-sponsored work-study programs will not be counted in determining if they are full-time employees

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Last Review: 5/28/2022 – Revision: 3.2

Applies To: ACA Reporting Requirements

Categories: Eligibility Reporting, ACA Reporting Requirements

Keywords: Penalty

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