The Current Status of the ACA Employer Mandate: 2020
Updated December 10, 2020
There has been much to do around the Affordable Care Act: from passing the law under President Obama, to trying to repeal the law under President Trump. This has left many people confused as to where we are at now – what is the current status of the ACA?
The short answer is: The ACA remained in full force for 2019, especially as it relates to US employers, and for now, remains in effect for 2020 and beyond. Even the individual mandate (requiring individuals to have ACA-compliant health coverage or else pay a penalty) remained in force for 2019 – a surprise to many.
The Tax Cuts and Jobs Act (aka the new tax law) touted repealing the health law. However:
It made no changes to the ACA employer mandate.
It did repeal the individual mandate but only in the sense that the penalties are reduced to zero and this repeal only goes into effect in 2019!
ACA Employer Mandate 101 – including some 2020 changes
The ACA employer mandate remained in place for 2019 and all the compliance rules still apply. Nearing year-end and 2020 tax reporting, this would be a good time to run through the specifics of the employer mandate: who has to comply, how and when to comply, and what the repercussions are if you don’t comply.
Who must comply?
The ACA Employer Mandate applies to all Applicable Large Employers or ALEs. The act defines ALEs as US employers having 50 or more full-time employees (or equivalents) in the previous tax year. Companies that are affiliates or are commonly controlled are treated as one employer for the purpose of determining ALE status. That means that they must combine their numbers for the full-time employee total. Learn more by watching our video: Does Your Business have to comply with the ACA?
What do you need to do to comply and when do you need to do it?
Employers must comply with 2 different rules:
The ACA Coverage Mandate
Under the ACA, employers must periodically (usually monthly) offer a certain quality health insurance to full-time employees or risk paying a penalty. This gets complicated – read more about the specifics here.
Note that the affordability threshold percentage has changed to 9.78% for the 2020 filing year.
The IRS Reporting Requirements
At year end, the ACA requires employers to prove that they have made the right offer to the right employee at the right time. How?
By providing each eligible full-time employee a form 1095-C by February 1, 2021 March 2, 2021 (deadline extended).
By providing the IRS with copies of these 1095-Cs along with a 1094-C.
Paper filing needs to be done by March 1, 2021.
Electronic filing (required for employers with more than 250 1095-Cs) must happen by March 31, 2021.
Also, starting in filing year 2018, the IRS will not process individual tax returns unless taxpayers indicate whether they have health coverage.
Are there penalties associated with non-compliance?
Yes! Employers who fail to comply, or fail to comply on time, or fail to properly document their compliance, will face stiff financial penalties. And they have gone up for 2020: the sledgehammer penalty has been increased to $2,570 annually per full-time employee (minus the first 30 FTEs). The tack-hammer penalty has been increased to $3,860 annually per full-time employee who receives a tax credit!
Is the IRS really going to enforce these penalties?
Yes!!! The IRS has clearly indicated that it won’t waive ACA employer mandate penalties. A significant number of employers who have failed to file necessary forms with the IRS since 2015 have received letter 226J aka “a penalty letter” from the IRS – here’s some advice on what to do if you get one of those. And remember to reply within 30 days! Once you have sent your thoughtful response to the 226J letter, the IRS will respond with a 227 letter. There is no doubt the penalties will continue to come.
As always, Integrity Data’s ACA reporting service is here to assist you with this year’s ACA tracking and filing.
Plan on ACA reporting for 2021 as well
For now, expect reporting to continue into 2021 and possibly beyond. Make sure you have the systems and processes in place to do so accurately and efficiently – Integrity Data’s ACA solution can help.
Be aware of two important ACA changes were made that affect employers:
Cadillac tax has been delayed for 2 more years until 2022.
This unpopular tax on high cost health coverage (40% tax on the value of coverage over specified thresholds) had already been pushed out – and now it is being pushed out again. Take a breather but start thinking about cost containment strategies to avoid this tax when it does go into effect.
Health Insurer tax is back for 2020.
This health insurance “provider fee” is tax levied on the health insurers based on the premiums they collect – this cost would most likely be passed on to consumers. It was suspended for 2017, came back for 2018, suspended for 2019, and back again for 2020. But latest news says repeal will go into effect again in 2021 – good news for employers that purchase insurance coverage since it will most likely mitigate insurance premium increases for 2021 renewals.
There may be at least a softening of the ACA employer mandate – for example, making the reporting easier for employers by simplifying it. This won’t happen quickly but it is definitely worth keeping an eye on.