Republicans in Congress are abandoning their efforts to repeal the 12-year-old Affordable Care Act. With this in mind, organizations should revisit their ACA Employer Mandate responsibilities. Plus, the recently passed Inflation Reduction Act includes over $80 billion for increased tax enforcement, further driving the need for employers to prepare for increased scrutiny.
The ACA looks “safer than ever”
According to NBC News, “the 2022 election [is] the first in more than a decade that won’t be fought over whether to protect or undo” the ACA. As a result of Republicans’ reluctance to challenge the ACA, it looks to be safer than ever from repeal, and more like what Axios calls “a permanent fixture of the health system.” This lack of appetite for repealing the ACA will remain the case even if the GOP gains control of Congress in 2022, with scant mention of healthcare policy from candidates.
With the ACA on solid footing, Applicable Large Employers (those with 50 or more full-time employees and full-time equivalent employees) should take their compliance responsibilities more seriously. That’s especially true now that the government’s focus has shifted from “repeal and replace” to enforcement.
A much more recently passed law—the Inflation Reduction Act, signed by President Biden in August 2022, and marking a historic occasion for the future of U.S. healthcare and tax enforcement—increases the urgency for employers. For example, it includes the extension to the American Rescue Plan’s enhanced Premium Tax Credits (PTCs).
PTCs enable Americans to maintain ACA subsidies obtained through state and federal health exchanges for the next three years; they’re also the trigger for the IRS to identify organizations that fail to comply with the ACA’s Employer Mandate.
Here’s how it works: an employee receives a PTC from a state or federal health exchange, and the tax information is relayed to the IRS. The information is then cross-referenced with an employee’s 1095-C. After examining the details, the IRS can determine if an employer extended affordable, sufficient coverage to its employees. If not, the agency can subsequently assess a penalty via Letter 226J.
Additional, and higher, penalties to come
With PTCs being more accessible through December 31, 2025, we can anticipate more penalties. As a result, employers should verify their ACA filings prior to reporting the information to both the IRS and any state governments.
One more reason for employers to pay closer attention without delay: penalty amounts are increasing. For the 2023 tax year, the 4980H(a) penalty is $240 a month or an annualized $2,880, per employee. This penalty is issued when an employer fails to offer Minimum Essential Coverage (MEC) to at least 95% of its full-time employees for any month during the year and has at least one employee obtain a PTC from a state or federal ACA health exchange.
More enforcement on the way
Other provisions included in the Inflation Reduction Act include a 15% corporate tax hike, plus $80 billion for IRS tax enforcement, including ACA non-compliance. This additional funding will help the IRS hire more staff to prevent future backlogs. Currently, the agency plans to hire roughly 87,000 new agents, which will help it:
- Conduct more tax audits
- Hire more tax examiners
- Update its infrastructure for processing tax correspondence
So, what’s an employer to do, now that the ACA is here to stay and the Inflation Reduction Act is ensuring greater IRS scrutiny? Outsource your ACA compliance responsibilities to Trusaic. Our full-service ACA Complete solution establishes an IRS audit defense, tracks offers of coverage, creates an impenetrable compliance process, and protects you in the event of an IRS inquiry. We’ve helped thousands of organizations prevent over $1 billion in ACA penalties.
If you’re not ready to outsource your ACA compliance efforts, we invite you to download The Employer’s Guide to Coding Form 1095-C below. This valuable resource will show you exactly how to code your ACA forms ahead of the upcoming IRS reporting season.
To gain invaluable insights on penalty amounts, affordability percentages, filing deadlines, expert tips for responding to penalty notices, and proven strategies for minimizing IRS penalty risk, download the ACA 101 Toolkit.