Content updated on March 12, 2019
The penalty-assessment phase of the Affordable Care Act’s employer mandate has been in place as of January 1, 2015 and enforcement started towards the end of 2017: high time for US companies to pay attention. Managing their penalty risk is crucial because consequences for not meeting the coverage mandate of the Affordable Care Act is real. And those IRS penalties rise from year to year.
- For calendar year 2019, the per-employee penalty for not offering any coverage to eligible employees went from $2,084 in 2015 to $2,500. You’ll hear this assessment referred to as the sledgehammer penalty.
- For calendar year 2019, 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 $3,126 in 2015 to $3,750. This assessment is also known as the tack hammer penalty.
A company will be hit with either penalty in 2020 if, during 2019, 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
- Food processing
The sledgehammer: ACA penalty for offering no coverage
For 2019, the penalty for each month that an employer does not offer coverage to an eligible employee is $2,500, divided by 12, times the total number of full-time employees or full-time equivalents minus 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 2019 would be $208.33 a month, right?
Not necessarily, when you remember that ACA penalties cannot be deducted as business expenses.
So at a 21% tax rate for a profitable company, the sledgehammer penalty would be $252.08 a month times the total number of full-time employees or full-time equivalents minus 30.
The tack hammer penalty: ACA penalty for offering non-compliant coverage
For 2019, the penalty for each month that an employer does not offer compliant coverage is $3,750, 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:
$3,750, divided by 12, times the total number of full-time employees or full-time equivalents minus 30 (the same calculation for the sledgehammer penalty).
Before taxes, the multiplier for the ACA tack hammer penalty in 2019 would be $312.50 a month. At a 21% tax rate, this penalty would be $378.13 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.
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, watch our on-demand webinar.