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The IRS has been busy issuing penalties to employers that failed to comply with the ACA’s Employer Mandate for the last several tax years. Employers should note that the penalties for failing to comply for the 2020 tax year have again increased.
For the 2020 tax year, the annual penalty amounts for ACA penalties are anticipated to be $2,570 for the 4980H(a) penalty and $3,860 for the 4980H(b) penalty.
When the ESRP penalties were first established in 2014,the penalties started at $2,000 for 4980H(a) annually and $3,000 for 4980H(b) annually. Every year since then, the amount has increased due to indexing of the premium adjustment percentage. The method for calculating this can be attributed to the premium adjustment percentage. You can read more about the premium adjustment percentage in this notice.
Organizations should also note that for the 2020 tax year, the affordability component for satisfying the 4980H(b) component of the ACA’s Employer Mandate is set to 9.78% of the Federal Poverty Level (FPL). That comes out, for an individual, based on the mainland FPL to $101.79 a month or $1,221.48 annualized. The FPL has actually decreased from 2019, which means the maximum monthly contribution an employee makes is lower and thus the employer is responsible for covering the remainder of the premium.
Employers, it’s imperative that when determining ACA affordability, you get it right as the costs associated with ACA non-compliance are going to continue to increase.
As a reminder to employers in conjunction with the Employer Shared Responsibility Payment (ESRP), the ACA’s Employer Mandate, 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 IRC Section 4980H penalties.
The IRS is currently issuing ACA non-compliance penalties in Letter 226J for the 2017 tax year and is anticipated to continue issuing said notices through May this year, after which the agency will be moving onto the 2018 tax year. If you’ve received a Letter 226J for the 2017 tax year, download this guide on how best to respond.
If your organization is unsure of where it stands in regards to ACA compliance, contact us to have a cost-free ACA Penalty Risk Assessment performed.
For more information on Letter 226J, including best practices for responding to the penalty notice, download our white paper.