ACA Employer Mandate Penalties Increasing in 2021
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Earlier this year, the IRS issued the 2021 employer mandate penalties under IRC 4980H(a) and 4980H(b). It should come as no surprise that the penalty amounts have increased and thus ACA Compliance should continue to be a priority for employers.
For the 2021 tax year, the annual ACA Employer Mandate penalties under 4980H(a) and 4980H(b) will be $2,700 and $4,060, respectively. To announce the increased employer mandate penalties, the IRS updated its “Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act” at Question 55. Employers should note that these penalty amounts are annualized and are reflective of an employee that is either missing an offer of Minimum Essential Coverage or received an offer of coverage that was unaffordable or failed to meet Minimum Value. Employers should find comfort in the fact that organizations cannot be hit with both the A and B penalties. The IRS instead proposes the penalty that is the greater of the two.
When the Employer Shared Responsibility Provision (ESRP) penalties were first established in 2014, the penalties started at $2,000 for 4980H(a) annually and $3,000 for 4980H(b) annually on an employee by employee basis. Every year since then, the amount has increased due to indexing of the premium adjustment percentage. You can read more about the premium adjustment percentage in this notice.
Organizations should also note that for the 2021 tax year, the affordability component for satisfying the 4980H(b) component of the ACA’s Employer Mandate has increased from 2020 and is set to 9.83% of the employee’s income. For employers who make use of the Federal Poverty Line affordability safe harbor, this would translate to limiting an employee’s contribution to the monthly health insurance premium to $104.53 a month or $1,254.31 annualized. Since the percentage of the FPL will be increasing in 2021, the maximum monthly contribution an employee can make each month in order for coverage to be affordable will be greater than it was in 2020.
It’s imperative that, when determining ACA affordability, employers get it right, as the costs associated with ACA non-compliance will continue to rise. And with the number of PTC allocations potentially rising in 2021, special enrollment periods encouraging Americans to sign up for coverage, and Biden coming into office, employers need to be digilant in their ACA compliance as the health care law continues to receive support.
As a reminder to employers, the ACA’s Employer Mandate requires Applicable Large Employers (ALEs), organizations with 50 or more full-time employees and full-time-equivalent employees, are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is affordable for the employee, or be subject to Internal Revenue Code (IRC) Section 4980H penalties.
The IRS is currently issuing Letter 226J penalty notices for the 2018 tax year. With penalties increasing and the tax agency becoming more focused in their efforts to identify ACA non-compliance, employers should consider outsourcing. Contact us to learn about how ACA Complete can help employers avoid ACA-related IRS penalty risks and achieve full ACA compliance.
To learn more about ACA compliance in 2020, click here.
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