The IRS penalty amounts for non-compliance of the ACA’s Employer Mandate are again increasing in 2022.
Below is a rundown of the new penalty amounts and how the IRS will assess them.
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.
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.
Failure to File Penalty
Employers that do not file correct ACA information returns by the mandated deadlines, as required by IRC 6721 can receive a failure to file penalty. 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 failure to file a penalty:
If the ACA 1095-C forms aren’t filed by the late filing deadline of August 1, 2023, the IRS may assess the failure to file penalty per applicable individual returns not filed accurately and timely. An employer that doesn’t file returns with 300 full-time employees would see an IRS penalty of $84,000.
The penalty amount increases to $570 if an employer intentionally disregards their filing responsibilities. In this same example, an employer with 300 full-time employees that intentionally did not file returns would see an IRS penalty of $171,000 for the 2022 tax year.
Failure to Furnish Penalty
This applies to employers who fail to provide correct 1095-C payee statements to employees as required by IRC 6722. The penalty is also $280 per return and doubles for intentional disregard, just like the failure to file penalty.
The penalties above are all directly related to the ACA’s Employer Mandate.
Under the ACA’s Employer Mandate, ALEs, or employers with 50 or more full-time employees and full-time equivalent employees must:
- Offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees (and their dependents) whereby such coverage meets Minimum Value (MV); and
- Ensure that the coverage for the full-time employee is affordable based on one of the IRS-approved methods for calculating affordability.
Completing your ACA filings accurately and on time continues to be a top priority for employers this year. As the examples above demonstrate, failing to do so could result in significant penalty assessments from the IRS.
If you need assistance understanding your responsibilities under the ACA’s Employer Mandate and the associated penalties, download the Essential ACA Guide for Employers below:
If your organization has received IRS Letter 226J, download our white paper on Letter 226J to learn best practices for responding to the penalty notice.