How Serious are Penalties under the ACA? Very.
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The Affordable Care Act (ACA) is the single most important piece of health care legislation in generations. One major reason for the ACA’s significant impact on the American regulatory landscape is because it empowers the Internal Revenue Service (IRS) to impose monetary penalties on employers that fail to abide by the ACA’s requirements.
In 2020, penalties imposed by the IRS under the ACA’s Employer Mandate include:
- $2,570 per full-time employee in excess of 30 for Applicable Large Employers (employers with 50 or more full-time employees and full-time equivalent employees, or “ALEs”) that fail to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents). This is known as the “a” penalty, because it arises under Internal Revenue Code Section 4980H(a).
- $3,860 for each full-time employee who qualifies for a Premium Tax Credit because of a failure to receive an offer of coverage or, even if such coverage is received, that offer health care coverage that fails to meet Minimum Value (MV) and/or is not Affordable. A Premium Tax Credit is essentially subsidized health care coverage obtained through the health care Exchanges, such a Covered California. This is known as the “b” penalty, because it arises under Internal Revenue Code Section 4980H(b). It’s also important to note that the “b” penalty for any month can never be greater than the “a” penalty for failing to offer MEC.
If you think these monetary penalties are steep, consider the other enforcement powers accorded the Secretary of Treasury. At least one court has noted that “there are no limitations on the [Treasury] Secretary’s authority to enforce the employer-mandate tax using criminal prosecutions, liens, or levies.” See Hotze v. Burwell (5th Cir. 2015) 784 F.3d 984, 988. Additionally, the IRS Internal Review Manual contemplates referrals to the IRS Criminal Investigation Division in the case of fraud or other crimes in ACA information returns reporting.
The bottom line is that employers should be proactive in theirACA compliance efforts. Here are two ways to get started now:
- The IRS issues ACA non-compliance penalties in the form of Letter 226J. If you’ve received a Letter 226J, download this guide on how best to respond.
- Conduct a free ACA Penalty Risk Assessment to get advanced analytics from leading experts in ACA compliance.
To learn more about ACA compliance in 2020, click here.
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